Experienced Demand Planners add value to statistical forecasts by bringing in customer and market knowledge that algorithms alone can’t capture. By monitoring information about their customers in the press and trade journals, they can gain a perspective on potential customer performance issues.

Their knowledge of management changes, potential mergers and acquisitions, merchant changes and financial and operational issues with their customers allows them to advise the S&OP teams about the potential impacts of these factors.

However, in my own experience, one of the greatest sources of customer intelligence exists within my own company and is frequently overlooked.

“Your customer service team can be a secret weapon in managing customer performance and service levels.”

Your customer service team (also sometimes called voice of the customer) can be a secret weapon in managing customer performance and service levels. In my own experience, customer service members were often able to answer customer ordering and performance questions better than anyone else. In some cases these teams also had more consistent contact with customers than their sales counterparts. Their perspective on the business can be very helpful. In my experience, I’ve found five reasons why this is the case, and why you should consider including them in your planning meetings.

1) They Have Their Finger on the Pulse

Experienced customer service members understand the monthly and annual pulse of their business. They know when orders peak each year, what customers have historically ordered large quantities of specific products at unusual times, and when orders begin to drop off each year. Their expertise is especially important in seasonal businesses where orders peak and decline based on weather or cultural events rather than annual holidays.

Their knowledge of the annual ebb and flow of orders can aid the whole S&OP team in planning each month’s expected demand, especially when orders come in that do not match the expected monthly or annual patterns.

2) They See Orders Before Anybody Else

The customer service team sees the incoming orders before anyone else. The are the first to see when orders are larger than normal, and when they are early or late in relation to the normal flow of orders. They are also the first to see when new items are ordered, or when customers orders items that they don’t normally order. They are the first line of demand sensing. Asking them to notify the team when orders are out of the ordinary can help the team adjust their current and future plans accordingly.

3) They Know if Orders are Keeping Pace With the Plan

The customer service team can also advise the team when orders are pacing ahead or behind the planned level for a given period. Knowing when the monthly orders are consuming the forecast faster than planned allows the S&OP team to adjust both the forecast and the planned production to meet the higher demand.

And on the reverse side, knowing when orders are running behind the anticipated pace can help the team allocate product to later periods and allow the production teams some leeway in their production planning. In addition, this team’s advice on allocating limited product and managing shortages can also help improve the overall service level by spreading the available product where it is most needed based on the current open orders.

4) They Identify When Buying Patterns Change

Apart from seasonality, the customer service team can also advise the S&OP team when customer order patterns change significantly. Knowing when a retail customer that normally orders early in the month delays their orders, or when an industrial customer sends in an unusually large orders after wining a new contract, can aid the S&OP team in adjusting production or allocating product to meet the change in demand.

They can also point out unusual orders that need attention to understand if these are one-time orders or part of new pattern. In addition, they can track whether seasonal orders are coming earlier than expected or if they are delayed, allowing the production team critical time to adjust their plans to meet the early demand, or replan to balance production to better match the new trend.

5) Promotions and Events

In addition to assisting with executing planned promotions, the customer service team can also advise when customers execute unplanned promotions or when extreme weather or emergency events drive additional demand. These changes are usually very disruptive, so any advance warning is very helpful. Their early warning of these changes can give the planning and production teams a chance to adjust to the change in demand and balance supplying the unexpected demand along with the normal monthly demand.

Give the Customer Service Team a Stake in the Business

By including your customer service team in your planning, you can give these team members a stake in the business’ success. While this may involve additional work on their part, I have found that the people on these teams appreciate seeing how their work contributes to the company’s success.

“It surprises me how often the customer service team is aware of a customer issue long before the salesperson managing the account is.”

In some cases I have actually asked individuals on these teams to report specific types of transactions to the S&OP team so that the planning teams get the earliest possible warnings about significant changes in order patterns and timing. And in addition to helping manage orders, these team members are frequently also aware of customers that are late in paying, are on credit hold or are in financial distress. It surprises me how often the customer service team is aware of a customer issue long before the salesperson managing the account is aware of the issue. In some cases I have seen the S&OP team ask the customer service team to track and report on the ongoing orders from specific customers when the customer’s ordering becomes erratic.

Remember also that the key customer service metrics – order fulfillment (including OTIF) and service level are also important metrics for your overall supply chain performance.

Based on the fact that the customer service team most often see ordering problems and patterns before anyone else, it makes sense to include them in planning how to best meet your customer’s needs and expectations.

The current US political environment is turbulent, but there is rare bi-partisan alignment concerning China’s role in global geopolitics. International policies from both major US parties encourage businesses to relocate operations from China or risk higher tariffs and restrictions. This has left companies across industries wondering where to look for low-cost manufacturing.

In a recent Journal of Business Forecasting article, we discussed key considerations for shifting operations to Mexico; however, many operating models, especially those that have a global customer base, will require a footprint outside of North America as well.

For those sectors whose operations would be supported by maintaining an APAC footprint, India is a compelling option. The world’s fastest growing major economy has enacted business-friendly reforms, is developing supporting ecosystems through investments in areas like infrastructure and transportation and offers access to a growing and highly educated labor pool.

Risk matrix of outsourcing to low-cost manufacturing countries

Favorable Regulatory Environment Encourages Growth 

India has made a clear goal to grow its GDP, and the current policy approach is to develop into a regional manufacturing powerhouse. In recent years, India has made progress through several initiatives to become a more appealing operating environment, climbing the World Bank’s ease of doing business index rankings to 63^rd in its most recent iteration.

While this is an improvement, India still trails other low-cost economies such as Poland, Thailand, and Mexico. One flagship program to continue climbing the ranks is the Production Linked Incentive (PLI). This program targets growth in key sectors, offering incentives totaling INR 1.97 trillion (USD ~23 bn) from 2020 to 2025 linked to incremental increases in sales of goods manufactured in India by approved applicants.

“Subsidies and lowering barriers to entry signal India’s aspiration to be a prominent player in the global economy.”

To this end, foreign direct investment (FDI) approvals for organizations without ties to China or the Chinese government have been fast-tracked through channels where approvals are largely automated. This program has been successful with reports showing Investments of USD ~13 bn generating production and sales of USD ~103 bn and creating 678,000 jobs. Introducing subsidies and lowering barriers to entry signal India’s continued aspiration to walk back protectionist policies and become a more prominent player in the global economy.

While these are new programs, India’s increasing economic openness is part of a larger trend, stemming from India’s economic liberalization movement in the early 1990s. Prime Minister Modi’s “Make in India” and Atmanirbhar Bharat (“Self-reliant India”) initiatives revitalized this movement since the 2010s by encouraging organic domestic development of manufacturing supported by FDI across several key industries such as pharmaceuticals.

Policies in 2023 tied to these initiatives refocused national agencies to defend India’s position in pharmaceutical markets from low-cost Chinese alternatives. The National Policy on Research and Development in Pharma-Med Tech in 2023 responded to increasing price pressures by creating a foundation for domestic and international players to innovate in the pharma-med tech space, building on PLI schemes already in place for the sector. The policy codified structures in the national education system to ensure sufficient domestic expertise in pharmaceuticals though university programs, and it centralized drug approval processes across several agencies to reduce process time by 50%.

“India is now the 3^rd largest nation in pharmaceutical manufacturing.”

