S&OP - Cutting through the Marketing hype
Written by Dave Alberts, Director of Crimson & Co
Marketing trends and rebranding Sales & Operations Planning come and go, but the marks of maturity in the approach have remained pretty constant.
Though you wouldn’t think so if youread all the blogs, magazine articles and presentations exploring questions like ‘what is the difference between S&OP and Integrated Business Planning (IBP)?’
I don’t believe there is any fundamental difference between the two; it is just a discussion about good compared to great, with some shades of grey in the final product packaging.
What we can hopefully all agree on is that good S&OP is worth having, and that companies who do it well, perform better than those that don’t.
Benchmarking results across a range of companies show that businesses with high levels of S&OP process maturity achieve upper quartile performance as well as being the most profitable. Other benefits include:
- High levels of forecast accuracy
- High percentage of orders delivered to customers on time and in full
- Ongoing decreases in Cash-to-Cash cycle times
- Gross profit margin improvements year on year
Obviously not all these benefits can be directly attributed to just S&OP but without it these things certainly would not be sustainable.
Based on this, good S&OP processes seem to be worth having.
However, the shape and focus of this overarching process does differ per company and it’s definitely not a case of one-size fits all.
Many things affect the shape and focus of S&OP and the degree of customisation required include a company’s value proposition, its organisational structure, geographical spread and degrees of vertical integration.
If your company’s value proposition is all about operational excellence the supply management step of S&OP is going to be dominant. If your value proposition is more aligned to product or brand leadership then the ‘manage new activities’ step is likely to be a main area of focus.
Geographical reach also has a significant impact on where supply and demand is balanced and it’s no longer achieved in just one place. Different levels of optimisation occur locally, across markets, regionally and globally.
However, good S&OP processes do share certain characteristics such as:
- Risks and opportunities reviewed at each stage in the process
- Assumptions used to create the plans are well documented
- Financial implications and projections include upsides and downsides
- Behaviors need to be tracked and improved
- People capabilities need to evolve
- The process needs to be continually improved
Cutting through the marketing hype and the constant name embellishments (from S&OP to S&IOP to IBP) success comes from:
- Understanding the specific needs of your business
- Focusing on critical information and avoiding excessive detail
- Customising the core process to suit your business and the drivers of profitability
- Expressing plans as a range of outcomes with clear choices including the financial and performance implications
- Integrating the S&OP process with the E2E planning processes to address short, medium and long term needs
So, there’s probably no such thing as S&OP or IBP best practice, and if there is, it’s probably best if you don’t copy it.