For decades, those involved in supply chain management have witnessed S&OP develop into an integral part of the supply chain as organizations attempt to align their go-to-market strategy with their operations. Despite companies investing millions of dollars on training, technology and process improvements to establish a cross-functional consensus capability, the success and value of the process has yet to pay off for many organizations.
Many organizations use S&OP as a reporting tool rather than a decision making process. There are a myriad of reasons attributable to this. In a recent article* co-authored with Eric Wilson, Director of Planning at Escalade Sports and IBF Thought Leader, we identified seven main reasons why organizations commonly fall short in their S&OP process:
- No clear vision: Too often, we find top executives lack the engagement or fail to provide the strategic vision for the process. The failure to balance different goals across the different functions participating in the S&OP process leads to a tug-of-war for competing objectives and the absence of a clear goal.
- Misaligned KPIs: Organizations struggle to develop KPIs focusing on impact to business while establishing metrics with competing objectives within the organization.
- Failure to make decisions: Often times S&OP meetings are dedicated to the previous plans instead of developing one for the future.
- No alignment to strategy: The overarching business strategy fails to serve as the central driver to decision making.
- Not a “one number” plan: While S&OP drives to a consensus forecast, it is generally a supply chain plan with demand signals used by the various departments involved and often diverges from the stated consensus demand plan.
- Corporate mindset: Organization often lack- real commitment to the S&OP process, ultimately leading to strategy dissolving into nothing more than a set of meetings with little to no corporate governance.
- No alignment to execution: While there is existing emphasis on S&OP to operational execution, there is little thought given to S&OP and go-to-market execution.
While these seven common issues often lead to finger pointing and the constant blame game, we definitely need to review the core value and key drivers of the process as well. Companies that utilize the process to primarily report on the demand and supply balance may never fully mature to realize its extended benefits. Ultimately, if S&OP is only seen as a supply chain or operations process, that’s all it will ever be.
If any or all these issues exist within a company, and if S&OP struggles to keep up with the pace of today’s business, how can it possible meet tomorrow’s needs?
While managing the internal organizational dynamics can be challenging enough to ensure a successful S&OP process, organizations also have to manage an increasingly complex and ever-evolving business environment. Some of these challenges include increased SKU complexity, more engaged customers, higher expectation of service (a la the Amazon Effect also impacting B2B), increased competition from market disruptors, and increased economic, geopolitical, and climate volatility. And emerging technologies may fall short of being a panacea to address these challenges if they aren’t deployed within a broader planning framework.
The limitations of the S&OP process combined with the changing business landscape necessitate a more expansive approach to the planning process. Planning can no longer be limited to the Supply Chain realm alone for it to have a meaningful impact on the business. The S&OP function should be elevated into a central business planning & execution framework called Business Efficiency Planning (BEP). This framework can enable the organization to make better, smarter, faster decisions. In my next blog, I will outline the key elements of establishing a BEP for organizations to consider.
Sanjiv Raman is a Senior Manager in the Integrated Demand & Supply Planning practice at Chainalytics. He has a strong background in optimization and solution architecture and is passionate about helping companies apply technology and analytics in their planning environments to drive measurable improvements.
* The thoughts and ideas expressed throughout this blog have been adapted from the article “Why Is the S&OP Process Stuck in Third Gear,” which was co-authored with Eric Wilson, Director of Planning at Escalade Sports, and was published in the 2017 Fall Issue of the Journal of Business Forecasting.