India’s efforts have catapulted it to becoming the 3^rd largest nation in pharmaceutical manufacturing. This policy specifically targets the pharmaceutical industry, but similar mechanisms exist across several industries and set the stage for broad transformation of India into an ideal operating partner for globalized players in the coming decades.

Investment in Transportation is Allowing India to Compete with Regional Powerhouses 

Several manufacturers have taken advantage of open economic policies and invested in manufacturing infrastructure. Major brands based in APAC (e.g., Samsung, Foxconn, Toyota, Hyundai) have shifted manufacturing to India and continue investing to realize scale benefits. In parallel, India launched several infrastructure projects through the late 2000s, and most recently its National Logistics Plan, to continue developing the major arteries required to transport finished goods and raw materials throughout the country and major ports.

In 2009, the central government launched Bharatmala Pariyojana, a USD 140 bn program to build 50 major transportation corridors and connect 550 districts with 4+ lane highways to support freight connectivity across the country. Since 2009, 75% of the program’s projects have been awarded and 25% of the planned roadways have been completed.

Similar programs for air and ocean shipping were also launched. India announced USD 16 billion of investments in its national ocean ports across 150 initiatives. In addition, the country is planning to invest USD 35 bn to operationalize 220 regional airports across the country by 2025 (almost triple the 74 regional airports in 2014), including enhancements to its major international airports.

Programs like these across all modes of transportation eliminated systematic transportation inefficiencies across India, bringing logistics costs from ~14% of GDP to ~8% of GDP which is now in line with global averages. The National Logistics Plan (NLP) seeks to build on these legacy programs’ success with further reductions in transportation costs to ~5% of India’s GDP. These reductions will be driven by cross-ministerial collaboration and a digitization of India’s transportation infrastructure (e.g., eWaybills and a digital toll system). Following the 2023 G20 summit, this plan would cement India’s role in the announced India-Middle East-Europe Corridor (IMEEC), directly competing with China’s Belt and Road Initiative (BRI).

India is Investing Heavily in Logistics Channels 

These logistics efforts support initiatives across sectors and the automotive industry, amongst others, has benefited from connections developed between key manufacturing hubs. Tata motors, Mahindra, Volkswagen and other international players have operated in India for the last two decades and doubled their overall CAPEX investment in R&D and Manufacturing from 2014–2024.

Milestones in India’s automotive industry

The country’s various transportation sector developments have supported automotive players to transition from independent manufacturing locations into an automotive manufacturing ecosystem, enabling each region to develop specialties and more easily ship components to the next link in the supply chain. These knowledge clusters build on each other’s capabilities and are merging to become an innovation ecosystem. Smart investments in key knowledge clusters within India can ensure these communities continue to expand to meet the future needs of manufacturers in the region.

Where key Indian and international manufacturers base their Indian operations

Outsourcing to India Overcomes Labor Force Scarcity

Globally, manufacturers will face an ongoing challenge of labor force scarcity as most major manufacturing countries will have declining workforce populations over the next 25 years. Understanding the workforce population and demographic dynamics (e.g., age bubbles) is critical to ensuring long term success. Transitioning to India for manufacturing operations can reduce the risk of declining labor availability in the short and long term.

India’s working age population is anticipated to grow by 16% from 2022 to 2050, developing a large, highly educated workforce. In the same period workforces in China and other Eastern bloc countries popular for manufacturing will decline double digit percentages by 2050. Investment in manufacturing expansion where there is strong labor force growth reduces competitive pressure for skilled labor and ensures labor availability in the long run.

Working-age population forecast for 2050 & working-age pop. growth compared to 2022

India workforces are growing but additional labor regulations must be considered. Indian workers are subject to multiple jurisdictions of labor regulations at the state and national level, and, because these regulations supersede any contract agreements, contracts require more scrutiny to ensure compliance.

India’s labor regulation environment is reminiscent of other major economies with its strong discrimination protections and leave requirements, but it has tighter regulations surrounding termination. When terminating employees, 30-90 days’ notice is typically required and large-scale terminations of more than 100 people require government approval in key sectors like manufacturing and agriculture. Furthermore, non-compete agreements cannot be enforced once an employee is terminated, limiting the IP protections that are typical in other regions.

A Footprint in India Unlocks Sales Channels to the Fastest Growing Major Economy 

India is on track to be the 3^rd largest economy in the world by 2030, but it has historically been a difficult market to enter. As the population and GDP continue to grow there is a unique opportunity to unlock a growing middle class. As seen following the manufacturing booms in China and Brazil, growth in manufacturing ripples across the economy, fostering a new middle class of consumers and invigorating the broader economy.

As businesses grow with this new customer base, supply chains will need to adjust to meet rising end market demand. Serving this customer base domestically reduces transportation and tariff costs, making products more accessible. This business model shifts operations out of China but retains access to other key markets within APAC, unlocking a new Indian market without impacting existing sales channels.

Beyond operational benefits, leveraging India for manufacturing unlocks the market by increasing local production content to be certified as a local supplier. Establishing manufacturing in India ensures a “Made In India” (MII) certification to satisfy local content requirements among other benefits. The latest revised Order 2017 reaffirms its original minimum 20% local content requirement for certification but now excludes transportation and other non-manufacturing costs in the local content calculation. These changes increase the need for manufacturing presence in India to retain certification.

Order 2017 further requires all companies participating in procurement bids for the Indian government to secure a MII certification. While MII certification is not required for private sector operations, it generates good will among potential customers and mitigates potential political risk from government leaders opposed to foreign businesses.

Conclusion

As companies consider de-risking their supply chain and moving operations out of China to other APAC countries, India should be considered among other regional players like Vietnam, Thailand, and Indonesia. India’s growing population is highly educated and has an appetite to become a new manufacturing powerhouse. Their national government has enabled this aspiration through programs to encourage FDI in manufacturing and investment in infrastructure required for a long future of operations.

The impact of India’s growing manufacturing sector will be felt across the economy as B2B businesses grow in parallel with consumer brands capitalizing on the new tastes of an emerging middle class.

“Companies will need to overcome a more challenging business environment than in other large economies.”

Entering India for operational benefits or as a new sales market is not without risk. Realizing the operational benefits of India’s investment and support structures will require companies to have the appetite to overcome a more challenging business environment than other large economies. Product archetypes (e.g., supply chain intensive, material intensive, labor-intensive, etc.) misaligned to the industry specific support structures and opportunities offered by the Indian market create new structural challenges rather than solving them.

Furthermore, products which may be best produced in India may not be ideal to also sell in India, so organizations should independently assess sales opportunities and their internal appetite to pursue those opportunities before investing.

Over the last several decades, India has pursued becoming a dynamic hub for global operations, and it has realized its multi-decade vision of being a more open economy. India is well on its way to becoming a regional manufacturing location of choice, but it has only started its journey to surpass international manufacturing juggernauts.

Forecasting is becoming more difficult and less reliable for business planning purposes. Forecasting models are typically developed using historical patterns of behavior and of related events. There is often an unspoken ceteris paribus assumption that all things outside of the model hold constant but this is far reality.

In periods when exogenous forces of change move relatively slowly, such forecast models produce acceptably reliable projections. But the pace of change in exogenous forces affecting business has been increasing rapidly. These exogenous forces of change are increasingly impacting the effectiveness of planning in both the long-term and short-term.

