The benefits of Sales & Operations Planning (S&OP) are well known — e.g., improved forecast accuracy, lower working capital, better customer service, and higher EBITDA. Unfortunately, for many companies, their S&OP process hasn’t yielded these results. If this sounds all too familiar, you might be missing the key ingredient of effective executive engagement.
Most companies have some type of S&OP process in place. However, very few would rate themselves as “good” or “excellent.” Why are these companies not reaping the full benefits of S&OP? Many are likely stuck at Stage 2 of Gartner’s S&OP maturity framework, where the process hasn’t yet been fully integrated.
At this stage, there is little cross-functional collaboration. Everyone is trapped inside their respective functional silo, and this point-of-view defines how they look at issues facing the enterprise. People working in these silos tend to have a certain degree of autonomy and make their own decisions. However, those decisions are often at odds with other functions and can damage the organization’s overall performance. As a direct result, there is very little collaboration, and the overall organization is negatively impacted.
Other markers of Stage 2 maturity are misaligned key performance indicators (KPIs). Few (if any) of these KPIs are products of a collaborative decision-making process. So, you may have one silo aiming for one KPI that keeps another silo from attaining their own.
In short, an immature S&OP process doesn’t focus on the “big picture.” It is less about long-term strategy and more about short-term execution. The byproduct of this shortsightedness is an operational focus on putting out fires. An effective S&OP process should prevent fires from happening in the first place.
Getting unstuck and driving S&OP maturity
A mature S&OP process translates strategy into execution. Accomplishing that requires engaging executives in the process to help set goals, maintain standards, and encourage and expect collaboration among departments. Executives are there to bring a much-needed “big picture” perspective. However, getting and keeping the attention of executives is easier said than done.
How to keep executives engaged in S&OP
- Maintain strategic focus: An effective S&OP process looks at the 3-18 month horizon and focuses on translating business strategies into operational plans. Avoiding the operationally-focused 0-2 month horizon puts the process above day-to-day operational concerns. Remember, S&OP isn’t fire-fighting; it is fire prevention. To deal with the short term horizon, consider a separate but connected process, Sales and Operations Execution (S&OE).
- Connect to financials: An effective S&OP process is rooted in the high-level financial metrics that executives live by. Your approach should incorporate cash flow-based KPIs that show the impact of possible adjustments in terms of working capital, ROI, and EBITDA. The additional benefit of building and maintaining an 18-month plan is that it gives finance a jump start on annual planning and budgeting.
- Give them opportunities to add value: S&OP meetings should not be treated as report-outs or a chance to get rubberstamp approval. Executives are looking for an opportunity to add value to the business by evaluating and prioritizing various what-if scenarios, understanding the causes of variability, and ultimately making decisions based on their strategy.
Effective executive engagement is a key driver of S&OP maturity. Once fully engaged, your organization will start realizing the full benefits of this essential planning process.
A mature S&OP process helps you move from reactive to proactive. Reach out to us to see how Chainalytics can help you get unstuck from Stage 2 and make S&OP an indispensable driver of growth. Our combination of top supply chain talent, proven methodologies, and exclusive market intelligence consistently puts our clients ahead of the curve.
Jeff Baker is a principal in Chainalytics’ Integrated Demand & Supply Planning consulting practice. He works with some of the world’s best-known companies to improve their supply chain planning processes and capabilities – from design to implementation.
