Sales and operations planning has gained prominence over the past few years as companies struggle to adapt to a more chaotic domestic and global marketplace. Effective S&OP optimizes production, sales, and profits, while reducing inefficiencies and unnecessary spending in supply and inventory. Having fewer resources committed to inventory frees up working capital and improves cash flow. More frequent and detailed analysis of data improves forecasting and reduces wasteful spending. An efficient S&OP process streamlines communication between departments, team leads, and company leaders, and reduces wasted effort (and spending) on unwise or unplanned initiatives. It also provides greater company-wide visibility into sales, operations, production, marketing, finance, and leadership.
Unfortunately, in too many organizations, S&OP is fragmented, ineffective, marginalized, not owned by executive leadership, and/or based on inaccurate or incomplete data as a result of outdated tools and methods. However, there are some key signs that can help you identify areas for S&OP improvement, and we’re going to go over them in this article. First, let’s briefly elaborate the benefits of an effective S&OP strategy.
Forbes says that companies with an effective S&OP process experience:
The report also shares Deloitte’s findings, in which solid S&OP resulted in a 6% growth in EBITDA, a 10% increase in on-time deliveries and a 25% reduction in excess inventory, improving asset utilization. All good things.
So now that we’ve covered some of the reasons every business needs to have an integrated, flexible S&OP strategy as a core priority of every department, let’s go over some ways that today’s organizations are making key errors in their monthly S&OP process.
One of the most common—and most damaging—failure points in S&OP is the absence of strong executive ownership. By its very nature, S&OP is inherently cross-functional, requiring strong alignment across the organization, from sales, to operations, finance, and supply chain teams. However, in many cases, S&OP is still being owned by supply chain management (SCM). It’s understandable why this has been the case since S&OP became a thing in the late 1980s and early 1990s, as it was a relatively new iteration of the business planning process, and it may have made sense for the SCM team to lead it.
However, today’s integrated, intelligent, and cross-functional S&OP process needs to be at the forefront of every team’s priorities, and this starts with the executive team. Without consistent and informed S&OP leadership and prioritization right from the top, it often devolves into a fragmented, ineffective, tactical exercise. A lack of executive support is consistently cited as the primary reason organizations fail to implement effective S&OP processes.
This disconnect is supported by our recent survey in which the vast majority of respondents indicated that their sales and operations planning process is owned or led by the supply chain team. What’s worse, only 23% of participants reported highly integrated planning across Sales, Operations, and Finance—signaling that true cross-functional alignment is rare, though it should absolutely be the goal. This reflects the reality that most organizations are coordinating activity at best, but not actually synchronizing planning and vital decision-making.
When executives treat S&OP as a “supply chain initiative” rather than a core business process, it becomes marginalized. Decisions get escalated outside the process, and the monthly planning cycle becomes performative rather than strategic. Top companies position S&OP as a CEO-led or CFO-driven process, where decisions made in the executive S&OP meeting are final and binding, and every team can rely on company leadership’s buy-in.
S&OP should absolutely be at the core of every aspect of the business, and cross-functional integration must be a high priority for each team. This kind of integration and collaboration is facilitated by the best S&OP platforms and tools, but too few organizations are taking advantage of them, as we’ll see later.
With today’s accelerated planning and operations cadence, a monthly S&OP process is potentially not sufficient to maintain flexibility in responding to volatility and disruptions, particularly if the meetings themselves are ineffective or not fully prioritized and supported by company leadership. This is often caused or worsened by multiple, similarly ineffective “non-value-added” meetings that become informational, not decision-driven, where participants arrive unprepared, and key issues are not escalated or resolved. As covered above, in organizations where S&OP is treated as an “add-on” rather than being integrated into the company’s core operating model, discussions are often duplicated or plans reworked between meetings, and there’s a loss of engagement from key stakeholders.
The steps of the S&OP process can look a little different depending on a particular organizations preferences and semantics, but generally it will need to include some version of the following:
The reality is that in a post-2020 marketplace, a monthly S&OP cadence may not be enough, even if these steps are all performed adequately according to a “legacy” style of business management. As data and scenarios grow ever more fluid, the steps outlined above are transitioning from a “this-then-that” model to a more dynamic, flexible paradigm where many of the steps are happening at the same time, with revisions and updates occurring as needed throughout the process as more information becomes available.
Whether accelerating the cadence of your S&OP process and meetings is appropriate for your organization is something that should be carefully considered. At a minimum, great care should be taken to ensure that each part of S&OP is undertaken with full intent, with executive ownership, and the process audited and optimized regularly.
One of the most nuanced yet critical failures is treating S&OP as a purely operational or tactical process rather than a strategic one. This goes along with what we said above about the necessity for the executive ownership of the S&OP process. S&OP is commonly viewed and approached as a cost-cutting mechanism or (worst case) even as damage control, instead of a strategic driver of value as it should be. Key contributors to this error may include:
As a result, many businesses demonstrate an inability to anticipate demand shifts. They make reactive, knee-jerk decisions during disruptions. They miss growth opportunities due to capacity restraints, often hampered by a misunderstanding or misalignment of priorities among the executive leadership.
Effective S&OP depends on robust, reliable, real-time data. Legacy ERP systems are useful in some ways, but today’s chaotic business environments require much greater capability. And judging from our recent survey results, the existing tools are either incapable of achieving the desired results or are not being utilized correctly. By far the most common reported S&OP process obstacle that kept respondents from meeting KPIs was data and analytics being fragmented, inaccurate, and not real-time, with fully 45% of respondents agreeing.
It’s also clear that overall awareness of dedicated S&OP/Integrated Business Planning tools is low, as many businesses report dissatisfaction with their data and planning platforms but at the same time can’t get executive buy-in for the implementation of today’s truly capable S&OP tools.
When most business and team leaders are asked what they would need to change to improve how they respond to disruptions, the most common response is to optimize for efficiency. While this is indeed an important component of any sensible S&OP strategy, it’s important that teams don’t make “efficiency” their end-all and be-all when it comes to surviving in a chaotic environment.
Companies often anchor on optimizing efficiency in planning, inventory, production, and logistics because that’s something they feel they have control over in the face of the unknown—an unknown which they don’t believe they can truly understand or prepare more effectively for. So, rather than taking the more effective and profitable course of focusing more attention and resources toward achieving accuracy, speed, and flexibility in the data and analytics that allow real-time scenario development and meaningful decision-making, they’re essentially pulling the “efficiency” lever in an attempt to prepare for undefined (and ultimately not understood) future threats.
S&OP is vital to any business, and remains one of the most powerful tools for aligning business strategy with execution. However, its success depends entirely on how it is implemented and managed. To optimize S&OP and inoculate themselves against volatility, organizations must:
This results in superior resiliency, less waste, greater revenue, and better alignment of all teams toward company goals.
The ORI Excellence Platform is the only software and AI tool purpose-built to help you achieve top-tier sales and operations planning and execution in one place. Reduce risk, manage uncertainty, and increase resilience with ORI.
Get a free demo and find out how ORI’s 30 years of experience and best-in-class technology can help you.