Sales and Operation Planning (S&OP) is probably the least understood aspect in Supply Chain Management. It provides the key communication links for top management to coordinate the various planning activities in a business. The main objective is to develop an overall business plan, which integrates various functional planning efforts, and if S&OP is not integrated and working to a cross-functional plan, the business can fail. Here are the 5 main ways S&OP can revolutionize your company.

S&OP Eliminates The Battle Over Ownership Of Finished Goods Inventory

S&OP is top management’s handle on the business. It provides important visibility into the critical interactions between Sales, Marketing, Production and Finance. Under S&OP, manufacturing’s job is to hit the schedule, eliminating the battle over “ownership” of finished goods inventory. If actual inventory levels do not agree with planned inventory levels, it’s not a manufacturing problem (as long as they hit the schedule). It’s either a Sales and Marketing problem (the products didn’t sell according to plan) or a problem of product mix management in the demand management activity (the wrong individual items were made).

S&OP Means Better Integration Between Different Functions

Better integration between functional areas in a business is one of the major payoffs of S&OP. Once collaboration between the top levels of the functional areas is developed, it can be translated into detailed plans that are in line with top level agreements. This results in a set of common goals, improved communication and transparent systems.

S&OP Means No More Panicked Rushing

Without a Sales and Operation plan, the expectation is that somehow the job will get done, and in fact, it does get done, but at a price. That price is organizational slack:  excess inventory, poor customer service, excess capacity, long lead times, panicked operations, and poor response to new opportunities. Detailed decisions will be made by clerical level personnel with no guiding policy except “get it out as best we can”. The annual budget cycle won’t be tied in with the detailed plans and will be inconsistent and out of date before it’s one month old. An effective S&OP process removes all of these problems.

With S&OP The Whole Company Works To One Set of Numbers

One of the benefits of S&OP is being able to run the business to one set of numbers, whereby Sales and Marketing, Production and Finance all agree on anticipated sales and the company’s ability meet those sales. This inevitability requires collaboration. Top management should lead the cultural change to make that happen as this can only come from the top. An unfortunate but frequent approach is to invest significant time in setting up S&OP but then stepping back, allowing the company to be run by separated performance measurement systems or budgets.

S&OP Allows You To Shape Demand

If demand planners are aware of likely sales, production capacity and inventory, they can figure out to increase profit margins for particular products. If they know, for example, that a particular SKU cannot be produced in sufficient quantity to meet customer demand for the next month, they can then present this information to Sales and Marketing who can promote other products. This is just one example of the powerful ability to shape demand, which can only come after demand planners collaborate with Production and Sales and Marketing.

To Achieve These 5 Benefits, Management Must Do The Following

Commit to The S&OP Process

Top Managements’ first obligation is to commit to the S&OP Process. This means a major change in the organization. The change involves establishing the framework for S&OP, getting the right team together, participating in the process and so on. The change may also imply modifications of performance measurements and reward structures to align them with the plan. As part of the commitment to the planning process, top management must force the resolution of trade-offs between functions prior to approving plans. S&OP provides a transparent basis for resolving these conflicts.

Incorporate S&OP Into Your Strategic Planning

Senior management must be directly involved in the S&OP process, which should be directly related to strategic planning. They must ensure insight gained from the S&OP process is used to drive longer-term planning, and ensure operational plans contribute to strategic goals.

Understand S&OP Is Planning, Not Scheduling

View the S&OP process as a planning process instead of scheduling process. This will seem obvious to many, but in companies without an S&OP process, you can be forgiven for viewing S&OP as simply a means to produce a certain volume by certain dates, when it is so much more. This way, the company goes beyond simply producing a defined amount, and starts thinking strategically to maximize profit. Remember that the operation plan is not a forecast, but a managerial statement of desired production output.

All Functions Must Agree On The Numbers

The operations plan should be a part of S&OP and it should be in complete agreement with the other functional plans (Sales, budget and so on) that make up the business plan. Senior management must foster this integration and collaboration. [Editor’s note: See this guide on developing the Executive S&OP Meeting to reach one number forecast]

Continuously Review The Plan

Reviews of performance against sales and operations plans are needed to prompt re-planning when necessary. Overall, the company must consider continuous improvement to be an important ingredient in further improving the S&OP process. A successful supply chain focused company views S&OP as a journey, not a destination!

In most companies, Enterprise Resource Planning (ERP) provides the informational backbone needed to manage day-to-day tasks and processes. The system connects programs from business functions (Finance, Marketing etc.) into one program that runs off one centralized database. In short, it connects different areas of a business, allowing for sharing of information, faster processes and crucially, centralized decision making. The result? Cost savings, improved forecasting in supply chain and superior strategic decision making.