The demand volatility that results leaves us with a choice: We either accept the risks of unexplained variation in our forecasts or adopt hedging strategies and plans that mitigate their effects. Hedging is a means of mitigation in the face of uncertainty. While hedging short-term risk across the company’s functional areas is important, hedging of long-term risks is essential to the very existence of the business. As with every business initiative there is a trade-off. Here it is the cost of hedging risk vs the benefit to be realized from the hedge. So, what are hedging strategies?

Types of Supply Chain Hedging Strategies

In Finance, for example, hedging is a risk management strategy employed to offset losses in investments by taking an opposite position in a related financial asset. In supply chain activities, hedging is often done trading in the commodities options markets to reduce the effects of price fluctuations in essential materials used to make the company’s products.

Insurance products are also an example. If a company buys property insurance, it is hedging itself self against fires, weather, or other unforeseen disasters. Similarly, this is the case with key-man insurance and officer liability insurance in business. In demand planning and supply chain forecasts and plans, inventory is often used as a short-term hedging strategy for uncertainty. Supplier selection and diversification can also be a hedging strategy. Some risks are insurable, which diversifies the risk sharing. Some risks are not insurable. So, portfolio managers, individual investors, and corporations use hedging techniques to reduce their exposure to various risks that they cannot directly control.

Identification of exogenous risk factors requires participation of experts from all areas of the business

Executive and senior management are responsible for the strategic and long-term plans of the company and for implementing hedges to deal with risks that exist within these plans. The first step in developing hedging strategies is to determine which forces of change are significant and are materially increasing financial, operational, or other short-term and long-term risk. Identification of significant exogenous factors requires participation of cross-functional members who are experts in the risks related to sales, marketing, operations, product development, demand planning, supply chain, inventory management, distribution, finance, and other key functional areas within the company.

Since these functional areas have unique risk characteristics but also affect each other, it is important to approach the question of material risks in a holistic manner. Any business forecasting and planning efforts will need to consider hedging strategies as they relate to the functional areas individually and collectively. So, structuring a process of cross-functional involvement is important to precluding siloed efforts which do not assess the cross-functional interaction of risk.

Risk assessment is usually initiated by executive management and undertaken by senior management across the functional areas

This risk assessment process phase generally happens as part of the strategic and long-term planning of a company. It is usually initiated by the executive management and is undertaken by senior management across the functional areas. The demand planning and supply chain functions are involved along with other functional areas, but the purpose is to orchestrate and integrate the risk assessments and hedging actions across the company. Finance and FP&A are heavily involved due to the monetization activity that is a part of this effort. Naturally, the finance functions of the company are usually an important part of the higher-level, long-term planning for which senior and executive management are responsible.

Exogenous Risk Categories

Each functional area should develop a list of exogenous risk categories that characterize their functional responsibility. These broad categories could be technological, environmental, competitive, political, financial, demographic, economic, market-related, etc. Within these broad categories, specific significant risks both short-term and long-term can be identified along with the degree of risk (e.g., extremely high, high, medium, moderate), expected effects and results, associated potential costs or profit loss, as well as potential hedging actions that may be considered. Hedging actions should consider resources required and potential costs and benefits of the hedging activities necessary to offset or partially offset the risk.

It is important that FP&A be involved to dollarize risks and actions

It is important that each participating functional area shares its results and findings with the other participating functional groups. Their coming together as a group to review and integrate their combined risk assessments is important in being able to prioritize different risks, assess the collective business effects, determine which can be hedged and to what degree, and to develop a plan of action that addresses the timely hedging of the most significant risk areas. It is important that FP&A be involved to dollarize risks and actions as well as support all of the functional areas in the translation of their findings into financial effects and financial plans.

Real-Life Examples of Hedging Risk

Example 1: Business Software

Let’s look at a real-world example. There is a global business systems company for which the R&D/Product Development function develops operating systems, hardware, and software for sale to multiple business types globally. The company funds these undertakings from an R&D budget that is funded as a percentage of corporate revenue. It was working on a replacement for an existing retail software product that had a tight introduction timeline given the existing product was close to the end of its lifecycle. Designing the replacement solution was complicated because there were multiple types of technology that could be used to build it. This presented uncertainty both in terms of performance and cost to build and roll out the replacement system.

So, the company hedged the technology risk with a multi-path development approach, starting three alternative projects simultaneously, from which the company would select the best option. There were periodic assessments of each project to evaluate progress. A date for a decision was set and, based on the findings, a final technology solution and product design was chosen from the three options and carried through to completion, abandoning the other two projects that did not make the cut.

This allowed the company to meet the market window timeline that was so important to the product introduction, and to choose the best technological alternative to ensure acceptance and product longevity in a competitive marketplace. The cost of the three projects was more than offset by the additional revenue and profit realized by hitting the market introduction window and in having a competitive technology solution.

Example 2: Food Service Industry

Another real-world risk hedge example is from the Food Service industry. There is a large midwestern restaurant industry corporation that had a growth plan for expanding its market penetration through a combination of franchising and company unit market development. It was a publicly traded company on the New York Stock Exchange, and its value in the market was materially influenced by investor expectations for the success of the growth plans of the company.

The company used regional vendors for getting supplies to the restaurant locations and would continue to expand this supply chain as market expansion continued. But there were signature products that were absolutely essential to the financial success of the restaurants, especially as expansion took place into new markets. Insufficient availability of these signature products from third party vendors as expansion occurred was a major risk to the success of the expansion plans.

So, to hedge the long-term Signature Product Risk, the company purchased a food processing operation in a strategic location in the geography of the growth area. The company would operate and control the food processing plant and its operations. It had the capacity to service all of the current locations as well additional locations as market expansion continued. It also had the potential to expand its processing capacity if market expansion exceeded currently planned levels.

As it turned out, this processing plant met market needs for a long period of time and supported the growth strategy, and even went on to expand its capacity as the company went beyond the original expansion plans. This provided a flexible and expandable hedge for the Signature Product Risk that could have affected the company brand positioning, the financial success of the restaurant operating units, and the success of the business expansion programs.

Top management support, buy-in across functional areas, and translating results into activity and financial plans is essential.

The best forum in which to drive the risk assessment and hedging efforts described above is the long-term business and strategic planning of the company. Top management support, buy-in across functional areas, and translating results into activity and financial plans is essential. It can add to the quality and effectiveness of the long-term and strategic planning processes in which senior and executive management is involved. It provides a framework for functional risk analysis, and hedging can be done for short-term risk hedging across the company’s functional areas.

The Bottom Line

As the speed and degree of change continues to become more of a factor in business forecasting and planning —  both short-term and long-term — company success and survival will require processes that are adaptive by nature to the risks that are affecting all businesses today. Hedging strategies are an important consideration in this increasingly volatile business environment. Assess the risks in your business forecasts and plans. Expect the unexpected. And hedge your bets.

This article first appeared in the fall 2023 issue of the Journal of Business Forecasting. To access the Journal, become an IBF member and get it delivered to your door every quarter, along with a host of memberships benefits including discounted conferences and training, exclusive workshops, and access to the entire IBF knowledge library. 

This article is taken from the book, Practical Guide to Sales & Operations Planning (S&OP/IBP). It’s currently available at a special introductory price. Get a copy here before the price increases.

Collaboration and involvement from people outside of one’s own role become very important in the complex dance of business operations, especially when it comes to Sales and Operations Planning (S&OP).

