Some years ago I took up a new role as Director of Demand Planning at a global sporting goods company. I was charged with overhauling its planning function. This is challenging at the best of times, but this was complicated by the company’s unique growth-by-acquisition strategy. The following is a case study of the transformation project I led, covering the problems I inherited, the step-by-step improvements I implemented, and how it was designed to facilitate decisions that directly supported organizational priorities.

Company Background

This Indiana-based company imports and distributes multiple widely-recognized sporting goods and athletics brands globally. They do this through major retailers, specialty dealers, key online retailers, traditional department stores and eCommerce. The company operates primarily in North America with over fifty corporate accounts that includes companies like Walmart, and others. They also sell directly to Amazon and on Amazon marketplace. They launched their own internal website and fulfilment for direct-to-consumer sales last year and it already accounts for over 10% of their business.

Their business model was simple: grow through acquisition. During my time there, they owned forty-seven brands. While there was moderate organic growth within some of their brands, they relied on consolidation of the market to increase market share and top line growth. To do this, cash was King and the availability of capital was a key priority for the organization.

Their Existing Planning Process

Being their focus was on adding to their portfolio of brands, they had inherited a mishmash of various ERP systems and planning processes. For the most part their forecasting process was still somewhat manual, using traditional time-series methods like moving averages and seasonal random walk. They got some inputs from sales reps but their input was typically either about products that customers want in the current month or products that they thought were needed in inventory.

There were often competing objectives across inventory, purchasing, logistics, and manufacturing with attempts to get products at the lowest cost while constant pressures to reduce inventories. These problems were compounded with adding new brands and product mangers attempting to provide value to corporate accounts with unique offerings which added cost and caused SKU proliferation.

The Challenge: A Changing Marketplace

Over the past few years, they have seen a changing landscape in the way consumers are making purchases. This impacts how they needed to go to market. Direct-to-consumer was less than 10% just a few years ago. It now accounts for over 25% of their business. This includes all eCommerce business including Amazon, other retail websites, and the company’s own direct selling. It is estimated to grow by double digits over the next few years.

A major challenge they were facing is that their supply chain was designed around what retail stores were purchasing, i.e. the were planning for bulk orders with 2 week lead times. That is fine for retails order, but not for the increasing amount of direct-to-consumer orders that required single items to be delivered in 48 hours. This necessitated having inventory on hand instead of making to order, which required high quality forecasts.

To add to this challenge there is the issue of retail stores making up less of their total sales volume because now they are increasingly dealing directly with consumers. Given these shifts, their forecasts had gotten worse, as evidenced by a higher error percentage over the past couple of years.

Some challenges we faced were:

• Direct to-consumers expect a 36-hour delivery window. Prior retail customers traditionally allowed up to 2 weeks or more.
• Average lead-times to produce or source items has grown from 46 days on average to over 118 days as more products are now coming from China.
• Forecast accuracy at a weighted mean absolute percentage error (lag 1 WMAPE) with has gone from 68% to 85% due to SKU proliferation and complexity of new channels.
• Previous On Time and in Full (OTIF) was at 89%. It is now 77% due to the added volume of direct-to-consumers.
• Inventory turns have decreased from 4.2 to 3.7 as inventory rises due to SKU proliferation, longer lead-times, and poorer forecast quality.

The Solution: Integrated Planning

The company kicked-off a comprehensive digital transformation project whose goal was to standardize different planning processes to create competitive advantages, while Improving Total Cost and Enabling Inventory Optimization by integrating strategy, forecasts, planning, and perpetual inventory. Over an 18-month time horizon we would totally revamp the planning process, implement new platforms and technology across the entire organization, and introduce SKU rationalization, segmentation, and add predictive analytics—all of which was aligned to the organization’s growth-by-acquisition strategy.

Our initial focus was data and within first few months we went live with a new data warehouse and central data storage repository (DSR), and new business intelligence software (BI). These critical first steps helped the company find hidden issues in their data structure and in the information that was being used to make decisions. It provided visibility into data and was important for insuring they had the right data for planning and to create insights. It also allowed us to look at new attributes using web crawlers that extracted consumer information and other information about the new eCommerce channel that could be used in modeling.

Part of this new visibility included the development of new balanced scorecards and performance metrics to understand the trade-offs of decisions and how they impacted strategy.  We made the KPIs more relevant to what the business wanted to achieve: number of active items, minimum order quantities, and gross margin as return on investment (GMROI). Understanding more of the drivers and being able to see the interdependence of metrics, we could now decide at what cost we were willing to service our customers or not.

We knew the importance of cash to the business model and that the availability of capital was a key objective of the organization. To this point, we determined that it made strategic sense to not aim for higher levels of service at the cost of higher inventories or additional, specialized SKU’s. Further consideration was given regarding the tradeoff inherent with larger orders that have longer lead times, i.e. they save upfront costs but risk tying up cash in inventory if it is not sold quickly.

After the initial focus on data, visibility, and decision making, attention was given to people, process, and technology. By the end of the first full year of the project, we defined and created specialized roles and hired new planners and a data architect to augment the current team, and went live with an advanced planning system (APS). We used clustering methods to help segregate items and customers which allowed us not only to focus planning resources on the most important items, but to do SKU rationalization to eliminate poor performing items. We now had a planner focused on eCommerce and began forecasting weekly using a combination of traditional methods and new models such as decision trees using external data. One example of external data is social media comments about new products which we used to predict through sell through post-launch.

Results

The results came with much coordination, collaboration, challenges, and success. Due to these efforts, this company by the end of the second year saw a 10% improvement in fill rates, a 26% improvement in forecast accuracy, a 19% reduction in some supply chain costs, and an 11% reduction in excess inventory. Add to this real time visibility into data and new insights, they had a much better way to manage their business. Significantly, we saw a return on investment of the entire transformation project in less than 14 months. The company continues to be a leader in their industry and is taking full advantage of the changing consumer landscape.

This article originally appeared in the Winter 2022 issue of the Journal of Business Forecasting. To receive a print copy of the Journal every quarter, become an IBF member or subscribe. 

After 8 years implementing, coaching businesses and designing Integrated Business Planning (IBP) processes I have accumulated a long list of common challenges that often plague IBP deployments. To understand all the challenges it is important to understand the intent and purpose of IBP.

To contextualize how IBP should work in a business it is best to illustrate with an example. Let’s say you want to grow your business from $500M to $1B in 3 years while maintaining a 15% EBITDA. This is the goal around which the IBP process is centered for all the 5 steps: Product Portfolio Review, Demand Review, Supply Chain Review, Integrated Reconciliation Review and Management Business Review.

