How to Master Sales and Operations Planning (S&OP)
S&OP may sound like a jargon-laced acronym that threatens to clutter up your streamlined supply chain. Yet in its essence, it’s quite simple: it’s an integrated monthly process that helps you manage your business in the midst of changing times. Instead of struggling to keep sales and marketing, demand and inventory, and product introduction on the same page─a Herculean challenge─introducing a strong sales and operations planning process provides you with a quick snapshot of where your supply chain is at.
Christine Barnhart, Director of Go-to-Marketing Strategy and Execution at Infor, told Supply Chain Digital that “Sales & Operations Planning (S&OP) has been around since the early 1990s, but its definition has changed over the years. Depending on the book that you’re reading, the process is defined in many different, often over-engineered, ways.”
Barnhart adds that “perhaps the clearest definition is courtesy of Tom Wallace, who describes it as ‘a set of decision-making processes to balance demand and supply, to integrate financial planning and operational planning, and to link high-level strategic plans with day-to-day operations,” however, “the key issue is that the term ‘Sales and Operations Planning’ conjures up different images depending on who you are talking to. Manufacturers use the term willingly, distributors less so and retailers hardly ever. Attitudes also differ according to industry and size. A key source of difference is the maturity of the organisation when it comes to its supply chain processes.”
Six Steps to Success
We don’t think you should have to attempt to figure out how to launch a successful reinvention on your own. After all, the best among us stand on the shoulders of giants. Here’s a tried-and-true blueprint:
Your R&D planners should analyse your current products, determine the areas in which you need to improve and set priorities for your next set of products. Call this the look to the horizon. You want to keep in mind how new products will impact existing products ─ overlap too far and, heaven forbid, your shiny new toys might cannibalise your trusty standbys.
Whether you measure demand in units or revenue, this is your chance to peer into the murky waters of the future to determine how many product parts you’ll need to manufacture. We recommend checking historical trends, gathering real-time customer surveys, and taking a cold hard look at your marketing plan. Eventually, you’ll compare your predictions with your finance review, and if you’ve done it right, you won’t be far off track.
The nefarious beast of syncing supply with demand. Now, as orders fluctuate fast and furious due to the global pandemic, you want to be able to simultaneously run multiple “what-if?” scenarios. “What if they cancel their annual order? What if December product transport is affected by closing borders?” You get the picture. Ideally, you’d like to minimise product inventory─no one likes being stuck with more parts than they need─but still keep your customers happy as clams. A technology platform, when deployed correctly, can be one of the only ways to truly master this balancing act.
Up next is everyone’s favourite part of the S&OP process. Money. After all, we manage supply chains in order to optimise where the cash is going, and the finance review is your baseline. You review October’s finances to analyse November’s sales and operations planning cycle, then repeat, repeat, repeat. It’s an iterative process, and each time you measure your current performance against your finance baseline, you improve your forecast accuracy. The objective? An S&OP process that’s exorcised the demons of inefficiency from your supply chain once and for all.
Is S&OP Implementation Worth It?
When the subject of S&OP comes up, organisations often question whether they should bother to invest or not ─ whether it is worth it, essentially. To this, Barnhart told us that “The evidence from independent research says it is, with a significant competitive advantage for S&OP leaders in the key areas of customer service, profitability and cash-to-cash cycle times.”
“The latter criterion is emerging as a new barometer for the overall health of the supply chain. The take-away for business leaders – especially manufacturers who are by far the largest subscribers to the S&OP process – is to look anew at your internal S&OP processes and check where you are on the S&OP maturity curve.”
We wouldn’t be doing our job without pointing you in the right direction before turning you loose.
- Directly involve an executive. Without clear decision-making, cross-functional teams often get bogged down with internal disagreements. We’ve all been there. Cut the friction and make the trajectory of your S&OP process crystal clear.
- Get everyone on board. Picture rowing a boat across the ocean. Sales and operations are by no means a short journey, and if you’re missing a rower, it won’t take long to keel off in the wrong direction. We’ll say it again: in this and in life, collaboration is everything.
- Speak up! We like conflict no more than the next man or woman out there, but candid talk about conflicts helps avert issues before they spark into a cyclone of chaos.
- Choose the tech solution that fits. Take your time to identify aspects of your business that require unique technology solutions. You do want to look your best in front of your customers, and platforms aren’t always one-size-fits-all. (Invest in a nice suit. You won’t regret it.)
Unlock Next-Gen S&OP
Time for the final reveal. Four final steps will help keep you at the cutting edge of the supply chain.
First, use uncorrupted, up-to-date data to build a strong foundation. Second, figure out your essential metrics, and categorise them from the executive level all the way down to the nitty-gritty sourcing logistics. Third, pinpoint a leader within your company who can champion your S&OP collaboration. And last but not least, use your reviews and data that you’ve worked so hard to get to make decisions based on value.
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”