Imagine that a carefully thought-out forecast fails because important details about a last-minute marketing strategy are not shared, or a new product fails to launch because they did not have a piece of information from sourcing. These mistakes often happen when people and groups work alone, and it shows how important it is to have a structured way of coordinating across functions.

“Real-life problems often make it hard to work together smoothly”

Even though every company always says it is important to break down functional silos and build up communication, real-life problems often make it hard to work together smoothly. This realization shows how important it is for companies to have a structured way of achieving this cross-functional alignment.

When functions work together, each one affects the other, kind of like seeing all the puzzles put together instead of just a piece. This synergy could show up as a huge sale, less product that does not sell quickly, or the ability to find new synergies to cut costs. Without good communication and participation, a process that starts without involving other departments can end up putting extra work on them, which can lead to extra costs and missed chances.

Effective collaboration and cross-functional involvement are key to the success of mature Sales and Operations Planning (S&OP) processes. A mature process creates a unified way for the company to communicate better and reach its goals.

What Exactly Does Strong Teamwork Look Like?

• S&OP Goals Are in Line with Each Other: To work together well, everyone needs to be on the same page about the S&OP goals. To be committed to a cross-functional method, the functions that are taking part must give up old ways of doing things and trust that the S&OP process will bring benefits. This connection makes sure that everyone is working toward the same goal, which brings together and makes sense of different business functions.
• Supporting Mindsets and Behaviors: Adopting mindsets and behaviors that fully support the stated process is a key trait for high-performing cross-functional S&OP teams. To do this, silos need to be broken down, and a setting needs to be created where people from, say, the Commercial and Supply Chain or Finance see themselves as equal partners. Adopting a helpful attitude and working together makes S&OP stronger, letting ideas and suggestions from different departments fit together easily.
• Active Participation: Active participation is a must in an S&OP process that works. True alignment makes sure that all activities are focused on the company’s main goals and are coordinated between different functional areas. If all stakeholders are not involved, there could be differences in the amount, mix, location, or timing of products, which could hurt total performance.

Collaboration in mature S&OP processes is more than just working together; it includes having the same goals and having an organizational mindset that values working together to achieve those goals. Businesses can get the most out of S&OP by making sure everyone is on the same page, encouraging helpful thoughts and actions, and encouraging active involvement. This will increase efficiency, flexibility, and long-term success.

How do I Get Functions to Start Working Together?

To get people from different departments to work together and be involved in Sales and Operations Planning (S&OP), you need a plan that considers differences in culture, skills, and communication. To help foster this collaboration, here are seven steps you can take:

• Cultural Brokers and Change Catalysts: Recognize people in the company who are great at making connections between areas. These “cultural brokers” or “change catalysts” can help teams work together better by working with people from different backgrounds, stepping into different roles, and making links.
• Upskill for Cross-Silo Success: Give functional leaders on diverse teams training and mentoring programs to help them get better at their jobs. Training can teach people how to ask open-ended, fair questions, think about other points of view, and see things in a bigger picture.
• Encourage Communication to Build Trust: To build trust among cross-functional teams, encourage open communication. Promoting open communication helps team members who do not know each other well get over trust problems that come up because they do not know each other well.
• Set Up More Structure: Even though it may seem like speed is important, structure is actually very important for cross-functional teams to work well. Set clear jobs, goals, and responsibilities to make it possible for people to work together. Using a structured method helps S&OP become more mature.
• Use Meaningful Metrics: Connect the changing performance of your team to the goals and key performance indicators (KPIs) of your company. Set clear, cross-functional goals and measurements that are in line with the organization’s objectives. This makes sure that the team’s work helps the project succeed as a whole.
• Acknowledge and Reward Success: Use KPIs to track and acknowledge growth and success. Leaders should praise individuals or groups for doing a great job, and stress how important cross-functional collaboration is, and how it can help the company.
• Choose the Right Technology: Spend money on teamwork and communication tools that make it easy for teams from different departments to work together. To improve communication and teamwork, use tools like screen sharing, video chat, and process management apps.

By following these steps, companies can create a setting where people can work together in the S&OP process, which will lead to better communication, trust, and organized teamwork between different departments. This method helps make S&OP more mature and increases the success of the company.

Conclusion

In S&OP, cross-functional collaboration is not just about sharing wins; it is a strategic must to see how actions affect the whole picture. It requires removing barriers to create an environment where departments are not only contributors but also active participants in the organization’s success.

IBF’s new book Practical Guide to Sales & Operations Planning is a fantastic resource to learn best practices in S&OP and IBP from world-leading planning experts. You’ll learn how to start an S&OP/IBP process, progress it along the maturity curve, and use it to drive effective decision making that has a direct impact on KPIs like inventory turns, forecast accuracy, cash flow, customer service and more

This article is taken from the book, Practical Guide to Sales & Operations Planning (S&OP/IBP). It’s currently available at a special introductory price. Get a copy here before the price increases.

As companies advance in their S&OP journey, the depth and breadth of planning expand, necessitating greater involvement from finance professionals. Finance expertise becomes indispensable as it adds nuanced insights beyond mere numerical analysis to the S&OP framework.

This integration fortifies businesses, enhancing their adaptability in today’s dynamic market landscape. Integrating finance into S&OP transforms the process from an ancillary function to a pivotal component of organizational strategy. Managers gain visibility into real costs, steering decisions towards tangible outcomes rather than theoretical conjectures. From procurement to production scheduling and marketing strategies, finance-informed decisions align with overarching business objectives and financial plans.

“Finance transforms S&OP from an ancillary function to a pivotal component of organizational strategy”

Excluding finance from S&OP, planning is limited to input-output dynamics, overlooking crucial aspects of business operations. Finance’s involvement is essential for a holistic understanding of the business ecosystem, as it ensures that decisions are based on financial realities. Collaboration between S&OP and finance bridges gaps in comprehending interdepartmental synergies, facilitating informed decision-making.

A synchronized approach that seamlessly integrates forward-looking sales and operations plans with financial considerations is essential for effective budgeting. This alignment ensures that planning decisions directly impact financial outcomes, fostering organizational coherence and fiscal responsibility. By fostering collaboration between finance and S&OP stakeholders, businesses cultivate a comprehensive understanding of operations, enabling informed cost management decisions essential for sustained growth and profitability.

Benefits of Integration

It’s important to know how to talk about business in the Executive S&OP step by turning plans for numbers into plans for money. Executives decide what to do based on how the results will affect the organization’s health and its bottom line. They talk about EBITDA, P&L, and cash flow, not estimate error, units, and capacity. When Finance and S&OP work together, you can talk to leaders in their own language and make sure that everyone has a better understanding of the plans.

1.Alignment with Financial Goals: Finance being a part of the S&OP process makes sure that decisions made by the business are in line with its overall financial goals. When financial factors are taken into account in strategic planning, the S&OP process becomes a unified force that drives the company’s goals.

“Finance’s role in S&OP gives it a strategic view”

2. Strategic View: Finance’s role in S&OP gives it a strategic view by consistently predicting key business drivers, using predictive analytics, and incorporating up-to-date sales data. By adding financial information, the organization’s strategic path, risk assessment, and upcoming opportunities can be shown more accurately.

3. Collaboration: S&OP is naturally a process that involves people from different departments, and adding Finance breaks down silos and encourages people to work together. Different departments can make choices that are in line with bigger financial goals if they work together. Finance helps make it easier for people from different departments to work together and takes budget limits into account when making long-term plans.