Placing IBP in the Context of Strategic Priorities

The context of each step is the aim of achieving $1B in revenue growth. The following are questions and suggestions that reinforce that focus and provide valuable context to decision making:

1. Product Portfolio Review: Do we have enough product or service to reach our business goal? How will technology change or impact our business? What is our product plan over the long horizon? Do we have any constraints? What are our capital expenses and engineering expenses over the 3-year horizon?

2. Commercial Demand Review: This is not just about the numbers but understanding the consequences of the unconstrained demand plan. Do we have enough sales to achieve the business goal? Should we enter or exit selected markets? Do we have any gaps in terms of profitability, margins or volumes? What new selling opportunities exist? Do we need to adjust pricing?

3. Supply Chain Review: Do we have any constraints to meeting the unconstrained demand plan, either externally or internally over the 3-year horizon? Are we achieving our inventory and COGs targets?

4. Integrated Reconciliation Review: Reconcile the 3 core steps with a rolling updated 3-year profit and loss statement for the purpose of understanding gaps to the business goal. Review scenario plans to address gaps and agree on recommendations for the MBR.

5. Management Business Review: Drive business goal and deliver business commitments through decisions to close gaps. Are we on a trajectory to achieving the $1B target?

IBP sets a monthly cadence for the business to effectively align plans, understand gaps to the targets, and to make appropriate decisions to maintain that trajectory.

How IBP Loses Track of Strategic Goals

So what can go wrong? Here are a few common challenges in implementing IBP.

1. Strategic priorities are not clearly defined or change every year. If the business does not have this ambition stated clearly than the IBP does not have focal point to center the business with to facilitate gap closing actions.

2. The business is very short-term focused (perhaps a one-year horizon). This prevents the business from understanding the impact of short-term decisions on long-term goals.

3. Supporting process capability is often overstated or not fully understood, thereby decreasing trust in IBP’s ability to answer the right questions. If the demand planning process is not trusted, then any discussion surrounding long-term strategic growth simply doesn’t happen. Instead, the Commercial Demand Review becomes a debate about how the numbers missed. Another example is if Supply Chain does not have an effective supply planning process that identifies constraints over a longer horizon. This prevents the business from making the right reconciliation decisions and perpetuates mistrust in Supply Chain’s ability to execute demand plans.

4. The IBP process is viewed as a supply chain process and not a business process. In this case, business goals and gap closing are completely missed and the focus of the process through a supply chain lens and not an overall enterprise perspective.

To make IBP a reality in your organization, join us in Las Vegas for IBF’s S&OP/IBP Boot Camp. Running from February 15-17, 2023, it gets planning professionals up to speed with planning fundamentals and best practices. Complete with the chance to earn the world’s only S&OP/IBP certificate and 1-day Supply Planning Workshop. 

As much as I hate the term, we are in a new normal, Remote working has changed how we work, and it has had big changes for S&OP/IBP. Given demand planning is by nature collaborative and driven by the human element, can these processes survive in the age of remote working?

I recently posted on LinkedIn why I think this is a problem. But it seems I am in a minority because all the planning professionals who responded said that S&OP is doing just fine, and even thriving in this new normal.

Personally, I think it’s having a negative impact on S&OP. Research shows that without face-to-face interaction, trust diminishes, and trust is key to the collaboration we need for S&OP. But that’s just me and there are always two sides to every story. I spoke to two S&OP/IBP leaders to get their differing viewpoints on this issue. Read their key points below so you can decide for yourself.

The Case Against Remote S&OP: Andrew Schneider

Andrew Schneider is an expert in demand planning and supply chain transformation, having led and implemented IBP processes at Medtronic and Ball Corporation.

“Working has changed with Webex, mind mapping, online collaborative documentation etc. but a conversation hasn’t taken place within IBP to discuss how a day in the life of the Demand Planner has changed. In this remote way of working, some people don’t participate in meetings, power players emerge, some webcams are on and others are off. There’s no discussion about how IBP should work in this new environment – we’re just trying to get through the grind.”

There’s no discussion about how IBP should work in this new environment

“Before were able to collaborate interpersonally, come to decisions and influence people which is huge in S&OP. How much of that takes place outside of the formal demand review or supply review? Now you’re lucky if you can catch somebody on instant messenger or teams, or getting them to review something buried in their inbox.”

“There needs to be a very intentional focus on redesigning the ‘day in the life’ and how we do our jobs with digital collaboration tools. It’s continuously evolving but I’d say in my own process I think we’ve taken a step backwards.”

A lot of ideas get parked because  people feel like they missed the opportunity to speak

“I think engagement is a challenge. There’s all the cordialities of being in business with active listening and interpersonal dynamics. People in a conference room might step over each other but it’s a case of “Okay, you go first and I’ll come back with my input” and it works. In video calls it’s almost like a walkie-talkie – it’s one person talking at a time and a lot of ideas get parked because  people feel like they missed the opportunity to speak.”

We need development of team dynamics and coaching to make sure that folks have their voices heard

“If you took a shot clock of who talks for how long in a video call, I’m sure you’re not going to find an even curve – you’re going to find a classic gaussian curve where those power players dominate speaking time. We need development of team dynamics and coaching to make sure that folks have their voices heard.”

“On the positive side, there are so many digital collaboration tools out there and it’s become more accepted to have pre-submissions on a Webex hit list for the meeting. That stuff is great right as long as you have skillful facilitators that circle back to those topics.”

“I think training is so important on to overcome the discomfort of being able to speak over someone with a higher title on a video call, for example. As a coach of other IBP leaders one of the best soft skills you can have is a deft touch – not just what you say but how you say it. The way you interject, being concise, and being able to have a powerful statement are all great skills of an IBP leader and I don’t see those things being facilitated in this new norm.”

The Case For Remote S&OP: Kevin Reim

Kevin Reim is supply chain leader, having worked as Director of Supply Chain Planning at PepsiCo and VP of L’Oréal’s US Supply Chain. He is currently VP of L’Oréal’s Fulfilment Center Operations. 

“In this new hybrid work environment where folks are working more from home, people have gotten used to it and as long as you have the right stakeholders on the call right, there’s no degradation in the S&OP process from what I’ve seen.”

“In our executive S&OP meetings over the last couple of years, we’ve had to learn to work in a new way and it actually makes for a more efficient meeting. People are happy that it’s made meetings a little bit shorter. If meetings previously took three hours, now we’re getting through he same amount of content in an hour and a half. It’s because people are coming prepared.”

As long as the right people are there, it works

“As long as the right people are there, it works. In some cases we’ll cycle GMs in and out of the meeting as their particular brands come up. All stakeholders are there, it’s collaborative and we make decisions out of it, so it works.”

“There needs to be that that personal interaction, though. Whether virtual or in person you still need those face-to-face relationships and that where the hybrid model comes in.”

“What was difficult was when somebody started in the company in the early stages of the pandemic, then it was hard for them to break in but once folks started coming back to work and this new hybrid model emerged it’s become the new norm and it’s working just fine.”

