In the previous article we talked about the essential requirements for people and processes to ensure successful S&OP. In this second part, we will talk about the initial business decisions that must take place before the implementation process begins.

Understanding The Business

Rather than implementing a methodology that involves a cycle of meetings with key people, S&OP leaders and their teams need to understand the business they are in, and understand their products, competitors and trends. Benchmarking data is highly valuable when it comes to staying current with how your products and processes should be performing. [Ed: IBF members get access to world-leading S&OP,  forecasting and planning benchmark data.]

I have seen poorly-aligned S&OP processes that have not only failed to deliver wide strategic goals, but cost the company a lot of money in the process

Strategic Planning

A mature S&OP process supports the delivery of the strategic plan. With this in mind, it is necessary that S&OP’s objectives are 100% aligned with the business strategy. I have seen poorly-aligned S&OP processes that have not only failed to deliver wide strategic goals, but cost the company a lot of money in the process. I was recently in a situation where a new S&OP team at a midsize company was focused on reducing inventory without analyzing the risk of stockouts on the business. This was a major problem because the company’s strategy was to grow exponentially in almost all product categories. All teams were working towards this goal (including Marketing who were pushing the products aggressively) apart from S&OP. With the strategic misalignment of the S&OP team, many products were unavailable, causing a non-recoverable loss to the business that year.

Swot Analysis

The S&OP team needs to be clear about the Swot analysis of the business that will be covered in the S&OP process, primarily to tackle the Opportunities and improve the Weaknesses. One recommendation is to have a discussion with key managers to raise these already-known opportunities and pain points and prioritize those to be helped by the S&OP process. With this clarity and prioritization, results from the S&OP will happen faster.

Planning Horizon

This planning horizon depends on the type of business but as we are talking about an immature S&OP process, the shorter the planning planing horizon the better – when we start out, we want the process to be manageable and that means not looking too far ahead. Some businesses, however, do not allow for a short planning horizon – you’ll need to decide on what is most appropriate at the outset.

Set up KPIs so you can monitor how the implementation process is evolving and make any necessary adjustments

Key Performance Indicators

Another point that often ends up being an afterthought are key performance indicators. It is important that these are defined and set up so you can monitor how the implementation process is evolving. This way we can see if we’re on track and make any necessary adjustments. 

You should measure the performance of the following:

Strategies: Service Level (OTIF) , Working Capital, Growth Revenue, Margin, P&L. (Measure by Region, sales channel, product categories, etc.)

Sales: MAPE (Mean absolute percentage error) or Sales Forecast Accuracy, Bias. (Measure by Region, sales channel, product categories, etc.)

Operations: Accuracy of plans: production, materials, transfer of products to warehouses, revenues.

Inventories: Inventory days, inventory turn, inventory health.

Projections: Storage, % use of head count, % use of the industrial park.

S&OP Maturity: If the company already has an S&OP initiative in place, the recommendation is to measure the current maturity of the S&OP process using a maturity model. 

Everything you are planning needs to be measured so that adjustments are made exactly where you need them. If the company does not have a KPI process in place, the recommendation is to carry out performance measurements afterwards. This way you can identify what level of maturity the team has managed to achieve, and put together a plan for further improvement.

The purpose of this article is to make clear the essential requirements for sustainable S&OP process implementation. S&OP implementation has a high failure rate, with most initiatives not actually delivering any value and doing nothing to improve the balance between demand and supply. Using this S&OP kick-off guide, the chances of failure are much reduced, increasing your chances of leveraging S&OP as a growth driver that provides a real competitive edge.

Often the S&OP Process implementation initiative is carried out in a poorly structured way, especially when the implementation decision is made from the bottom up without executive sponsorship. The managers involved in this type of implementation end up not following the methodology completely, leaving out the essential pillars that are required to sustain the process. This means creating more work further down the line, day-to-day difficulties in the S&OP process, and, sometimes, damaging the credibility of the process which can result it its death. Haste and lack of capacity building are usually the key factors in the demise of the S&OP. S&OP is like building a house – it needs a strong foundation, and if the proper work is not carried out at the beginning, problems down the line can cause irrevocable damage. Here are some helpful pointers that will guide a successful S&OP, regardless of whether it is a top down or bottom up initiative.

Sponsor: This is the person who will provide the necessary support before, during and after the implementation of the S&OP process. This person must have great influence within the company, have knowledge of the process, and be able to carry out all the necessary alignments and approvals with the main managers. This person needs the necessary position and communication skills to open doors that may have been locked for years.  

S&OP in the hierarchy: Normally the S&OP area is created within the Supply Chain, however, when the process leaves stage 1 maturity it is important that the S&OP area reports to a neutral entity (free of department specific interests) in the company, for example: Finance or a senior executive. S&OP and its management need to maintain the collective interest with focus on the best result for the overall business.  

S&OP Leader: This person needs to have solid experience and knowledge in Supply Chain, as they will lead a wide range of different activities. In addition to the experience and technical expertise in the field, the S&OP leader will need to have great energy and discipline to meet the schedule, and a willingness to move people around and change processes to ensure integration. Ability to communicate at different levels is necessary.. Involvement of the human resources area is critical at this stage to find the right candidate. When choosing the right person for S&OP Leader, a junior profile will not cut it.

S&OP Team: As we are dealing with a total integration process, we absolutely must involve all areas, even if we have to demand it. An S&OP Committee is recommended for the initial phase, with all parties committing to collaboration and support of the implementation project. Choosing the right people and their backups is key to starting the process as well as maintaining it later on.

Roles and Responsibilities: Each S&OP member must have a clear role and defined responsibilities within the S&OP process. They need to be trained to contribute properly in the process – both inside and outside meetings – as facilitators and process owners. I recommend you use a matrix of responsibilities, train those involved and record all activities.

S&OP Meetings: All meetings must have: an objective, a duration, participants, inputs, discussions, outputs, attendance list, and a list of required actions. Participants at each meeting will need to be trained to ensure an effective meeting.

Meeting Schedule: All S&OP monthly and weekly cycle meetings need to be set in advance. In order for people to attend the meetings, invitations need to be sent as soon as possible. One recommendation is to keep the invitations sent for the next 3 months of meetings. It is necessary to pay attention to special dates like holidays and events that could affect attendance.

Documentation: The S&OP process must be formalized through documents like process flowcharts, procedures and operational instructions to ensure the decentralization of information and the survival of the process when a team member leaves. The is important in assisting standardization and proper management of S&OP documents. One of the most important documents is the S&OP policy which details S&OPs’ involvement in the business. In addition to containing all the requirements to establish and maintain the process, this document codifies the agreements and hierarchy of decision-making. It is a living document that must be kept up-to-date by the managers of the S&OP process.

Process Auditing: After a few monthly S&OP cycles, an S&OP audit process has to be defined to ensure that everything that was planned has been implemented in practice. This must be carried out by an independent team, who will have to be trained in S&OP to audit the process. In some companies this department already exists.

[Ed: These are the essential criteria for successful S&OP, that will both facilitate its implementation and sustainability. Only 1/3 of S&OP initiatives end up actually adding any value –  make sure you lay the appropriate foundations to ensure yours is a real growth driver.]