4. Flexibility: A flexible financial plan is important in today’s fast-paced business world where market conditions, customer tastes, and world events are always changing. Adding Finance to S&OP, which focuses on ongoing planning and rolling forecasts, helps businesses respond quickly to changing conditions by making sure that monthly predictions are in line with financial plans.

“When Finance is added to S&OP, it makes the whole company take the same approach”

5. Unity Across the Enterprise: When Finance is added to the S&OP process, it makes the whole company take the same approach. By making a monthly Profit and Loss (P&L) and rolling forecast, businesses can better understand the factors and drivers that affect different areas. This breaks down barriers and promotes a more unified work culture. Long-term resilience in the face of uncertainty is helped by this unified method.

How to Integrate Finance Into S&OP

• Monetizing S&OP Plans: The first step towards integration is to monetize S&OP plans. This involves translating plans into financial terms and ensuring that all participating S&OP functional leaders have monetized plans to run their respective areas effectively.
• Alignment of S&OP Design with Financial Management: It is very important that the S&OP design is in line with how the business handles and reports its finances. This alignment ensures the easy addition of financial factors to the S&OP structure.
• Speaking the Same Language: The S&OP structure needs to be able to communicate with the finance team. We must change S&OP measures from volumes to values, inventory to working capital, and resource use to return on assets in order to achieve this.
• Finance-Led Variance Discussions: Finance can be very helpful when it comes to leading budget difference conversations, asking important questions, and speaking up when needed. This collaborative approach ensures the consideration of financial concerns during decision-making.
• Joint Objectives for Financial and Operational Departments: Setting shared goals for the finance and operations teams gives them a direction to follow, makes their goals more aligned, and encourages them to work together.

Conclusion

Including Finance in the S&OP process is not only the right thing to do; it is also a must for businesses that want to do well in today’s business world. For organizations striving for excellence, transitioning from understanding how to get finance in S&OP to effectively leveraging this partnership for strategic success is critical. By harnessing the synergies between finance and S&OP, organizations can achieve greater agility, profitability, and long-term resilience. This is an important step on the S&OP maturity journey.

BF’s new book Practical Guide to Sales & Operations Planning is a fantastic resource to learn best practices in S&OP and IBP from world-leading planning experts. You’ll learn how to start an S&OP/IBP process, progress it along the maturity curve, and use it to drive effective decision making that has a direct impact on KPIs like inventory turns, forecast accuracy, cash flow, customer service and more

This article is taken from the book, Practical Guide to Sales & Operations Planning (S&OP/IBP). It’s currently available at a special introductory price. Get a copy here before the price increases.

Sales and Operations Planning (S&OP) stands as a cornerstone in the realm of Supply Chain Planning, serving as the nerve center that aligns diverse planning activities within an organization. The true potential of S&OP, however, blossoms in a mature implementation, offering a myriad of benefits that significantly elevate organizational performance.

Here are the top ten advantages intrinsic to a mature S&OP process, providing compelling reasons for any organization to embrace this transformative approach.

10) Builds Collaboration: A mature S&OP process acts as a catalyst, fostering cross-functional collaboration by dismantling silos and overcoming functional barriers. The convergence of stakeholders from sales, operations, finance, and other areas not only breaks down informational silos but also establishes a foundation for increased trust and accountability.

9) Builds Consensus: Achieving a unified vision becomes a reality with S&OP, as it ensures everyone operates from the same plan, aligning day-to-day operations with overarching business strategies. This unity reduces errors, facilitates plan reconciliation, and enhances adaptability when faced with unforeseen challenges.

8) Becomes More Agile: Contrary to the misconception that S&OP hampers agility, a mature process promotes collaboration and consensus as keystones to agility. With streamlined planning, organizations are better positioned to execute swiftly, plan buffers effectively, and strategize mitigation strategies with coherence.

7) Improved Visibility and Transparency: A mature S&OP process offers a comprehensive view of the entire business landscape, providing a forum for open discussions, conflict resolution, and informed decision-making. This enhanced visibility minimizes uncertainties and sets the stage for transparent communication across all levels of the organization.

6) Forecast and Plan Improvement: Beyond mere forecasting, a mature S&OP process elevates all planning facets, minimizing bias and incorporating diverse insights. The outcome is a set of plans that are not only more accurate but also more relevant and meaningful to all functions within the organization.

5) Resource Optimization: At its core, a mature S&OP process becomes a cost-saving engine for the company. By intelligently streamlining operations and optimizing resources, organizations enhance efficiency, eliminate bottlenecks, and fortify their supply chain, production, and logistics processes.

4) Better Customer Service: Beyond on-time, in-full (OTIF) metrics, a mature S&OP process contributes to top-line growth and revenue improvement. It enables organizations to understand customer demand intricately, leading to optimized inventory levels, timely product delivery, and enhanced customer satisfaction and loyalty.

3) Enhance Decision-Making: One of the hallmarks of a mature S&OP process is its ability to enhance decision-making. By providing a holistic view of the business, S&OP empowers organizations to assess different scenarios, evaluate risks, and develop informed contingency plans that align with their strategic objectives.

2) Higher Profitability: The ultimate goal for most organizations is maximizing shareholder value, and a mature S&OP process is the key to achieving this. It contributes to increased operating margins, enhanced capital efficiency, and sustained revenue growth, making it a cornerstone for higher profitability.

1) Competitive Advantage: In today’s dynamic business landscape, S&OP is not just a choice; it is a competitive imperative. Organizations that embrace a mature S&OP process gain a significant advantage by being more agile, responsive to market changes, and differentiated from their competitors. It is not merely a process; it’s a strategic advantage that propels companies toward long-term success.

Clearly, Sales and Operations Planning (S&OP) is not just a functional process but a strategic lever for organizational excellence. A mature S&OP process weaves collaboration, transparency, and agility into the fabric of an organization, providing a robust framework for sustained growth and competitive differentiation. If you have not started the S&OP journey, you are not just falling behind; you are falling behind a competition (that has most likely already read this book and has already embraced the transformative power of S&OP).

IBF’s new book Practical Guide to Sales & Operations Planning is a fantastic resource to learn best practices in S&OP and IBP from world-leading planning experts. You’ll learn how to start an S&OP/IBP process, progress it along the maturity curve, and use it to drive effective decision making that has a direct impact on KPIs like inventory turns, forecast accuracy, cash flow, customer service and more

In the ever-changing world of Sales and Operations Planning (S&OP), getting everyone to agree on a decision is important but hard to do. It means putting together different, and sometimes conflicting, goals and points of view into a single plan.

Consensus building helps teams and organizations work together, come up with new ideas, and be more aligned, but it can be challenging because different functions and personalities have different goals and points of view. But with the right plans, it is possible to get through the messiness of consensus building and make decisions that have wide support, leading to better strategies and company success.

The Challenge of Consensus in S&OP

There are several reasons why it’s challenging to reach agreement in S&OP. There are different priorities because each area (sales, operations, finance, etc.) has its own goals and ways of measuring success. Complex sets of data from many different sources underpin S&OP decisions, making them difficult to understand clearly. Market conditions, customer needs, and supply chain factors are constantly changing, necessitating constant adjustments and reevaluations. Furthermore, it’s important to remember that S&OP involves people, each with their own unique set of limitations, issues, perspectives, and prejudices.