ERP allows for integrated planning across the functional areas in an organization, allowing us to better meet demand with supply

ERP Is Designed To Support Modern Business Management

To understand what ERP is and does requires an understanding of how business management has evolved. Managing a large company can be done in one of two ways. One approach is to essentially decentralize the company around autonomous units. This way, each entity operates as a satellite, working independently from a sales and manufacturing standpoint and sharing products developed by the research centers. These units are not coordinated operationally or strategically. This is largely the way the companies operated prior to the standardizing initiatives that began the 1990s. The other approach to managing a large company is based on integration and coordination so that different parts of the business act as one whole, regardless of geographic location. The benefits of this are significant, but achieving it relies on successful implementation of ERP and effective change management.

Enterprise Resource Planning Software

ERP systems vary according to the vendor but typically they are intended to support functions in Finance, Manufacturing, Logistics, Sales and Marketing, and Human Resources. As demand planners, forecasters and S&OP professionals, we are interested in ERP because it allows for integrated planning across the functional areas in an organization, allowing us to better meet demand with supply. By working to the same information and having a system that allows for effective collaboration on a global scale, we can serve customer needs faster and more cost effectively. If implemented properly, ERP can:

• Reduce inventory
• Standardize manufacturing processes
• Improve visibility in order flow
• Integrate financial information and customer information
• Speed up the whole order fulfillment process

I see the evolution of ERP systems in much the same way as car models evolve. Automobile manufacturers introduce new models every year or two, making minor changes and refinements. Major changes are much less frequent, perhaps every 5 to 8 years and the same is true of ERP software. ERP vendors are constantly looking for ways to improve the functionality of their new software, so new features are often added. Many of these minor changes are designed to improve the usability of the software through a better user interface, or added features that correspond to the ‘hot’ idea of the time. Major software revisions that involve changes to the structure of the database, changes to the network, or computer hardware technologies, are made only every 3 to 5 years

Process reengineering is more difficult to achieve than the implementation of ERP computer hardware and software

Implementing ERP On A Global Scale

I was part of a multinational company with 35,000 staff and several manufacturing plants across different countries. An ERP system was implemented to manage the coordination of the manufacturing, sales and research facilities around the globe as new products were developed and introduced. Developing and deploying a new product is a complex process, requiring marketing plans and manufacturing coordination, and an ERP system facilitates this, coordinating different areas of the business to make the process as smooth as possible.

ERP Software Is Only The Start

The decision to move to an ERP system is only one part of true enterprise integration. Reengineering processes to fully utilize the integrated information support is essential. In practice, process reengineering is more difficult to achieve than the implementation of ERP computer hardware and software. Moreover, if processes are not changed to support the software, the ERP system will create additional work for people rather than less.

Global Policies For Implementing ERP Systems Are Crucial For Success

I highly recommend adopting a set of global polices that are documented and included in users’ handbooks. Create a common set of measures to guide change management across each function and location. This should contain a comprehensive set of policy activities, measures, and goals that define how manufacturing, planning and control system activities are evaluated.

Deployment of this common set of policies to all manufacturing units provides a shared vision of manufacturing excellence around the world and allows you to see which areas are doing what is required, and which need improvement. Further, processes as well as measurements and goals are also commonly based on the those defined in the policies.

Implementing new technology is straightforward compared to getting people to adapt to new roles

Golden Rules For ERP Implementation

• Ensure top management visibly supports the project at Kickoff, status meetings etc.
• Hold firm on project scope and management expectations.
• Assign ownership of deliverables to business leaders.
• Effective change management and user training is imperative.
• Have a solid, integrated project plan down to the people/task level so everyone understands their responsibilities.
• Work to critical path delivery dates and make timely decisions.
• Develop management performance objectives that are tied to savings and deliverables from the start.
• Avoid interfaces wherever possible.
• Always challenge consultants to do better than the timeline and set high expectations for the entire project team.
• Ensure knowledge transfer from consultants to internal employees.
• Document procedures and ensure they are part of end-user employee tasks.
• Whenever possible, change process before technology.
• Do not underestimate the “people change” side of the equation. Implementing new technology is straightforward compared to getting people to adapt to new roles, responsibilities and measurement systems.

How Much Can You Improve Demand Planning, Forecasting and S&OP Through ERP?

The value of ERP to a company depends to a great extent on the potential savings that can be derived from the ability to centralize information and decision making, and the synergies obtained from quick access to information from multiple functions in the company. Everything thing you do throughout this process must contribute to these fundamental ideas.

When it comes to improvements in operational performance, results vary greatly since much depends on how well the company handles the implementation process. But benefits should be gained from the elimination of redundant process, increased accuracy in information, superior processes and improved speed in responding to customers’ requirements.