Go out of your way to  meet one-on-one because you really have to establish yourself

“You’ve got to establish those relationships. Go out of your way to meet for coffee or meet one-on-one because you really have to establish yourself. You can manage some of those relationships remotely but there is no substitution for meeting face-to-face and to build that trust that when you get to a meeting everybody’s comfortable making decisions.”

And there you have it. The key themes are that yes, remote S&OP can work but extra work needs to be done to build and maintain the relationships needed for collaboration and, ultimately, to drive decision making. Setting expectations for how meetings work and defining the role of the Demand Planner in the remote age would also add value, as well as thinking about how leaders can manage teams effectively in this new environment. It also shines a light on the importance of best practices; they are now more important than ever to ensure engagement and a robust process. Stay tuned next week when I will share some tips to make your remote process as effective as possible.

I will be speaking at IBF’s Business Planning, Forecasting & S&OP/IBP Conference in Amsterdam from November 16-18. With dozens of workshop sessions, panel discussions and networking opportunities, it’s the biggest and best event of its kind in Europe. Click here for more details.

At IBF’s S&OP Best Practices Conference in Chicago, we put seven S&OP leaders in a room together, threw some talking points at them and set the cameras rolling. The following are some highlights from that conversation.

Speakers:

Misty Eldridge, Senior Manager Planning and Fulfillment Systems, GE Appliances

Rich Gordon, Advanced Analytics Manager, Standard Process Inc. 

Debbie Climer, Director of Integrated Business Planning, Cummins Inc.

Imane Sabeh CPF, Associate Director Of S&O, KBI Biopharma 

Michael Zinkewich, Senior Director, North America Sales and Operations Planning, Beam Suntory

Scott Salzler, Senior Principal, Oracle Cloud Infrastructure

On How S&OP Has Changed Post-COVID 

Debbie Climer: Companies were so stress-tested by COVID and failed so miserably that everyone in supply chain now has elevated importance and status. It really showed where the deficiencies were. A lot of things remained hidden when we were in a stable environment and being suddenly thrown into such volatility forces companies to start thinking about things differently.

 Imane Sabeh: S&OP is getting more attention than ever before and it’s a great thing because it tends to be associated with supply chain when it really is not; it is a cross-functional, collaborative process. The surprising thing is that the voice of supply chain is now being heard across the different functions. So there’s a lot of momentum out there and we need to build on that. It is eye-opening to see how important S&OP is becoming.

On The Increased Recognition Of The Field

Debbie Climer: It’s been really good that the field is now exciting for young people. When I was young we didn’t even have supply chain as a major. Now it’s an exciting career because there’s so much innovation and so much more technology. This is not the supply chain of the past; it’s exciting, it’s new, it’s innovative and imaginative. One of the things that struck me [at this IBF Conference] is how many young people are coming in who are new to S&OP and moving the field forward. It was really good to hear everyone’s stories and where they are on their journey.

Scott Salzler:  Years ago when I started doing S&OP it was a very small niche – you didn’t really have S&OP jobs out there that you could go and apply for. Now you know every company is out there promoting the discipline and promoting it is a career.

On The Rise Of S&OE

Michael Zinkewich: S&OE is about defining your time horizons, making sure that S&OP is looking further out, and how short term planning and S&OP work together.

Rich Gordon: It’s nice to see S&OE emerging as an upgraded version of the Master Plan – that was eye-opening for me.

Scott Salzer: It’s nice to see focus on the separation between those two activities because for newer people you get easily caught up in the S&OE piece of it because the near term is always more pressing. It’s more difficult to focus on longer range thinking, so it’s good to see S&OE and S&OP treated distinctly.

Debbie Climer: We’ve really seen the need for a short-term execution process for your S&OP or IBP to work, to avoid your S&OP or IBP becoming a monthly S&OE process.

Eric Wilson: When companies start doing weekly S&OP, it’s because they don’t have that tactical execution component like S&OE.

Misty Eldridge: During the pandemic, companies were having to go into that [making S&OP weekly]. Post-pandemic they’ve decided they need to keep that short term planning execution but also get back their longer term S&OP.

What It Takes To Achieve Vanguard S&OP

Debbie Climer: It’s a business process so the best way to get the business to see the value of IBP or S&OP  is to show how it helps manage the business, not just your supply chain. With that, the connection to Finance is really critical. I mean everything that we do is related to money right? So making that connection and bringing those pieces together is really important for a successful IBP or an S&OP process.

Misty Eldridge: Several presentations talked about how S&OP links to the bottom line and EBITDA, and how inventory relates to cash flow. It was great to hear presentations about how S&OP allows a business to do that as it encourages buy-in of the process and facilitates maturity. Product reviews are part of becoming a Vanguard S&OP organization. Top companies are talking about their products – that sets the tone of the next five ten years so why not talk about what you’re going to do with the strategy of your items. That’s huge.

Michael Zinkewich: The change management piece is key. S&OP requires cross-functional engagement and that requires talking the same language. For us at Beam Suntory it’s about making sure we have Marketing engaged, Finance engaged, and a lot of that comes down to training as it allows us to learn how to talk the same language.

Imane Sabeh: Financial teams should be part of that training because again, S&OP is not only a supply chain function, it is a business process that benefits everybody.

Michael Zincewich: Cross-training is absolutely key because it’s cross-functional teams that drive change management and engagement in the process. S&OP doesn’t come overnight and it’s never static – good S&OP requires continuous improvement and ongoing training is part of that.

On Evolving From Supply Chain To Value Chain

Scott Salzler: We’ve talked a lot about the very basics like getting through demand the review with a credible plan and working to one number. That’s all great but this conference is one of the first times I’ve heard the discussion of what comes next. You know, not just IBP or something like that but more of a of a directional change to a value stream focus. I’m really looking forward to seeing what the next step is.

For to see the full range of S&OP Unplugged videos, click here.

For more leadership insight into S&OP/IBP, forecasting and planning, join us in Orlando for IBF’s Business Planning, Forecasting & S&OP Conference. The biggest and best conference of its kind, this community-oriented event offers dozens of workshops sessions, leadership panels, roundtables and social events. Find out more here. We’d love to see you there.

IBF research indicates that 20% of you are just starting an S&OP process, 35% of you have a basic process in place, 30% of you have an established process, while just 15% of you are at the Vanguard best-in-class level.

That leaves a lot of scope to improve S&OP and a lot of money left on the table. Let’s take a look at what separates a Vanguard S&OP company from the rest, and how you can get there.

Basic S&OP vs Vanguard S&OP

Not all S&OP is equal. For a Vanguard process, we have 3 core elements. The first is the process itself; the second is the organizational placement of the process; and the third is the tools and data and how they are used.