This can sometimes make driving consensus and decision-making within S&OP feel like a battlefield, where each party is trying to gain ground and defeat the opposing viewpoint. In these negotiations, individuals tend to see the process as a scale, believing that by piling more reasons and facts on theirside, they can tip the balance in their favor.

However, in this warlike mentality, people search for flaws in others and arguments to bolster their own positions. Consequently, rejecting even a small idea can justify dismissing all of them, turning negotiations into a series of attacks and defenses rather than a constructive give-and-take. This adversarial mindset makes reaching a consensus challenging.

Insights to Consider

Reflecting on my experiences (and with the help of a recent book I read by Adam Grant, Think Again), I’ve found that the power of rethinking and embracing the possibility of being wrong are crucial elements in driving consensus in decision-making. Encouraging healthy differences and fostering open communication can lead to better decisions, innovative ideas, and stronger relationships. In S&OP, the harmonization of diverse opinions and objectives is crucial for achieving unified decisions.

By promoting an environment where team members feel comfortable expressing their views and challenging assumptions, we can create a culture of productive debate that enriches the decision-making process.

One of the key perspectives to consider in S&OP is collaboration, consensus, and transparency, which can mean the importance of intellectual humility and being open to new information. Encouraging team members to question their beliefs and consider alternative viewpoints can lead to more robust and flexible planning. Recognizing the limits of our knowledge and being open to new ideas helps avoid the pitfalls of overconfidence and confirmation bias, making teams more receptive to data-driven insights and collaborative solutions. By prioritizing learning and evolution over correctness, we can foster continuous improvement and adaptation in the S&OP process.

Regularly seeking and integrating feedback into planning cycles, promoting respectful discussions, and encouraging diverse perspectives can lead to valuable insights and drive consensus through mutual understanding. Embracing a mindset of continuous testing and adjustment can transform forecasts and plans into dynamic hypotheses that evolve with new data and insights, ultimately leading to more effective and resilient S&OP practices.

Applying Lessons to S&OP

Driving consensus in S&OP decision making can be challenging, but by applying these ten strategies, you can facilitate more effective and inclusive processes:

1. 1. Check Your Own Biases at the Door: Embrace the possibility of being wrong and maintain a desire to find the truth. By doubting your own judgment and remaining curious, you can adapt to new information and foster a more open-minded approach to decision-making. Clinging to outdated beliefs and opinions can be detrimental, and accepting the possibility of being wrong can be liberating. There is an importance to being willing to question and revise our thoughts, much like scientists who constantly test and refine their hypotheses.
2. Establish Clear Objectives and Guidelines: Clearly define the problem or decision at hand, outline the objectives, and ensure everyone understands the purpose and desired outcomes. Adopting a scientific mindset, where curiosity and evidence guide our thinking rather than intuition and tradition, can help us navigate complex and uncertain environments more effectively.
3. Foster Open Communication: Encourage open and honest communication among team members, creating psychological safety or a safe space where individuals feel comfortable sharing their opinions, taking risks, expressing ideas and concerns, speaking up with questions,
   and admitting mistakes—all without fear of judgment or retaliation.
4. Encourage Diverse Perspectives: Actively seek out and consider different viewpoints,
   experiences, and expertise within the group. This diversity of thought can lead to more
   innovative and well-rounded decisions, helping to identify potential blind spots and challenges.
5. Facilitate Constructive Debate: Healthy debate is critical for reaching consensus. Encourage team members to challenge assumptions, question ideas, and explore alternative solutions while ensuring discussions remain focused on issues and avoid personal attacks. Consider the importance of cognitive flexibility and the ability to switch between different modes of thinking. This includes knowing when to rely on intuition and when to seek out more data and analysis.
6. 6. Build on Common Ground: Identify areas of agreement early in the discussion, and build on these commonalities. Highlighting shared goals and values creates a foundation for collaboration and helps bridge differences.
7. 7. Seek Input and Ask Questions: Regularly check in with team members to gauge their comfort levels and gather feedback. Ensuring everyone stays engaged and promptly addressing any concerns reinforces a sense of ownership and collective responsibility.
8. Practice Flexibility and Compromise: Consensus often requires compromise. Encourage team members to be flexible and willing to adjust their positions for the greater good, finding solutions that, while not perfect for everyone, are acceptable and beneficial for the group as a whole.
9. Summarize and Confirm Agreements: Periodically summarize key points of agreement and areas that still need resolution to keep everyone on the same page. After reaching a decision, validate the agreement and delineate the subsequent steps for execution.
10. Follow Up and Reflect: After a decision has been made, follow up with the team to evaluate the outcome and gather feedback on the process. Reflecting on what worked well and what could be improved helps refine your approach to consensus-building for future decisions.

Conclusion

Driving consensus in Sales and Operations Planning (S&OP) is inherently challenging but crucial for organizational success. The process is often complicated by varying priorities, complex data sets, and the inherent biases of the individuals involved. However, by applying structure and these key insights, it is possible to foster a culture of intellectual humility, continuous learning, and collaborative problem
solving.

Embracing these principles can lead to more effective and aligned S&OP processes, ultimately enhancing the organization’s agility and responsiveness in a dynamic business environment. Creating an environment where team members feel comfortable expressing their views and challenging assumptions can lead to more robust and flexible planning, helping to avoid overconfidence and confirmation bias. Continuous learning and adaptation, prioritized over simply being right, drive ongoing improvement in the S&OP process.

IBF’s new book Practical Guide to Sales & Operations Planning is a fantastic resource to learn best practices in S&OP and IBP from world-leading planning experts. You’ll learn how to start an S&OP/IBP process, progress it along the maturity curve, and use it to drive effective decision making that has a direct impact on KPIs like inventory turns, forecast accuracy, cash flow, customer service and more.

I wrote an article for the Journal of Business Forecasting a few years ago about dangerous habits that lead to software abandonment.  Since then I have reflected on the behaviors I’ve witnessed over my career and considered the stories others have told me about their journeys in change management. From this, I have developed some insights on why many find it hard to attempt digital transformations (or supply chain, planning or any other transformation) and succeed.

Transformations are challenging and are often loaded with what feels like more struggles than wins. When it’s done well, business processes benefit and our teams flourish. Unfortunately, most of us struggle or flat out fail in our transformation initiatives. So, here are some observations on why transformations are so challenging and suggestions on how to improve our chances of success. We will concentrate on new tools or software but the observations apply to most kinds of transformation.

Digital transformation is a series of large changes on a mass scale

First, intentionally doing a digital transformation by design is a change. It is not a minor change; it’s a series of large changes on a mass scale. Most people welcomes changes in others but are less enthusiastic when change is required of themselves.  In fact, they are often resistant to change and complain even about minor changes. My father has been known to say “I hate change” about something as trivial as upgrading his cell phone. Why then do we wonder why digital transformations are so hard, especially when we know so many do not like change?

While not all changes will be met with resistance, many—if not most—will. Just because we see value and in the proposed changes, we can’t assume that everyone else has the same understanding or expectation. One thing I have noticed in transformations that struggle or fail is a lack of properly set expectations and a failure to educate users.

Success Comes When Teams Know What We’re Doing & Why

We should educate users on why we need to change, not just on the mechanics of the change. Project education isn’t just a line item or a project statement. Rather than being a separate component, education should be a routine part that starts at the beginning of the project. Success comes when our teams understand what we are doing, why we are doing it and, most importantly, how it will benefit them.

