Top Performer Benefits of Effective Sales & Operations Planning

Top Performer Benefits of Effective Sales & Operations Planning Thee be Th bene nefit fitss of eff effec ecti tive ve S& S&OP OP ar aree co comp mpell ellin ing g - lo lower wer op oper erat atin ing g co cost sts, s, re reduc duced ed in inve vent ntor ory  y  requirements, and top-line growth, and top-performing S&OP companies are realizing these benefits Prokopets opets and in the process gaining competitive advantage By Len Prok

!uly "#, "$%#

Long Lo ng adv advoca ocate ted d by exp expert ert ob obse serve rvers rs of th the e su supp pply ly ch chai ain n sc scene ene,, th the e Sal Sales es and Operations Planning process(S&OP) has reached a point of broad adoption.

 A recent study perfored by The Hackett Group  indicates that alost !" percent of  study participants have ipleented an S&OP process.# $o%ever, the study also reveals a %ide gulf bet%een S&OP top perforers and those that erely practice S&OP. ot only do top perforers apply S&OP best practices to a far greater extent, they also have begun to ta'e the next step of integrating their S&OP and financial planning processes process es to driv drive e tru true e int integra egrated ted busi business ness pla planni nning. ng. As a res result ult,, top per perfor forin ing g organiations find that S&OP is * percent ore effective at driving benefits than it is for  other organiations. +his ar +his arti ticl cle e ou outl tlin ines es st stud udy y fi find ndin ings gs,, pr prov ovid ides es 'e 'ey y in insi sigh ghts ts on ch chal alle leng nges es an and d opportunities, and offers a path for%ard for those see'ing to oin the ran's of S&OP top perforers. Let-s begin %ith a definition. e define Sales & Operations Planning as a collaborative decision/a'ing decision/a' ing process used to devel develop op and align tie/p tie/phased hased deand, supply, supply, and financial plans in support of the overall business plan. S&OP is, by its nature, a cross/ functional process that involves individuals fro sales and ar'eting, supply chain, finance, procureent, logistics, and even 0&1 and capital proects. S&OP Has Entered the Mainstream

2irst eerging %ell over 3" years ago, S&OP has oved fro business bu%ord status to ainstrea adoption aong the %orld-s large supply chain/focused organiations. A current 4oogle search turns up over *",""" entries and a search on professional net%or'ing site, Lin'ed5n, finds ore than #,""" individuals %ho list the ter 6S&OP7 in their profiles.

0eflecting S&OP-s ne% ainstrea status, +he $ac'ett 4roup-s recent study finds that alost !" percent of respondents have adopted an S&OP process %ith defined steps, ilestones, and revie%s that are executed on a defined onthly cadence (8xhibit #). Only a sall fraction of study respondents claied 6very liited or no adoption of  S&OP.7

Overall, these study findings are highly consistent %ith %hat %e see on a day/to/day basis aong our client base9 the vast aority of our large clients %ith physical supply chains have ipleented a foral S&OP process. And even aong copanies that have not deployed S&OP enterprise/%ide, any apply S&OP to soe degree in their  business. Benefts o a Mature S&OP Process

+he appeal of S&OP lies in its ability to drive draatic iproveents in 'ey business perforance etrics. Our experience indicates that effective use of S&OP can help gro% the top line of the business %hile reducing operating costs and reducing inventory re:uired (see 8xhibit ;). 2e% business iproveent initiatives atch the econoic return that ipleenting an effective S&OP process can generate.

Our study identified a group of S&OP top perforers based on their ability to axiie benefits of S&OP and operate the process ore effectively. Our findings sho% that these top perforers have realied that to truly axiie benefits of S&OP they ust go beyond siply ipleenting a basic S&OP process and conducting eetings on an ongoing basis. +hese copanies develop highly ature S&OP processes that leverage 'ey best practices and as a result, realie significant perforance iproveents and create an opportunity for copetitive advantage. Our study findings indicate that top perforer  copanies- ature S&OP processes are * percent ore effective at delivering benefits than are those of other organiations. Our study has identified a doen 'ey best practices that differentiate S&OP processes of top perforers fro those of other organiations. (See sidebar on page 3< titled 6#; =est Practices of S&OP.7) +hese best practices fall into three groups> Process, Organiation, and +ools?1ata. hile adoption rates of the practices across these groups differ, the study indicates that top perforers consistently adopt best practices at a higher rate than do other organiations. On the %hole, top perforers adopted these S&OP best practices at a rate that is •

2ustomer service levels !ere su"%par# !ith order +ll rates averaging "elo! 45 percent in an industry !here customers expect 4/.6 percent.

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Protracted product outages resulted in ma7or disruptions for key customers# endangering ma7or account relationships.

