Sales and Operations Planning (S&OP) is widely acknowledged as a powerful process to ensure alignment among business functions to a common operating plan. In theory S&OP is a straight forward process, yet many companies struggle to implement and maintain it successfully due to breakdowns in team discipline.
Companies that are successful have shown significant improvement in profitability, free cash flow and competitive advantage.
It is not enough to simply plug in an S&OP process and expect it to achieve all the potential results.
Experience has shown that “the people equation” is key to a successful S&OP process.
Noted here are tips the organization and team must keep in mind for an effective outcome:
With an initiative as all-encompassing as S&OP, buy-in from the top down is a necessity. Conflicts and key decisions will come up through the implementation and it is critical engaged and informed senior leaders are available and active through the process.
Commitment to the process creates a culture that re-enforces the central value of aligning all functions to a common plan.
Cross-Functional Training and Participation
Success is achieved when teams are established to participate in the development and implementation of the new process and there is a shared understanding of the benefits that food industry sales and operations planning can deliver.
A core tenet of S&OP is cross-functional alignment to a common set of plans and goals. Leaders and participants need to have passion and commitment to the process as well as training on S&OP concepts and practices. With professional, experienced based guidance throughout the implementation, the food company is better prepared to achieve one unconstrained demand forecast for the business. There will be opportunities where a group or team might want to use a different forecast to improve their numbers/visibility, but it is critical the company stays with one source of truth.
Leaders and participants need passion and commitment to the process as well as training on S&OP concepts and practices.
Leadership is needed to ensure that the group aligns on one forecast to prevent the process from breaking down.
Training is key. For example it is not unusual for those participating in forecasting to confuse demand with revenue-generating shipments (aka sales). This may result in a misinformed statement in a demand forecasting meeting such as, ‘we only expect to sell X because of supply shortages.’ While this may be true for shipments, amending a forecast based on supply assumptions does not provide supply planning with the pure view of the need and the opportunity to identify constraints such as capacity bottlenecks or raw material supply limitations that will limit actual revenue-generating sales.
These constraints are highlighted in subsequent meetings with leadership so that action plans can be developed and executed. Actions could include investments in production capacity, efficiency improvements, sourcing decisions and ultimately higher sales growth and closure of gaps with the annual business plan.
The demand plan subsequently drives sales plans, production plans, inventory plans and capacity plans.
A Structured S&OP Operating Rhythm
For the process to be effective, ownership of the S&OP calendar is assigned to a team or individual with responsibility for scheduling meetings and monitoring attendance and adherence to meeting agendas.
Calendars are established several months in advance to ensure full participation, and individual meetings are well defined
Meeting agendas are established by the teams during the implementation phase and should include:
- Chair and Facilitator
- Required participants
- Meeting output
- Decisions to be made in the meeting
- KPIs and analytics
Finally consider an outside-in approach which puts your customer at the center of the process.
Though S&OP is run largely as an internal process, ultimately the focus should be on the customer. After all, without customers there is no business.
Collaboration with key customers and suppliers is an important component of successful S&OP. Take the time and effort to understand the customer’s needs and views shapes demand and fulfillment requirements.
Bring suppliers into the equation, which defines upstream capacities and capabilities and helps avoid unpleasant surprises.
Understand the people, process and technology enablers that lead to effective S&OP.
Download Adroit’s S&OP Best Practices white paper that goes into further details, share with your internal team, and contact us to learn more.