This kind of education isn’t communicated within a formal classroom structure, but in the everyday conversations you have with users of the final solution. If your conversations during the transformation are limited to a core group of ‘superusers’ that excludes all end users, you may already be set up to fail.

Assign a Change Champion

A common theme of failed transformation projects is the lack of a change agent or a change champion. The change champion should not be a consultant or leader from another team or from a separate part of the organization. While it’s important to have the right implementation partner, they are not the change champions either.

Instead, change champions are team members who facilitate the transformation. They should be respected individuals from among the users who will embrace the change, share excitement for the new software and be able to demonstrate the new solution. Change champions listen to users and communicate requirements or bridge the gaps for the team. They should have the ability to convince other employees to use the new tools.

Change champions listen to users and communicate requirements for the team

It’s very difficult to have a successful transformation journey without a change agent or change champion. If you’re struggling with launching a transformation project, you may be missing this critical team member.

One organization I worked with had attempted to implement new planning software on three or four different occasions but ultimately failed at various points in the journey. They had a lead for the project and yet struggled. It wasn’t that this person wasn’t influential or a good leader, however, in this case, there was one Planner with equal clout that was incredibly resistant to any software change and prevented the launch of the new tool.

On the next attempt to implement advanced planning software, we knew we had to do some things differently to succeed. We added a new change champion, expanded the project strategy to include a business intelligence solution, and included process change to supplement the planning software. While the same user put up a roadblock and refused to use the new tool, we were still able to successfully launch by creating a strategy that supported the business and allowed the organization to launch the tool while working around the resistant user.

Build Process Maps

Another cause of transformation failure is the lack of understanding of the current state compared to the desired future state. Especially in an implementation that involves new software, part of the change involves moving to a new tool with enhanced capabilities.

When we fail to understand the differences between our current process flow and our to-be process flow, it is incredibly difficult to create a transformation roadmap that will lead to the desired to-be state. One of the most basic elements is to have process maps defined for both the current state and the desired future state.

A basic element is a process map for the desired future state

Process maps provide clear visibility into what must be implemented immediately and what can wait for a future enhancement. Digital transformation success is dependent on having a clearly defined future state process. Without it, the tool isn’t likely to be configured to support the desired future state. The journey may be made of one giant leap or many mid-size changes and mini launches.

Don’t Allow New Tools To Be Used For Old Ways of Working

Finally, I think most of us understand the importance of not using the design of the current tool for the new tool. However, the reality is that many teams fall into this trap. This is probably my biggest pet peeve when joining new teams who are at the end of a digital transformation or have just completed one.

This always creates issues, including some that will felt for many years to come. In such cases, the new tool is being forced to behave in ways it wasn’t designed to work. This results in a tool that is clumsy, slow and ultimately doesn’t support the desired to-be process or future growth. Despite good intentions, this can really derail long-term business success.

Encourage users to describe the behaviors they want to see

Often this comes about as users want to be sure to get their favorite functionality in the new tool so it works just like the tool they currently use. Be wary of having to implement functionality just because it exists a certain way in the current tool.

Instead, encourage users to describe the behaviors they want to see and how they’d like to view those results. Then, compare that need to how the new tool is designed to work and implement accordingly.  In my opinion, combining this strategy with process maps improves chances for a successful transformation.

In Summary

I haven’t yet found the key to secrets to make transformation projects easy or guarantee success. However, I have observed some common themes in transformations that struggle or fail outright. The biggest opportunity common to all of them was the need for a change champion with a clear vision of the destination and who can generate excitement for the project.

Having a change champion doesn’t lessen the importance of educating users—ideally, the change champion also leads user education. Change champions are also the experts that need to understand and be able to communicate process maps for the current state and to-be states. The best change champions also make a conscious effort to avoid imposing old tool designs and processes onto new tools, identify strategies to transition between current and future states, and become the enabler for change.  Failing at any or all of these can result in user resistance, inefficient workflows, hindered growth and even stalled or failed projects.

This article first appeared in the summer 2024 issue of the Journal of Business Forecasting. To get the Journal delivered to your door every quarter, become an IBF member. Member benefits include discounted entry to all IBF training events and conferences, access to the entire IBF knowledge library, and exclusive members workshops. 

In many companies there often appears to be a difficult relationship between the sales and demand planning teams when it comes to the plan numbers. While some tension between these teams is inevitable, it seems to me that perhaps we are viewing this relationship incorrectly.

Based on my several decades of experience dealing with salespeople, I think many people – including Demand Planners and Managers – do not really understand that salespeople are not the enemy when it comes to planning.

They can, in fact, be your best ally. If you understand how the salespeople tend to think and operate, and the environment they operate in.

Every Salesperson’s Goal is to Make Plan

Salespeople are hired to sell a certain volume of product at a specified margin percent each year. If they meet the plan numbers for a year, they get another chance to do the same for another year. If they fail to meet the plan for a year, they are then under more pressure to make the numbers the following year.

Most plans increase incrementally each year, so every year the salesperson must be more creative, more focused and motivated to make the new numbers. Effective salespeople are always hunting for new opportunities to help them make plan.

Salespeople as Sharks

If we think of salespeople as sharks, we can get some insights into why they might seem like an enemy in planning. Sharks are hunters, apex predators with few enemies.

To be successful as a salesperson, a you must think and sometimes act like a shark.

To be successful as a salesperson, a you must think and sometimes act like a shark. Swimming slowly through the sea of sales opportunities, constantly searching for the next sale, exploring new areas, and acting quickly when an opportunity appears. Their only real competition is other sharks, that is, competing salespeople.

You Cannot Tame Sharks, But You Can Learn to Feed Them

I often see Demand Planners and salespeople arguing over the details of plan numbers, and in most cases, this is both useful and inevitable. However, this should not be viewed as something negative. We want plan numbers that are the result of honest deliberation. Where this process can derail is when each side sees the other as an opponent when, in fact, they both want the same goal – sales growth. So learn to feed the sharks.

Learn to feed the sharks.

Share every piece of relevant information you can with them. And do not limit yourself only to data available within the company. POS and inventory data are nice to have, and in fact necessary to guide a business. But include news about the companies that the salespeople are serving, and that they may not have time to review on their own.

Significant changes in location counts, staffing, programs of competing suppliers (including promotions), management changes and company performance are all useful pieces of tactical information that can help a salesperson judge when and how to approach a customer with a sales opportunity.

Ask to See the Math

While what I have said so far might seem like I think Demand Planners should always follow the sales team’s direction, there is one fact that Demand Planners need to ask when a salesperson proposes a new plan.

Show me the math.

Show me the data that you used to get to the numbers you want to use. Do not make me use your numbers just because they “feel” right, or because you need these specific numbers to make your plan.

Keep it real. After all, the Demand Planner’s key job is to make sure that what is planned actually gets sold. A demand plan is a request for product. A sales plan is a map to meet the sales goal. Both need to be based on realistic math that shows a clear path to the goal.

Above All, Build Solid Relationships with Salespeople

Effective sales are based on good relationships. We tend to buy mostly from people we know and trust. Effective planning is equally dependent on solid relationships. This means we can disagree with each other without becoming disagreeable.

We can disagree with each other without becoming disagreeable.

We can playfully challenge each other and play hardball when we see the other side gaming the numbers or hiding information. And never try to prove that the other side is “wrong”, as this can permanently damage the relationship and prevent future sharing of information.