Defined Process: Vanguard companies have a very well-defined cross-functional process that people adhere to every single month. They tend to look 18-plus months ahead which many companies are missing as they think that they have S&OP in place when in fact it’s something different, something shorter term.

That’s unfortunately where a lot of the confusion between S&OE (Sales and Operations Execution) or and S&OP comes into play. While S&OE focuses on the execution changes of short-term schedules and resolving immediate issues on hand, the focus of a mature S&OP process is to proactively identify what constraints the business might face in the future through What-If Modeling to help resolve the constraints ahead of time.

Organizational Placement: Vanguard companies tend to define S&OP as a business process with visible sponsorship from the Senior Leadership Team. As a process with a defined RACI matrix (Responsible, Accountable, Consulted, Informed) the executive ownership and involvement in S&OP helps reinforce the importance of the timeliness and quality of the deliverables that each function needs to contribute.

Data & Tools: Regardless of the nature of the business (service or manufacturing) and the type of demand (MTO or MTS), it is crucial to have a well-structured Demand Planning function in place to initiate the unconstrained forecast. The first step is to have a robust statistical forecast supplemented by  documented assumptions gathered from the demand reviews with the customer-facing teams. For that to happen, data accessibility and integrity are two crucial components.

Once the forecast is constrained and the consensus is reached through S&OP, the forecast output needs to be loaded to the ERP system to ensure end-to-end supply chain transparency by having the consensus demand signals drive production and purchasing decisions.

Of note, beyond classic demand planning, demand sensing and shaping have proved to be more welcomed after the uncertainty created by COVID.

Vanguard Companies Have a Bias Towards Decision Making

Remember that S&OP is not a reporting forum; it’s a decision-making platform that aims to proactively identify and solve business problems across a range of functions. It’s the job of the S&OP Champion to facilitate this so there is one person coordinating all of that effort throughout the month.

“S&OP is a decision making platform that aims to proactively identify and solve business problems”

But at the same time, S&OP is a core team that is built around the different participating functions. You need representation from Finance, Supply Planning and the customer-facing teams (Business Development, Marketing or Sales). It is common practice that the Demand Planner tends to be the champion of the whole process and leads this team of cross-functional participants.

Those are the key contributors but – most importantly – we need to assign Director or VP level Executive Authorizers (EAs) from the participating functions to discuss issues and approve or adjust the output at the end of each S&OP step.

This practice encourages consensus at every step and avoids having to address misalignments at the very last step of S&OP making it a self-correcting process where executives are engaged throughout the journey.

The fifth step often referred to as the Executive S&OP Meeting is a forum to brief the General Manager (C-Suite level Executive or head of Business Unit). At this point only the GM should be asking questions and driving decisions that the S&OP team didn’t align on.

“A team environment is necessary for a ‘safety zone’ where we can always question the status quo”

Ensuring S&OP is a decision-making platform, not a reporting forum, also requires giving it its rightful place in the organization where it’s recognized as a process that bridges the gap between strategic planning and operational execution. Building a common culture and team environment is necessary for a ‘safety zone’ where we can always question the status quo and have healthy debates to drive the best decisions for the company.

Vanguard Companies Break Functional Silos

Vanguard companies break functional silos, so each function is working to continuously support the interests of the company in a customer centric way, not just the respective department. Going from siloed thinking to an end-to-end value chain thinking requires continuous education about the mission of S&OP and its benefits.

“Companies that still operate within silos are leaving a lot of money on the table.”

Operating in silos is a thing of the past. Companies that still operate within silos are leaving a lot of money on the table. They can no longer afford to do that – especially with the elongated disruptions and uncertain business conditions COVID created. If we as an enterprise understand that, coming together and driving that bias towards decision making comes naturally.

Breaking silos goes beyond having a good communication stream and an ongoing collaboration between the various functions. Vanguard companies that have an international footprint focus on a global integration of the various regional S&OP processes.

I see COVID as a blessing in disguise because it highlighted how supply chains can no longer be taken for granted and reinforced the need for decision-making forums like S&OP. We need to build on this momentum.

Vanguard Companies Don’t Care What you Call it

There is confusion in our field surrounding the differences between S&OP and IBP (consultants are to blame for this redundancy). They’re the same processes with different names and what we call it doesn’t matter; as IBF research shows, there is zero correlation between what you name it and the success of the process.

“There is zero correlation between what you name it and the success of the process.”

The important thing with S&OP or IBP is integrating the various business plans that the company has to ensure that we are all operating under one set of numbers.

The biggest risk is when Planning Executives don’t want to hire the right talent and start the S&OP process with the tools they have; they often believe they need to have planning systems with specific IBP modules which is a misconception. The logic and basics of S&OP haven’t changed much over the years. Delaying implementation can be costly as operational efficiency only happens with a structured, cross-functional collaborative framework.

Vanguard Companies Don’t See S&OP as Just a Supply Chain Process

A myth that people must overcome is thinking that S&OP is strictly a supply chain process. Although it tends to be championed by demand planning, S&OP can really fall under many umbrellas within the company. It fits well under the supply chain because that’s the field that benefits the quickest as S&OP bridges the gap between strategic planning and master scheduling and material requirement planning.

“Vanguard companies  don’t believe S&OP has to be owned by a Demand Planner or Supply Planner.”

Demand forecasters often report to the supply chain and S&OP all start with a forecast, so that’s another reason Demand Planners take the lead and why S&OP often emerges from the supply chain.

Vanguard companies, however, don’t believe that S&OP has to be owned by a Demand Planner or Supply Planner; it has to be owned by the Senior Leadership Team because, at the end of the day, it is a process that supports major decision making that can impact rough rough-cut capacity planning, cash flow, capital expenditure, and many other considerations at the strategic level.

Vanguard Companies Strive for Continuous Improvement

Because of how dynamic market conditions are, what a company did yesterday might not work today and will certainly not work tomorrow, so the ability to be agile and quickly pivot when needed is necessary. The need for continuous improvement in sales and operations planning makes it a dynamic process. The steps are the same but the inputs that you are willing to incorporate in the process should be regularly questioned and the assumptions revised. That’s why assumptions documentation is a key aspect of S&OP.

“When S&OP is done right, we’re talking about 2% being added to the bottom line.”

When S&OP is done right, we’re talking about 2% being added to the bottom line of the company so we should be open to improving the process and challenging the status quo on an ongoing basis.

Continuous improvement also comes back to stakeholder engagement in the process, having people willing to improve because they have a voice and the motivation to do so. Engagement isn’t’ about ping-pong tables and bean bags; it’s about educating, empowering and trusting the core S&OP team members to do what is right while measuring outcomes and celebrating even the smallest wins. This ensures that their work is meaningful and their time is not wasted.

