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While S&OP processes are common, organizations are at different levels of maturity and drive different resulting behaviors. In our research, we find that no two S&OP processes are alike; yet, when the processes are mature, the benefits are compelling. A mature process is balanced cross-functionally between commercial and operating teams, and is focused on building the best go-to-market strategy in combination with the best operating plan to maximize business opportunity and mitigate risk.
The definition of S&OP has changed over time and today we see leaders with mature S&OP processes following this nine-step process:
• Collect sales and market input
• Develop a demand plan
• Demand consensus refinement
• Shape demand based on what-if analysis on demand for supply
• Develop a constrained plan by supply
• Develop what-if analysis by supply to determine trade-offs on the measurements and identify demand-shaping opportunities
• Review and gain agreement through a consensus meeting
• Publish the constrained plan
• Measure and communicate the plan
Leaders value S&OP as an important, strategic process. In fact they consider it their integrated business planning process.
As mentioned above, the benefits can be significant. Based on qualitative interviews and web-based surveys with over 150 companies, we find that companies with mature processes have a two to five percent improvement in revenue, a 20 percent increase in commercialization reliability (new products launched on time at the expected margin), and a 15 percent to 20 percent reduction in inventory. We also find that in companies with mature S&OP processes that these results can be sustained to drive year-over-year performance.
However, most organizations have developed strong functional groups (silos) focused on excellence within the function. This becomes a barrier as organizations try to seize market opportunities. Redesigning your S&OP process is a means to knock down walls between functions to align the organization to seize market opportunities. We identify eight common characteristics in companies that have overcome these barriers:
1. Executive sponsorship
2. Clarity of the S&OP goals
3. Shared metrics
4. Balance between sales and operations
5. A call to action, or compelling event to drive the process
6. Focus on continuous improvement
7. Outward focus on demand management
8. Clarity of purpose and clear role definition of team members
As we look ahead, we see companies striving to break down these barriers, focus on performance management and profitability, with the most mature companies achieving the following:
• See S&OP as a continuous process instead of a meeting
• Have a continuous improvement initiative that focuses on S&OP
• Have clear governance between new product launch and S&OP processes
• Have clear alignment between finance and the S&OP team
• Redefine supply and demand networks quarterly (or bi-annually) to improve results
• Analyze cost-to-serve for customers and product profitability and includes these plans in the S&OP process.
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