Let the Sales Team Be Your Teachers

Good salespeople are in regular close contact with their customers. They know what drives their customers and what they need. If you are a Demand Planner, learn to regularly ask them about their customers and their business. They often know things about their customers that can help you with your planning.

Are their customers over inventory against their plan or open-to-buy? Are there buyer changes coming? Is the company in merger talks or under financial stress? Are they planning to repeat last year’s holiday promotions again this year? This kind of information can lead to especially useful discussions about how to plan future business.

Sales is a Game, and You Both Need to Win – But Not at Each Other’s Expense

Collaboration is often more difficult than merely playing to win. It requires more effort. However, in the long run, it produces more wins for more people, and helps support ongoing relationships.

So get to know the sharks that make your company successful. Feed them what they want and help them find the opportunities that will make you both successful.

“What can be measured, can be managed.” This statement is certainly accurate with respect to the real value and purpose of using KPIs, or key performance indicators, as essential tools for measuring, monitoring, and managing process performance.

KPIs serve as benchmarks for identifying opportunities for optimization and innovation. They are of great use in decision-making, and are good instruments for creating accountability by setting clear expectations for execution. These indicators are mostly used to measure and evaluate performance against specific objectives or goals. For example, it is common for companies to establish KPIs as quantitative measurements of performance—to assess how well the organization is meeting its yearly objectives.

Even so, it is important to note that KPIs are not only limited to quantitative applications, as they can also be used to communicate good stories. Diligently analyzing and interpreting these indicators, far beyond comparing them to a target, enables the discovery of what they are truly communicating. By learning how to interpret KPIs, past events can be better understood and used as valuable evidence to predict trends, propose impactful business actions, and effectively communicate them across the organization.

Additionally, integrating and effectively managing KPI indicators through financial statements results, provides organizations greater visibility and improved decision-making processes that support their financial health, and enhance their ability to sustain long-term growth and profitability. For example, integrating Sales and Operations Planning (S&OP) KPI metrics, such as forecast accuracy, inventory turns, customer service level, supply chain costs, and working capital ratios, among others, to the Income Statement and Balance Sheet, allows businesses to achieve greater operational efficiency and financial results, which by effect, lead to sustained competitiveness and increased market value.

LINKING KPIS TO THE INCOME STATEMENT

The income statement is an essential financial statement that provides insights into a company’s economic position, profitability, and efficiency in generating revenues and managing expenses.

Income statement figures can reflect actions taken by demand and supply planning to make a positive impact on revenue, generate cost savings across various areas of the business, increase profitability, and optimize costs—such as selling and marketing costs.

Linking S&OP KPIs to the income statement, facilitates a direct understanding of how operational performance impacts financial results, and establishes clear correlations between them, thus leading corporations to strengthen their ability to make informed decisions that drive profitability and sustainable development.

From a revenue perspective, accurate forecasting ensures that the right products are available to meet customer demand, hence preventing lost sales opportunities. Higher customer service levels also drive repeated business, further boosting revenue. As such, improvements in forecast accuracy and customer service levels contribute to positively impacting the top line.

From the Cost of Goods Sold (COGS) viewpoint, effective inventory management reduces carrying costs associated with excess inventory, and minimizes the risk of obsolescence—resulting in lower COGS. Moreover, effective supply chain management facilitates negotiating better prices with suppliers, reducing procurement costs, and optimizing resource utilization. Overall, these cost-saving strategies directly impact the bottom line of the income statement by reducing operating expenses and consequently improving profitability.

The combined effect of higher revenue and reduced costs leads to improved gross margins. Gross margin improvement is a key indicator of the company’s operational efficiency and profitability, benefiting the income statement by impacting the company’s bottom line, while enhancing profitability and shareholder value.

LINKAGE TO THE BALANCE SHEET

The balance sheet is another essential financial statement used by organizations to provide a clear picture of the company’s financial position at a specific point in time. It presents the company’s assets, liabilities, and shareholders’ equity. While balance sheet items are not typically considered KPIs themselves, certain financial ratios and metrics derived from the balance sheet can serve as metrics to assess the company’s financial health and performance.

A typical indicator measured on the balance sheet is the efficiency of working capital management. Efficient planning techniques directly impact working capital management by optimizing the weight between current assets and liabilities. For example, improving forecast accuracy and inventory management reduces the need for excess working capital tied up in inventory. This by result liberates cash that can be used for other operational needs or investments, and at the same time, improves liquidity and financial stability, ensuring that the organization can meet its short-term obligations and/or invest in other significant growth opportunities. Another efficient planning technique is tighter accounts receivable management resulting from improved customer service levels that by effect can reduce the Days Sales Outstanding (DSO), further improving working capital efficiency.

Other S&OP KPIs such as inventory turns and inventory levels can directly influence the balance sheet as well. Higher inventory turnover ratios imply efficient inventory management practices, that lead to lower inventory levels, reduced excess inventory, and minimized carrying costs. Further, optimizing inventory levels reduces the risk of inventory write-downs and obsolescence, which can impact the company’s financial health and asset valuation. These reductions also free up cash for additional investment, and could even lead to debt reduction. Improved financial performance resulting from effective planning practices can positively impact debt management, enhancing profitability and liquidity for better debt management, reducing interest expenses and financial risk.

In summary, a strong balance sheet with healthy ratios, such as higher profitability and better liquidity ratios resulting from improved working capital management, can enhance the company’s creditworthiness, access to capital, and reduce its reliance on debt financing.

REPORTING KPI RESULTS TO EXECUTIVE LEVEL TEAM

Executives are mostly interested in the company’s financial health and sustaining its long-term growth and profitability. As such, KPIs play a crucial role in driving financial performance and aligning operational activities and efforts with strategic goals and objectives, ensuring that everyone is working towards the same outcomes.
The linking and analysis of KPIs to the company’s financial results is not fully successful until information is effectively reported to the Executive Level Team (ELT), as actions and important decisions need to be made accordingly. Reporting KPIs to Executives in a frequent manner can serve as the basis for productive discussions and collaboration among Executives, as this encourages dialogue around strategic planning, performance trends, challenges and opportunities, and enables informed decision-making.

When communicating and reporting KPIs to the ELT, it is of great importance to determine clearly what each KPI measures and why it is important for the business. It is also crucial to consider setting clear communication and presentation goals where relevant and meaningful information is presented to ensure that Executives have a comprehensive understanding of the organization’s performance and strategic direction.

When presenting KPIs, it is best to present them in a visually concise, focused, appealing, and easy-to-understand format via charts, graphs, and dashboards to illustrate trends, comparisons, and key insights. Including contextual information and analysis alongside may allow Executives to better interpret the data accurately. When deemed necessary, identify key findings and insights derived from the KPIs and highlight actionable steps or strategic decisions that need to be taken based on the results. Monitoring progress against KPIs over time is fundamental to track changes in performance, evaluate the effectiveness of strategies implemented, and determine the need to adjust KPIs or initiatives as necessary.

CONCLUSION

In conclusion, in today’s dynamic marketplace, it is vital for any organization in search of fostering a holistic approach to performance management, to be able to translate operational efficiencies into financial successes. As such, aligning a company’s operational KPIs with its financial statements can be of great help in support of this goal. The benefits of linking operational KPIs to the income statement and the balance sheet can be substantial, as they can drive organizations to better understand the financial implications of their performance metrics and make better-informed decisions to drive revenue growth, improve profitability, and achieve strategic objectives.