How Good Is Your S&OP?

Sales and Operations Planning (S&OP) has evolved from a demand-and-supply balancing process into a powerful integrated business management tool that has never been more needed. Global sourcing, offshoring and extensive use of contract manufacturers are making supply chains more complex.

 

Supply disruptions, product revisions, new sales opportunities and customer demands for quicker response times, more product variety and the hot new items are creating uncertainties.

 

Meanwhile, mergers, acquisitions and other compelling events are causing managers to rethink key business processes. A growing number of managers consider the ability to respond to new initiatives and meet new business and financial targets to be critical. Yet research shows executives are finding that their current supply chain planning processes -- and the systems that support them -- cannot prepare the organization to perform comprehensive S&OP.

 

SURVEY SAYS...
Ventana Research's report, "Sales and Operations Planning," examines trends and priorities in S&OP today based on survey responses from 470 qualified organizations.

 

Ventana Research defines S&OP as a set of planning and decision-making processes that balance product supply and demand and link day-to-day operations with business goals and operational and financial planning. S&OP enables decision-makers to reach consensus on a single operating plan that allocates critical resources purposefully to reach corporate performance targets.

 

The survey -- sponsored by Cognos and media partners ASCET, The CFO Project, Intelligent Enterprise, Manufacturing.net and Supply & Demand Chain Executive -- focused on the people, process, technology and performance management aspects of S&OP, and we evaluated the maturity of organizational deployment and use of S&OP from each of those perspectives. The Ventana Research Maturity ModelTM categorizes and evaluates maturity using four levels: Tactical, Advanced, Strategic and Innovative.

 

Overall, we found that most companies are new to S&OP; the bulk of respondents practicing S&OP at either the Tactical or Advanced level. Only 16 percent of companies could be considered innovative, meaning they run S&OP with performance management techniques. And even though best practices have been known for almost 20 years, our research reveals that only 35 percent of companies have had a formal S&OP process in place for more than five years. As a whole, most companies have substantial room for improvement.

 

 

 

 

KEY INSIGHTS
Our research also reveals that organizations that do apply rigor and utilize dedicated software outperform those that do not. In particular, we found four significant insights:

 

First, improving the S&OP process even a little can bring significant gain. Fifty-eight percent of the responding firms do not have formal meetings to review demand and supply. In the 42 percent of the firms that do hold meetings, most do not address multiple lines of business or brands and do not have strict agendas for their top-level S&OP meeting. Here again, those that do these things outperform those that don't. We also found companies that take simple steps, such as having plan-versus-actual reports as part of the top-level S&OP reporting package, report "overwhelming" gains in gross margin. These top-performing companies also create plans monthly, and those plans span 18 months or longer.

 

Second, when companies use the S&OP output as the plan of record, performance improves. Specifically, our research found that companies that use S&OP to adjust their finance, sales, marketing and executive management plans realize greater performance gains than those that don't. We also found that companies that do a good job of aligning their financial and S&OP plans achieve better results.

 

Third, executive sponsorship and involvement matter. Involving finance and executive management in the S&OP process is the second-most significant factor to achieving gains in forecast accuracy, customer satisfaction, revenue and profit.

 

For example, 42 percent of companies include finance in the development of their S&OP plan. But 90 percent of companies that report overwhelming gains in revenue include finance in their S&OP process, as do 70 percent of companies that report gains in gross margin, 56 percent that report gains in forecast accuracy and 76 percent that report gains in customer satisfaction. We also found that companies with CEO or CFO sponsorship achieve greater gains.

 

Fourth, using dedicated software makes a difference; 76 percent of respondents told us software is an important element of their S&OP process. Yet many expressed much dissatisfaction with current technologies. For example, respondents ranked difficulty in doing what-if analysis as the No. 1 concern with their S&OP software.

 

A weakness in the ability to integrate supporting applications is No. 2. Companies that achieve higher gains are well-satisfied with their current technology, because it includes key features that contribute to performance gains.

 

We also found that users are technologically savvy. Topping the wish list of software capabilities are scenario what-if analysis and a real-time S&OP dashboard. Respondents also want collaborative demand planning, automated financial planning reconciliation and profit-based S&OP, features that would solve process shortcomings.

 

The full text of our study contains many more details about how companies do S&OP today. It is available for purchase through Ventana Research by contacting [email protected]. CG