Sales & Operations Planning (S&OP) has been around for over three decades. Some analysts insist it’s time companies move on. Other analysts insist the purposes behind S&OP remain as relevant as ever. Jay Jayaraman, Dinesh Natarajan, Mike Romeri and Tom Zych, formerly with OPS Rules (now part of Accenture Analytics), write, “Sales and Operations Planning is a process that has been deployed primarily to align different functions around the best plan they could identify, working together as collaboratively as possible. Many standard and emerging analytic techniques can be employed to supercharge performance and optimize S&OP decision making.”[1] Corporate alignment and planning remain important goals. “Unfortunately,” note Jayaraman and his colleagues, “the goal of continuous alignment is more of an aspiration than a realizable objective for most organizations.” Jeff Bodenstab, a supply chain software marketing executive, believes the lack of alignment in most corporations is due to their lack of continuous S&OP processes. He writes, “The infrequent nature of decision making often leads to a gap between S&OP and operations.”[2] He cites research from two firms supporting his assertion: Optilon and Gartner. He writes, “As Optilon says, ‘The S&OP process starts ‘living its own life’ while operations struggle with the day-to-day realities of managing demand and supply in an unpredictable environment.’ Or as Gartner Research states, ‘The No. 1 challenge among manufacturing companies is connecting sales and operations planning to operational plan/execution.’ Problems arise when S&OP and supply chain planning (SCP) are developed separately, with little interconnectivity or overlap. Therefore, having a single more unified process that spans the different time horizons is very important.”
The purpose of S&OP
Analysts from River Logic note, “The first problem when trying to develop an understanding of S&OP is that the definitions vary widely.”[3] They continue, “Rather than trying to argue which is right, it’s perhaps best to go back to the beginning and understand the original ideas of the creators of the concept, Oliver Wight and Dick Ling. At that time, they were grappling with production planning models and initially called the process ‘sales and operational planning,’ a term that was subsequently abbreviated to S&OP. Together, they realized that successful production planning needed to consider demand, production capacity and supply, and from this, they developed the five-step S&OP process.” Those five steps are:
1. Gathering data
2. Sales or demand planning
3. Production and supply planning
4. A review meeting
5. S&OP approval at an executive meeting
River Logic analysts note, “With a natural emphasis on managing the supply chain, S&OP is usually driven by the Supply Chain manager.” The only problem with looking back is that times change. Mohit Dubey, Senior Director of Product Marketing at E2open, explains, “Work is changing — from the tools and technologies we’re using, to the products and services our companies are creating, and even who we’re competing with — it’s different now.”[4] To support his assertion, he cites research from Kinaxis, which concluded, “The underlying principles, objectives and value propositions of S&OP will remain supply chain priorities, but the sequential, time bound nature of the process will be replaced with democratized, dynamic decision-making.” In other words, S&OP needs to change with the times and expand beyond the supply chain if it is going to achieve the corporate alignment discussed by Jayaraman and his colleagues. Lora Cecere (@lcecere), founder and CEO of Supply Chain Insights, believes it’s time for S&OP processes to adopt cutting-edge technologies. “Maximize the value of today’s solutions,” she writes.[5] That doesn’t mean buying the first shiny thing you see. “Don’t rush to buy,” Cecere advises. “Let the noise clear. We are the cusp of the redefinition of planning. The combination of cloud, cognitive computing and open source analytics is evolving.” Many analysts suggest using pilot programs or proof-of-concept projects before making extensive technology investments. At Enterra Solutions®, we call this a crawl, walk, run approach. Cecere also suggests focusing on the right data along with the right technologies. She explains, “Using new forms of descriptive analytics, help business leaders get access to data. Focus less on traditional reporting and more on helping senior business leaders get to data at the speed of business.” Cognitive technologies are essential if decisions are to be made at the speed of today’s business.
Beyond S&OP
To achieve corporate planning alignment, River Logic analysts suggest replacing S&OP with Integrated Business Planning (IBP). They note even Oliver Wight, one of the originators of S&OP, recommends extending the principles of S&OP to include the entire organization to deliver a seamless management process. They add, “[IBP is] a broader concept than S&OP and operates at a higher level in the organization. Its purpose is to align all business functions with the organization’s short-, medium-, and long-term goals. IBP goals and targets are measured in financial terms and naturally align with the organization’s financial budgets and long-term targets. … Possibly one of the most important advantages of IBP over S&OP is that it helps align the different departments and functions that make up an organization toward the same goal. Additionally, it facilitates collaboration, trust and cross-functional interaction. Apart from ‘soft’ benefits, such as teamwork and trust, effective IBP processes lead to tangible and measurable benefits.” Bodenstab insists whatever planning process is used it must be continuous. In a continuous planning system, he writes, “Focus is shifted from manual work, such as keying in numbers or trying to assess trade-offs in spreadsheets, to value-added work that bridges the gap between planning and execution. … Automating the S&OP process allows for faster decisions, less manual work, and more informed decisions yielding improved KPIs.”
Planning is all about making decisions. Bain analysts, Michael C. Mankins and Lori Sherer (@lorisherer), assert if you can improve a company’s decision making you can dramatically improve its bottom line. They explain, “The best way to understand any company’s operations is to view them as a series of decisions.”[6] They add, “We know from extensive research that decisions matter — a lot. Companies that make better decisions, make them faster and execute them more effectively than rivals nearly always turn in better financial performance. Not surprisingly, companies that employ advanced analytics to improve decision making and execution have the results to show for it.” Dubey adds, “If supply chain is the source of competitive advantage for the modern corporation, surely verifiable ideas of how organizations make decisions are relevant for supply chain departments.” River Logic analysts conclude, “An advanced analytics platform that allows you to go beyond S&OP and IBP is a better alternative. It allows you to evaluate alternative scenarios and determine the best S&OP and IBP decisions for your organization. Such a solution goes a long way toward bridging the gap between S&OP and IBP, enhancing their capabilities.”
Concluding thoughts
Corporate alignment and corporate decision-making go hand-in-hand. Dubey cites research by Booz & Company that concluded, “In your planning processes, emphasize strategic discussions, align everyone on key business initiatives, and set targets before you undertake detailed planning. This top-down alignment and direction sets clear boundary conditions for developing detailed business plans.” Alignment is more difficult to achieve than most people realize; especially for global companies. Regional priorities can have an adverse effect on global priorities and differences must be sorted in order to optimize planning processes. Cognitive technologies can help since they have the ability to deal with ambiguous situations and improve overall decision support.
Footnotes
[1] Jay Jayaraman, Dinesh Natarajan, Mike Romeri and Tom Zych, “What’s next for S&OP?” OPS Rules Blog, 11 April 2016.
[2] Jeff Bodenstab, “Can S&OP Become More Continuous? Automation is Key.” ToolsGroup, 9 October 2018.
[3] Staff, “What’s the Difference between S&OP and IBP?” The Stream, 20 August 2019.
[4] Mohit Dubey, “S&OP as an Organizational Decision-Making Process,” E2open, 17 April 2017.
[5] Lora Cecere, “S&OP: Can You Make Decisions at the Speed of Business?” Supply Chain Shaman, 18 May 2019.
[6] Michael C. Mankins and Lori Sherer, “Creating value through advanced analytics,” Bain Brief, 11 February 2015.