The Next big Thing for Vanguard S&OP Companies

In the beginning there were 5 basic steps in S&OP including a data gathering step. Most companies have moved away from allocating a full week to gathering data, however. This is a shame because if you don’t have data at your fingertips, the journey towards Vanguard S&OP will be slower.

Of course, things change over time, and nowadays instead of data gathering I support moving to more of a portfolio deep dive and analyzing your SKU rationalization.

AI is the next thing to consider in terms of how advanced technology contributes to the evolution of S&OP. Beyond the various causal factors impacting projections, real time inventory and telematics data collection and analysis can cut costs and enhance the inventory optimization efforts.

Note from the Editor: As mentioned at the start of the article, only 15% of companies are operating at the Vanguard, best-in-class level. That leaves a lot of room for improvement and a lot of money left on the table. Even if you’re one of the Vanguards, check out IBF’s self-assessment maturity model for a comparative benchmark looking at best practices across People, Process, Data and Technology, and see what specifically can be improved in your organization.

At the end of last year, I made this podcast that predicted that 2022 was going to be the year of ‘anti-lean’ with inventory flooding the market and companies having to offer discounts to shift excess stock.  My theory was that when we combine excess inventory with higher costs, higher interest rates, and a flagging economy, we have the perfect storm and that cash will become King for any business.

Succeeding in this milieu requires building cash reserves and performing effective cash flow forecasting. And that starts by taking a Finance-focused approach to S&OP and inventory management. This intersection between Finance and Ops is always important – but now more than ever.

To help get a handle on bringing S&OP and Finance together to help weather this upcoming economic storm, I spoke to Dean Sorensen, editor of Integrated Business Planning at the International Institute of Forecasters and founder of consulting firm IBP Collaborative. He has worked for companies such as Accenture, KPMG and AT Kearney, advising on finance strategy, cost and performance management and IBP.

The following questions and answers are taken from my conversation with him.

What’s the major difference right now between FP&A and S&OP?

First of all, FP&A is a function within Finance. When making a comparison to S&OP, it’s more relevant to address these differences in terms of a rolling forecast vs S&OP.

First of all, S&OP and IBP focus on supply chain resources and costs.  In most companies this represents anywhere between 50-60% of manufacturing cost structures. FP&A on the other hand focuses on 100% of the cost structure of the business.

Secondly, the structures of these processes are different. FP&A focuses on charts of accounts, whereas S&OP focuses on manufacturing and supply chain activities.  In other words, FP&A is vertically-focused, whereas S&OP and IBP are horizontally-focused.

Third, S&OP has formal mechanisms for optimizing tradeoffs. The classic one being between service levels, supply costs and inventory levels. While an objective of FP&A is to optimize performance, there are no such tradeoff mechanisms to do so.

What’s the difference between a demand plan and financial forecast?

It really depends on who you talk to. Personally, I see absolutely no difference between S&OP and a rolling financial forecast; it’s exactly the same process albeit at different levels of aggregation. The leading indicator of both these processes is an accurate cash flow forecast.

For a good cash flow forecast you need to understand how resources are being consumed. If you don’t understand resource consumption you can’t possibly get cash right. That’s one of the reasons why 99.9% of global manufacturers really struggle with cash flow forecasting. It’s hard to do when you don’t have the right models and that’s something FP&A lacks.

An operationally savvy finance person would acknowledge that you can’t possibly get a good cash flow forecast without a manufacturing model. If you don’t have a lot of changes in volume and mix perhaps you can get away with it but the minute things start getting complicated, you’re stuck. You can’t really run an effective FP&A process without bills routings and a supply chain tool – it just doesn’t work.

If our goal is to understand 100% of the cost structure and get a top-down view of cash flow, which should be the goal of any business, we need to connect supply chain planning with FP&A.

Does S&OP capture the bigger picture of a business?

The other part of the cost structure which, in my view, is falling between the cracks of both FP&A and S&OP, are the overhead cost structures. FP&A tools are really simplistic and as somebody who’s done a lot of cost management and cost reduction projects, traditional costing models are just wrong. We’ve known that for 30 years.

S&OP tools on the other hand are very narrow and fail to consider 100% of the costs. The consequence of that for one particular company I worked with was that because they were planning in silos, they had between 500 million and a billion dollars of sub-optimized resource allocation. These things are still falling between the cracks of finance and ops. 

We’re not showing the big picture of what’s happening inside companies and the overall health of the organization.

Is there redundancy across S&OP & FP&A?

If you look at S&OP and FP&A processes there are so many redundant and non-value activities between the two. We need to step back and look at the process as a whole and see it differently. It’s not that the standard five-step S&OP process is out of date, rather I think it’s missing some steps.

If you step back and look at the process more holistically you’re going to eliminate a whole bunch of things – you’re not going to need as many FP&A people, you’re not going to need a separate S&OP process, you’re not going to separate decision support process.

There’s a whole bunch of good reasons why one would want to have an integrated process that’s designed to be integrated from the beginning instead of operating S&OP and FP&A side-by-side. 

What does that fully integrated process look like?

One of the biggest problems that companies still have is that we still haven’t fixed the functional silo problem. One of the things that’s missing is what I call productivity management where we look horizontally across the business. For example, in an order to cash process, you want people focused on the cost per order, not trying to meet a fixed budget number. 

You also want them focused on customer/segment specific targets. The target for one might be ten dollars per order, while it might be five dollars per order in another.  You might have read the book Beyond Budgeting [by Jeremy Hope and Robin Fraser]. It talks about the bad behavior caused by budgets where neither the rolling forecast nor S&OP have fixed the problem of people being focused on functionally based budgets.

If you want to get them away from that you’ve got to replace it with something so rather than people focusing people on fixed budgets I want to focus them on somebody who owns the order to cash process I want you to hit ten dollars an order or fifty dollars an order or whatever I think it is and those you know those targets may um vary by segment but that I want them focus on relative financial targets. That is an absolute must. 

Beyond redundancy, what are the issues you’re seeing with current planning processes?

One of the biggest problems that companies have is they can’t connect targets to outcomes. Specifically, what do we want to achieve and how much is it going to cost?

Companies can’t manage the trade-offs between production costs, inventory levels, and customer service. From a finance perspective those trade-offs are between cost per order, order fulfillment days, and receivables.

If you take a walk around your company and ask who owns that trade-off you’ll find nobody owns it. The reality is that if you can’t manage those trade-offs, you don’t have a mechanism for optimizing cash flow.

How can demand planning ensure cash is King going forward?

Product mix is a good place to start. If we want to improve cash flow you may choose to offer products with a lower profit margin but will produce higher cash flow, as opposed launching a new product which is going to destroy cash flow. You can tilt decision making like this towards protecting cash.

I know a lot of S&OP processes miss the cash flow forecasting element, focusing instead on cost and service. And they look at inventory as just a target, not as a variable. Cash flow forecasting is missing in a lot of S&OP and FP&A processes right now and having that full visibility onto what cash outlook is important.

