Sales and operations planning (S&OP): DOs and DONTs

S&OP is a must for having a stable growing business. But we often see that common mistakes are made while attempting to implement S&OP (both automatization tools like SAP IBP for S&OP and the business process itself).

Today we’d like to share our experience with you to help you avoid mistakes.

According to Gartner, there are 5 S&OP maturity stages. Your company is doing this way just like a child is learning how to eat, walk, speak, and finally becomes an independent grown-up. If you’re a business owner you might be dreaming of the moment that your “child” is grown-up and you don’t have to perform daily micro-management solving unexpectedly coming issues.

Here are these 5 stages in our vision:

1. Reactive. A company reacts to external signals with a delay. The focus is on operational processes and short-term sales. Each department works as a separate unit. 
2. Forecasting. Simple IT tools used to build plans. The demand plan and production plan are built in advance and discussed between key departments e.g. production and sales.
3. Integrated processes. Advanced IT tools allow integrated planning among sales, marketing, procurement, and production departments. Quick replanning becomes possible. The focus is on both tactical and strategic horizons.
4. Collaboration. Business partners can access planning data, IT tools support data exchange, and collaborative planning scenarios. Scenario modeling with P&L evaluation, and finance department involvement.
5. Orchestration. Integrated planning for all the supply chain elements, including business partners, and real-time data exchange. High involvement of TOP management and Finance Director in strategic decision evaluation. Supply chain digital twins and advanced IT tools. 

On emerging markets, companies are mainly on reactive and forecasting stages.

Stable markets and global international companies are mostly on stages 3-5, where 5 is reached only by real domain Champions.

Ok, Google, so what’s the difficulty? What prevents companies from implementing perfect S&OP and being more effective today?

• Poor communication among departments and not synchronized KPIs.

One of our case studies: a big FMCG company is paying penalty costs for non-delivery to key Retail chain due to the marketing department’s decision to do a sell-out with a big amount (profit!) for a phase-out product without discussing it with the planning department, which had actual information about available-to-promise stock quantity.

• No tool providing one single version of truth and clear responsibility of concrete employee for the planning results.

“I don’t have a clue what happens in their plans, I just get monthly resulting plan and most of the plans are not fulfilled and I hardly can report the real reason to the Company owner at the end of the year” – says the head of sales department when we perform planning business process audit for a FMCG company. When data is on local Excel files, it is nearly impossible to answer the question: Is this version of the plan the correct one? Who made this change to the forecast? And so on.

• Low attention to data quality.

Advanced mathematical engines with powerful AI, decision trees, genetic and MILP optimization algorithms are inutile if you feed in incorrect master data, outdated on-hand/in-transit stock, wrong or too short sales history. The rule “trash in – trash out” applies, no matter how much you pay to an AI expert and for a software solution subscription. If you really want to get fast ROI from S&OP implementation, get the better minds of your company focused on data quality aims.

• Not readiness to face business process change and low involvement in S&OP meetings. 

One of the biggest electrical device producers implemented the S&OP process “on the sheet” but in reality, S&OP meetings were often skipped by key decision-makers because they were not used to it. The issue was solved by implementing KPIs measuring % of involvement in S&OP meetings. In our practice, we see that successful S&OP implementation requires a Champion from the Business, Finance Director, or General Manager the best.

• Poor preparation for S&OP meetings. 

We recommend planning S&OP meeting 1 year in advance and assigning an S&OP coordinator responsible for careful preparation. Each meeting should have a list of needed reports, calculations and inputs which are needed to be prepared to have productive valuable output.

This article was written by Dr. Natalia Morozova, SCM Expert & Architect and TeamIdea Business Development Director. If you need assistance or consultation support for improving your business processes, please feel free to ask any questions via email – morozova@teamideagroup.com