S&OP Best Practices for Growth Organizations

Amid persistent supply disruptions and ongoing economic uncertainty, many companies are seeking ways to right-size inventory investments and improve service levels with Sales & Operations Planning (S&OP).  A proper S&OP process discovers and prioritizes the actions required to reconcile erratic demand, unpredictable supply, and constrained capacity projections to improve profitability.  It’s difficult, but not impossible.  When companies turn to our team for help, they learn it’s very achievable.  Our framework helps clients evaluate and improve their tools and process, such that inventory savings of 10-30% and service level improvements of 10-15% are not uncommon.  Below is a summary of our S&OP best practice framework: 

1) Executive Leadership: 

Unless Executive Leadership prioritizes and emphasizes cross-functional participation and collaboration, any S&OP effort will end up being a waste of time.   Senior leaders must be present to approve or challenge the recommendations that the S&OP team recommends each month.  This isn’t about reviewing a status report.  It’s about developing action items the company will take to address the identified challenges and effectively meet market demand.  There are key indicators as to whether leadership is sending the right message of engagement: 

• • Do meeting attendees arrive prepared for S&OP discussions?  Establish clear expectations of roles. 
  • Is the month-end process focused on issue resolution and decision making?  Actions must be assigned and facilitated. 
  • Are Sales Teams pointing fingers at Operational Teams for lack of supply? Are Operational teams blaming Sales for inaccurate forecasts?  Ensure participants understand success is a shared responsibility. 
  • Are internal teams blaming external factors?  To what degree are key suppliers and customers involved in the planning process?  Engage and measure the process, not just the results.  Engage suppliers that can drive the biggest impact and are willing and capable of contributing. 

2) Organizational Involvement: 

Once the executive leaders are engaged, it’s important to confirm that each required team is involved.  Typically, S&OP requires participation from Sales, Marketing, Procurement, Manufacturing, Warehouse & DC Operations, Inventory Management, Supplier Relations, and Finance.  Each of these teams contribute an input to, and an output from, a productive S&OP process.     

• • Is there clarity in who owns and coordinates the process? Assign a process facilitator to ensure data is gathered and each participant is prepared for their contribution leading up to, and during, the month-end review process. 
  • Are there calibration meetings with appropriate stakeholders?  Ensure each team has their data and fact-based point of view of the current situation, anticipated plans, and corresponding recommendation of what needs to be done. 
  • Is the process well understood?  The executive leader and process facilitator should provide feedback on individual performance and continuous improvement. 

3) Process Structure: 

So what is the process?  When we evaluate a company’s S&OP process, we look to sequence four weekly phases within a monthly cadence to ensure the right teams are delivering the right insights and problem-solving can be accomplished in real time: 

• • Data Gathering: Analyze prior period results and variances to the plan using a few carefully selected metrics. Create a new, rolling 12–24-month statistical forecast using updated sales data. Identify outliers and share data with the teams. 
  • Demand Planning: Sales and Marketing teams review the statistical forecast, considering marketing initiatives, assortment changes, new/lost customers, and industry trends. Consolidate demand plans and develop a consensus forecast. 
  • Supply Planning: Supplier-facing teams, along with Manufacturing and Operations, use the Demand Plan from the previous step to create a Constrained Forecast. Determine supply requirements based on targeted inventory levels. Allocate resource capacity and identify potential capacity issues. 
  • Alignment Meeting: This is the culmination of the S&OP process and preparation is key. Assemble the consensus demand plan, purchasing plans, capacity plans, and financial plans into a rolling 12-month view. Highlight gaps and prepare mitigation plans. The Executive Alignment Meeting focuses on gap closure actions and plan agreement. 

4) Tool Capabilities: 

We have seen most companies, regardless of size or industry, lack important capabilities to assist their employees in delivering an effective S&OP process — their systems either don’t offer these features, or if they do, they have not been enabled or are not being used.  We’ve helped create stop-gap solutions and select and implement best-of-breed applications.  Below is a short-list of critical system requirements: 

• • Generate statistical rolling forecast 12- to 24-months into the future with weekly and monthly views. 
  • Ability to filter and focus on products with the highest business value (e.g. profit) and low forecastability. 
  • Transparently detect and flag sales history outliers for further review. 
  • Utilize multiple forecasting algorithms, automatically selecting the best one for each item or category. 
  • Generate forecasts at various levels in the product hierarchy (top-down and bottom-up, both at the product and dollar level). 
  • Log and manage events impacting the statistical forecast (e.g., pricing, promotions, assortment changes, supply disruptions). 
  • Accept potential forecast overrides from internal and external stakeholders, with embedded governance (reason codes and audit logs). 
  • Calculate forecast accuracy metrics (MAPE, WMAPE, RMSE, Bias, and Forecast Value-Add) at “lag values” tailored to product lead times. 
  • Provide a consolidated, rolled-up forecast view suitable for month-end executive S&OP meetings. 
  • Extract the long-term forecast with key operational attributes (dimensions, reefer, etc.) for space, labor, and equipment planning. 
  • Net the demand and supply forecast against current inventory position to create a rolling 12-month inventory forecast. 

Although supply chain uncertainty continues to pose a significant challenge for businesses post-pandemic, we’ve helped our clients meet these challenges.  We have a team that specializes in Supply Chain Strategy, Operational & Process Excellence, and Digital Supply Chain.  Fisher Management Partners would welcome the opportunity to work with your team to implement our improvement framework and grow your business. 

 

About Pete Beckwith