If you’re a 10- or 20-billion-dollar company, there’s no way that you’re going to do a cash flow forecast without a supply chain model. I see zero difference between a supply chain model and a cash flow model – it’s the same. If you have changes in volume, mix and price, you can’t possibly maintain that model in an FP&A tool.

Anybody who thinks they’re going to buy an FP&A tool and do cash flow forecasting is fooling themselves.

What you really want is to understand cash flow by business segment and understand resource consumption and cash flow by business segment. The only way that you can do that is by a forward-looking activity based costing model, i.e., a supply chain model.

This is the foundation for highly effective cash flow forecasting because If you can track changes in upstream activity which flow down to a downstream activity, you can relatively easily quantify how that impacts costs and cash flow.

Are planning tools up to the job of effective cash flow forecasting?

Most tools are not even remotely close to having the required level of sophistication. People in the FP&A software space are talking a lot about predictive analytics but the one thing you won’t see them talking a lot about is prescriptive analytics like the supply chain tools use.

The reality is that every finance guy is really going to want a prescriptive analytics tool because if I’m a treasurer I want to know how any given scenario is going to affect my cash flow, my working capital, my foreign currency exposure, my debt exposure, and whether I’m going to run into any debt covenant issues. This intersection between finance and ops is probably one of the least understood areas of business. 

Hopefully companies will start heeding some of these warnings and there’s a big incentive to do so. What we’re talking about is optimizing the cost of complexity and that represents anywhere between kind of three to five percent of sales.

Join us in Orlando for IBF’s Business Planning, Forecasting & S&OP/IBP Conference from October 18-21. With 2 maturity level streams, you’ll find the specific knowledge you need to implement or improve S&OP/IBP and level up your planning skill set. With networking and socializing in a wonderful Florida setting, it’s the biggest and best event of it’s kind. Register now.

Maybe you just had a poor quarter with your forecast not aligning to operations or business plans. Maybe there was a series of bad product launches, or you’re not getting the cross-functional collaboration you need. Maybe you went to an IBF conference came to the conclusion that S&OP would be a real competitive advantage for the company. Whatever the reason, something has triggered the need to implement a new S&OP process.

[This is the first in a 2-part series about setting up a new S&OP process. This first part focuses on the ‘People’ aspect. Stay tuned for part-2 which focuses on ‘Process’.]

Now comes the most difficult step in all S&OP/IBP journeys – the first one.

Where do we start? What elements comprise an effective process? How long will it take? Who should be involved? How do we get the right functions on board?

There is a plethora of questions you must answer before you start, and many variables that will shape your organization’s S&OP. In the immortal words from the cover of the Hitchhiker’s Guide to the Galaxy – don’t panic! The key is to build a process that responds to business needs and that works over time.

Keep in mind first:

S&OP is not a project or overnight activity; instead, it is driven by continuous incremental improvements where the goal is to keep getting better.

Start where you are and build for where you want to be, and never be satisfied with where you get. This is the S&OP journey and maturity process.

Now that we’ve those 2 guiding principles, we should take time before the first meeting even occurs to do as much as possible to set the process up for success. The start-up of a new S&OP process is similar to the start-up of a new organization in that success depends on groundwork being laid long before launch. In this preparation phase, the vision is defined and decisions are made regarding People, Process, and Technology.

Questions to be answered and activities in the initiation phase may include the following:

1. Find The Right Sponsor

The sponsor will be a senior executive in a corporation who is responsible for the success of the process. While he or she may not be involved in the day-to-day operations of the process design, they are the senior champion of the S&OP/IBP process and biggest cheerleader. This is the executive that the initial S&OP team may turn to for support and to help break down potential barriers. It is someone high up that has your back and may be able to authorize resources or garner additional support.

This person need not be your direct authority and I have seen many times this role filled by a leader from another function. The most important quality is that they believe in S&OP, are willing to assist in winning over stakeholders, can authorize decisions, and be an advocate for the process.

2. Appoint An Owner Of The Process

Ultimately, this person sets senior management expectations, leads the monthly S&OP planning process, manages conflict, and guides the S&OP teams toward success. Far too often I see someone with another role adding the responsibility of S&OP to their existing tasks. While this can work (I have been that person myself) it is far better to have a S&OP manager or owner solely dedicated to the process start-up.

This role has significant responsibility pertaining to communication, managing the process, diffusing conflict, and leading change management – all of this requires time and focus. With all this in mind you need “a” owner and person that drives the process forward without their time being split between another role.

Another reason for having a dedicated S&OP manager is that S&OP is a cross functional, end-to-end process and needs a liaison that bridges all departments without bring the bias of their function.

3. Decide Who Needs To Be Involved

The answer, paradoxically, is most likely “everyone and a select few”. S&OP done right will impact every function and change the way business decisions are made. Your core team on the other hand may not be that large, rather a strategic, cross-functional group. This core team may include Finance, Demand Planning, Operations, Commercial, and IT. Initially, try to keep the core team light but do not lose sight of everyone else that you may need buy in from or who will be impacted by the S&OP process.

4. Level Setting & Educating

Change management is one of the most important and overlooked parts of a new S&OP process. People are fine with change until what they do day-to-day is disrupted. S&OP touches everyone and it is always best to educate and elevate all participants. Training helps to get everyone talking the same language to and provides a foundation of knowledge to accelerate adoption and acceptance of a new process.

Training also helps with fears of the unknown and provides vison and direction for what you want to accomplish, further facilitating adoption. This may be a 3-day workshop or in-house training but the key thing is to reveal what S&OP means for the organization and individuals involved, and to instill best practices.

S&OP, the topic of this special issue, is a great process for managing demand, which also goes by the name of SIOP (Sales, Inventory and Operations Planning), IBP (Integrated Business Planning) and MIOE (Merchandizing, Inventory and Operations Execution. It doesn’t matter what we call it; the priority is to have a framework that facilitates cross-functional collaboration that serves to balance demand and supply while meeting the strategic goals of the business.

I needn’t mention the impact of COVID on our planning which has forced us to shorten the S&OP cycle from monthly to weekly. Make no mistake, S&OP saved many companies from the brink of disaster since the pandemic struck, as supply shortages and shifting demand wreaked havoc on our businesses. I was pleased to see that planning professionals made adjustments to their usual process to react to pandemic-related disruptions because there are longer term factors that are testing S&OP’s ability to manage demand, which also require new ways of thinking.

S&OP is tried and tested but it is more than 30-years old. Since it was first developed, market dynamics have changed, requiring changes in how we plan. Markets are now demand, not supply driven. Competition is intense. New products are exploding, and so are the channels of distribution. All these have added uncertainty that must be addressed. COVID or no COVID, we must ask ourselves how we can evolve S&OP to response to these shifts.