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Signi+cant manufacturing variances arose# driven "y fre8uent changes in the production schedule# at times made to satisfy unexpected demand and at others made in reaction to materials or packaging shortages.

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Sales and marketing lacked the con+dence to plan promotions and ne! sales due to concerns that supply chain !ould "e una"le to respond.

2urtherore, financial perforance surprises %ere routine, frustrating senior leadership and precipitating a onthly gae of 6%hac'/a/ole7 that included chasing and firefighting the latest set of issues. 2acing pressure to iprove business perforance, the organiation-s senior leadership tea initiated a proect to put in place %orld/class 5ntegrated =usiness Planning?S&OP capabilities. +he effort consisted of three phases> Phase % Preparation

+he organiation too' action to rapidly stabilie its supply chain environent, identifying and addressing underlying gaps and disconnects in deand, supply, and financial processes and tac'ling aor issues and ris's for specific products to stabilie the business. +he organiation designed and ipleented S&OP capability iproveents in each of  the #; best practice areas in process, organiation, and tools?data. 8xaples include> •

'sta"lished a formal monthly S&OP process including repeata"le tools# templates# and approaches for gap modeling and resolution.

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Shifted focus of the S&OP process from planning the current 8uarter to planning a rolling /%month period.

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'sta"lished visi"le 2%level o!nership of the process and hands%on involvement in monthly meetings.

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3eveloped an integrated data model as a 9single source of truth: for supply# demand# cost# and pricing data ena"ling the linking plans and metrics across "usiness functions.

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3eveloped operating and performance reports to support S&OP.

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Built analytical tools to support !hat%if analysis and scenario modeling.

+he organiation integrated its S&OP and financial planning processes, creating a single onthly process for 5ntegrated =usiness Planning> •

S&OP plans and !hat%if analyses !ere translated into dollar terms focusing decision%making on "usiness performance impacts.

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) P&L# generated for each month in the planning hori,on as part of the S&OP process# "ecame the +nancial plan# eliminating the need for a separate +nancial planning process.

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'sta"lished a frame!ork for continuous improvement of S&OP !ith a "alanced set of 8uarterly targets for "usiness performance and for improvement in process execution.

Phase ' Conduct Pilot C!cles )fter a rapid e1ort to implement improvements in S&OP process# organi,ation# and tools*data elements# the organi,ation conducted three pilot cycles of the improved S&OP process.

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 The pilot cycles !ere used as an opportunity to train process participants and prepare them to operate in an ;ntegrated Business Planning environment.  The S&OP design !as re+ned !ith each successive cycle leading to a full launch after an executive leadership go*no%go revie!.

Phase ( Implement Continuous Impro)ement  The organi,ation monitored S&OP performance and process execution measures and de+ned necessary changes and actions to drive improvement.

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 Tools and templates !ere re+ned over time. The company transitioned tools that had "een "uilt in icrosoft 'xcel and )ccess to leverage more po!erful enterprise toolsets such as the '(P system# +nancial planning system# and supply chain system.

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+he proect yielded exceptional results, providing senior leadership %ith the tools to better anage the business and driving substantial operational and econoic iproveents. Dustoer service fill rates rose fro @th :uartile to #st :uartile in four onths,

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consistently achieving targeted E*.< percent fill rates. Siultaneously, finished goods inventory %as reduced by #" percent. 8xpediting

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%as substantially reduced enabling reduction in ra% aterial and pac'aging •

costs. 2inally, the iproved stability of the supply chain enabled anageent to redesign and rationalie the anufacturing net%or', reducing overhead costs by #" percent. How to Become an S&OP $op Perormer

 Achieving S&OP top perforer capabilities and perforance re:uires a focused effort, dedicated, 'no%ledgeable resources, and at least six onths. Such a proect is typically coprised of three phases> Preparation, S&OP Pilot Dycles,

and

Dontinuous

5proveent.

8xhibit

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provides

a

saple

ipleentation approach.

5n any organiations, an initial S&OP assessent reveals gaps, brea'do%ns, and individual supply, deand, and financial and business plans that are ineffective and can coplicate or prevent ipleentation of overall S&OP capabilities. 5n these organiations, an additional triage and stabiliation step ay be necessary to address gaps and disconnects and establish a starting point for developing an 5ntegrated =usiness Planning process.

Once the current S&OP environent has been stabilied, the typical next step is to develop the future state design. +his design should, aong other changes, put in place the #; 'ey best practices across S&OP process, S&OP organiation, and S&OP tools?data (see belo%).

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%' Best Practices o S&OP Processes

#. A foral, defined S&OP process. ;. A single consensus deand plan. 3. S&OP that loo's out over a period of #*/plus onths.

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@. A supply plan that defines re:uireents to eet deand and highlights constraints. Organization