More companies are undergoing Sales and Operations Planning (S&OP) transformations today due to increased understanding of their value, as well as increased capability of new forecasting technologies such as machine learning and demand sensing.
Many companies are implementing these technologies as S&OP spreads from traditional demand forecasting heavy industries like CPG. However, companies that focus on the technology at the expense of implementing a robust overall process still fail to realize the value they seek.
The processes contained within S&OP contain some of the most important transformation topics that companies are currently considering. Supply and demand planning are proven concepts, but many organizations are recognizing that an integrated, mature S&OP process is critical to unlocking value from both, driving efficiency and nimbleness across the supply chain.
Moving Toward Maturity
All organizations with any supply chain management capability are doing some level of planning. Companies implementing S&OP are striving to move from a fractured, immature supply chain planning model to a mature, integrated model. A fractured planning model may have planners working in Excel, narrowly focused on specific districts or regions. Different planners may be forecasting in near-term vs. long-term horizons without coordination. Supply decisions are not completely made with full consideration of the demand forecast. Most importantly, a fractured model does not allow supply or demand planning to iterate in a manner that aligns supply and demand most effectively, with consideration of long-term profitability.
A company with mature S&OP capabilities has supply and demand planners working across the entire scope of operations and product lines. Planners are sharing the same view of supply and demand and iterating plans in order to maximize margin, service levels and overall profitability.
Technology and Process Are Critical for S&OP Maturity
Technology is a critical piece to building a mature S&OP capability. It provides required visibility to necessary data, improves analytical models that planners utilize, and aids in collaboration across the planners from multiple functional areas. It can automate routine tasks, freeing up valuable planner time, as well as efficiently deploy the plan for execution.
While technology is critical, process and ownership across the organization are also necessary for enabling a mature S&OP capability. Process alignment is necessary to provide integrated and accepted data about the supply chain, including sales forecasts and supply constraints. Another critical process challenge is aligning timelines and ownership between the near term and the strategic term. Additionally, process and ownership challenge can occur when an unplanned event (e.g., supply shortage) requires alignment on an integrated plan that does not meet all customer needs.
Because process alignment and ownership are critical to the success of an S&OP implementation, companies are better served to lead with a proof of concept pilot to align processes across the organization. By proving out the process in a pilot, the organization can generate buy-in while saving time and money during the technology implementation. Additionally, process definition needs to be done with consideration of the future technology in order to minimize costly customization.
Companies striving for S&OP maturity are, in general, recognizing that they need to pair technology with a robust process. Software providers are bringing new tools to the table that enable better demand planning capabilities, such as demand sensing, and firms will need to continue to balance process and technology in order to realize that value.
Andy Prinz is Associate Partner, Supply Chain Management, and Jack Johnson is Senior Consultant, Supply Chain Management, with InfoSys Consulting.
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