The increasing importance of new products requires a change to the traditional S&OP process. Although new products are reviewed within the product portfolio, they don’t get the attention they need. A significant amount of revenue comes from them and is growing. McCormick USIG, for example, gets 35% to 45% of its revenue from new products; LEGO, 60%; and Hasbro, 80%. To manage their demand, they require not only more attention, but also special skill sets. The success of new products depends on a robust projection of future sales, but they are difficult to forecast because of lack of history. One way to do it is to prepare three sets of forecasts: frozen (where no change can be made), slushy (where a limited amount of change can be made), and liquid (where any amount of change can be made). The other way is to prepare high and low forecasts — low forecasts for fixed contracts and high for flexible contracts. An S&OP step dedicated solely to new products is required.

Another component that needs to be added to S&OP is eCommerce, which is rapidly growing. If S&OP was conceived around brick-and-mortar sales, eCommerce requires a different skill set and strategy. For example, in eCommerce, customers buy less but more frequently. How they respond to a 24-hour online-flash sale is very different from brick-and-mortar. Since Demand Planners have access to customer data (e.g., how much they bought and when), they can develop a better marketing plan based on recency, frequency, and monetary value. Further, it is much easier to do demand shaping in eCommerce. eCommerce requires more agility in the supply chain because orders must be shipped on time, otherwise, it will lose the sale.

Further, in the omnichannel environment, there are a number of ways a product can be bought and shipped: (1) buy from a store; (2) buy online, ship from a distribution center; (3) buy online, pick up at a store; and (4) buy online, ship from a store. Each option has a different effect on the bottom line because of differences in their operating cost — picking, packing, inventorying, and shipping. These are factors that must be clearly identified and planned for in a dedicated eCommerce step in S&OP.

To keep S&OP robust, we must recognize these issues and have a mechanism to deal with them. Then, perhaps, we can bring S&OP up to date and fit to deal with the advancements we have seen in recent years. You’ll find in this special issue a range of excellent articles designed to help you implement S&OP or to improve an existing process, written by some of the leading figures in the field. I trust you will find them valuable.

I suggest using IBF’s S&OP maturity model in conjunction with reading these articles. Available at www.ibf.org/sop-maturity-model, it’s a free self-assessment that identifies your current S&OP maturity level and provides recommendations to progress to the next level, as well as other helpful resources.

Happy forecasting!

Chaman L. Jain, Editor

Institute of Business Forecasting

cjain@ibf.org

This is an extract from the 2021/2022 Special Issue of The Journal of Business Forecasting on implementing and sustaining S&OP. Download an extended preview here or become an IBF member and get both full digital access and the print version delivered to your door every quarter, plus a a host of other member benefits including discounted conferences and training, exclusive workshops, and access to the entire IBF knowledge library. 

It was a Monday morning sometime in mid-July. It was a hot and muggy day and, with the traffic, seemed like an extra-long commute to work. I still was able to get to work just a little early and grab my cup of coffee when the HR manager, the Director of Marketing, and the VP of Supply Chain popped into my office and asked if had a second to talk…

Obviously, my stomach was now in my throat as I sat uneasily in my office chair. The HR manager spoke up and said with a smile “Dan, we have done a reorganization and, as of today (I braced myself for what was coming next) you will be reporting to Supply Chain and we have elevated your role to a senior manager position. John, the VP of Supply Chain, is your new boss.”

Up until this day I had worked playing with analytics to support Sales and Marketing at a company that does contract manufacturing for a range of consumer goods, based on the East Coast. Given I was good with numbers and the company always needed a forecast, I was promoted into the role of business forecaster. I had always worked on the commercial side of the business, so I was a little taken aback when faced with this new Supply Chain new position, and I admit I was more than a little apprehensive.  Even though Supply Chain used my forecasts, I did not know much about their side of the business, and I feared my new boss didn’t know much about what I did either.

Not discouraged though, I saw this as a new challenge and opportunity to grow so I packed up my box and moved from the second-floor carpeted offices to the shop floor with concrete floors and noisy machinery. This alien environment did not inspire confidence. Even though it was the same building and same company, these two parts of the organization seemed worlds apart. Over the next few months, I was going to find out just how true this was.

That afternoon I met with my new boss. I sat across from his desk and his first words were, “I needed you on my team. Those Marketers are killing my Supply Chain costs with their aspirational forecasts. I need you to help get me a better forecast.” In my mind, being one of those Marketers, I explained it was a good forecast and that we had best-in-class MAPE of under 20%, to which he replied, “So where are my savings, why is my inventory still growing, what does that mean to me?”.

I sat there and did not have an answer. It was a reasonable question that I don’t think anyone in the organization could have answered. The only idea they could come up with was to move me to a new department and hope that fixed something. Good news is it did, but not for the reasons they thought.

A year later I was in my new boss’s office discussing how things were going. By this time, MAPE  had increased to 24% but that was not a worry or even a concern because inventory levels had decreased by 20% and supply chain cost reduced by 3%. All the while, Marketing and Sales were happy and we saw service levels as high as they had ever been. It turns out that what we needed was not to take me from one side of the business to the other but bring these two sides of the business together.

What We Did Differently

I went into my new role not fully understanding Supply Chain and their needs. My fear was that my new boss and Operations did not fully understand forecasting and what I did. I discovered both were partially true. What we had was less of a forecasting problem and more of a communication problem and the two teams talking over each other instead of with each other. Over the course of a year, I help build a consensus forecast as part of a newly developed S&OP process that tore down some of these silos and helped bridge the divide. I turned the challenge of a new role into an opportunity for the entire organization.

We Stopped & Listened

By listening, you begin to hear common themes and legitimate concerns. Both Sales and Marketing and Supply Chain assumed the other side didn’t understand their point of view and what they needed from the other to add value to the company. Of course, both sides wanted what was best for the company, but were approaching from it a siloed perspective.

When listening to Supply Chain, Sales and Marketing learned they had long replenishment lead times and struggled because the product mix kept changing and promotions would be dropped in after they ordered product. They had goals relating to lower costs that their bonuses were tied to and had a list of projects they were working on to make sure they got them. One example was to close a West Coast distribution center (DC), consolidate inventory, and ship from a Mid-West DC. They didn’t feel other functions were helping them be successful.

When Supply Chain listened to Sales and Marketing, they learned they needed to increase revenue year over year. There was a West Coast customer they were trying to develop and it was feared that redeployment of inventory would cause stock issues and extra lead time that may lose this important account. They also struggled with having to run promotions to support sales targets, but never having the right stock in place to support the subsequent increase in demand. From the point of view of Sales and Marketing, it seemed we always had the wrong things in stock and, just like Supply Chain, they didn’t feel other functions were helping them be successful.

We Changed What We Forecasted

It was quickly apparent, after hearing both sides, that they both needed a forecast but for a different purpose. Sales were concerned with the customer comping their sales and if marketing campaigns were delivering incremental revenue. For this, forecasting at higher levels and what was occurring next month or quarter end was sufficient. In Operations and Supply Chain, they needed to understand product mix and where it was shipping from. To do their job better they needed item and location and foresight into demand 90 days or more in advance.

I started doing segmentation as a joint exercise to better understand key items and drive improvements to forecasts on those items. We developed forecasts at the lowest level of granularity (item/location/customer) through a middle-out approach, providing better insights to both Sales and Operations. We also extended our planning horizon out beyond 3 months and to include a rolling 12-month outlook. This picture of demand allowed for actions in Operations and Supply Chain to be taken ahead of time with the uplift of promotions baked into the forecast.

We Drove Communication Through An S&OP Process

The most critical evolution that we made was the implementation of a monthly S&OP process. This helped build communication and a consensus plan. Having a monthly forum allowed people to work towards the same numbers and similar objectives and understand each other’s needs. A consensus plan helped build adherence to the forecast and got everyone on the same page.

In these meetings we would discuss exceptions in the forecast and communicate impacts of changes within defined planning time fences. If I may say so myself, I played a key role in these meetings that went far beyond providing a new set of projections (as I had done previously). S&OP participants made a commitment to communicate with context, providing additional insights to allow the cross-functional team to fully analyze and optimize decisions. We used a supply review to discuss their list of cost drivers and, as a team, cross-functionally discuss what could be done. In demand reviews, we brought up marketing campaigns months in advance and decided if they could be supported or not.

We Measured The Right Things

In our S&OP, our focus now was margin, revenue, and inventory turns. This helped the different functions to focus on what they both agreed upon the most, the health of the organization. It also made what each function did real in the minds of the participants and connected their objectives—not only to a higher goal but to each other. To support these KPIs we would also get into discussions on service levels, cost savings projects, inventory availability, and even forecast error.

An example of one result that I felt was particularly meaningful: Working together on cost savings projects, we were able to improve our margins. While cost savings was a goal, the company was more concerned with top line growth. My colleagues in Sales were able to use these cost savings to offer rebates and discounts to select customers on items to increase revenue. The net results were that Supply Chain hit their cost reduction targets, Sales hit their revenue targets, and with an improved top line and strategic sales, inventory turns improved also. A win-win-win!

In regard to forecast error, as mentioned above, despite going from 20% MAPE to 24%, we were happy. The reason being that our WMAPE at lag 3 went from 62% to 41%. Although our more aggregated forecast 1 month out had gotten slightly worse, the item and location level forecast that was driving supply improved by 33%.

Conclusion

In retrospect I don’t really think moving me from a Sales and Marketing function to a Supply Chain role helped a whole lot. Changing who I reported to most likely didn’t have an impact in the long run either. What changed things was understanding that the organization had a problem and I was in a position to help solve it. In my opinion, it doesn’t matter where business forecasting reports to and who your boss is as long as you can stay independent and help facilitate communication. It is important for any company to break down silos and find a balance between metrics and communication. Business forecasting—no matter where they put you—is fertile ground to help enable this communication and build consensus-driven plans.

For more insight into forecasting and planning best practices, join us at IBF’s Business Forecasting, Planning & S&OP Conference in Orlando, held from October 19-22 at the Wyndham Orlando Resort. The biggest and best event of it’s kind, it’s your opportunity to learn best practices in S&OP, demand planning and forecasting, and network and socialize in a fantastic setting. See here for details.

Successful S&OP implementation is not a law set in stone; each business is unique and has its own dynamics. Getting started can be one of the biggest challenges and knowing where to begin may be overwhelming.

How do we segregate the business and do we start with a certain geography or product line? Which meeting or process step should we focus on first and do we need all of them out of the gate? Like the answer to so many things – it depends.

There are a few options and each has pros and cons. Traditionally, you’d start with a volume forecast for a family or group of product families as a pilot. This involves all of the functions and provides a good baseline for S&OP process. From here, consensus is built, supply plans are developed and resource reviews adopted – these are the fundamentals of an end-to-end S&OP monthly process. We then add on other families and other elements as the S&OP process continues to mature.

But this is only one way it can be done. The following are starting points to launch an S&OP process. Which one you choose depends on the particular dynamics of your organization.

By Company, Business Unit Or Profit Center

One logical approach is to align to the P&L which is generally structured by business unit. Here you may have multiple business divisions or profit centers that roll up to the parent organization but each strategic business unit produces revenue and is responsible for its own costs.

Many times, each business unit has unique missions and objectives and planning is done separately from the parent organization. Starting in one of these divisions allows you to align a new S&OP process to the goals and structure of the unit at hand. Starting at a division/unit level provides a manageable first step.

By Hierarchy, Product, Brands, Geography Or Channels

Another very common way is to look at your current planning hierarchies and take a subset of one or more of them. Aggregation generally occurs over product, location, and customer and a good starting point may be one or any combination of those that fit strategically. If you go by product you may want to use four or five different item families. This can be done by choosing a brand and planning for the families under that brand.

For location, your company may be separated by geography and it may make sense to start in a single region then expand into others as you go. For channels, some businesses may be separated out by types of customers or the way they go to market. Starting with a subset of any of these allows you to get quick wins in planning and show value to other areas of the business.

Business Functions Or Processes

It is not always necessary that you start with a demand review and build from there. S&OP is a cross-functional process that will in time integrate everyone to a unified set of assumptions for coordinated decision making.

As a starting point, you may find an ally in one of them to get the ball rolling and build a process. Instead of a business unit or specific product you may find it advantageous to begin with a product review or help solve for a recurring planning gap for another function. When I worked with one organization that was very product centric and had strong product development, it made sense to begin with a product review that captured the key players and improved their ability to go to market.

Use An S&OP Maturity Model Before You Start

To get a sense of where your S&OP is at and the gaps you need to fill to progress to the next stage of S&OP maturity, use IBF’s S&OP Maturity Model Self-Assessment for free. It’ll give you practical recommendations to improve your planning and valuable resources to facilitate advancement.

Think Big, Start Small

Start with something easy to manage. It is generally much better to go ahead and think big, but start small and build on success. Many companies are overly ambitious at the start: their priority is a comprehensive S&OP process with all the bells and whistles. But when their expectations aren’t met, people are disappointed and pull out. Think big but start small!

For more insight into forecasting and planning best practices, join me at IBF’s Business Forecasting, Planning & S&OP Conference in Orlando, held from October 19-22 at the Wyndham Orlando Resort. The biggest and best event of it’s kind, it’s your opportunity to learn best practices in S&OP, demand planning and forecasting, and network and socialize in a fantastic setting. See here for details.