Sales and Operations Planning. Let’s re-imagine it.

Why your S&OP is disappointing you.

What is the purpose of starting a Sales and Operations Planning process? For many, S&OP is a process to get information to flow between various parts of the business, the most obvious being Sales and Operations (hence the name). The premise, I believe, is that if Operations knows what is happening in Sales, then they will be able to respond. Great starting point. At some point, perhaps it worked well.

The Flaws.

The first flaw. Though S&OP was developed to create a bi-directional dialogue, often, a one-way conversation is the result, and it ends up as a combative and argumentative experience. A one-way communication process does not accomplish the collaborative nature required in business.

The second flaw. Most S&OP processes are done alongside of (or parallel to) your business management. We pull information from our business management software (MRP, ERP, whatever you are using) and then we manipulate, adjust, and massage the numbers. We play with “what if” scenarios and hypotheticals. But we do all this while separated from the system, like it’s a parallel universe. Then, once we’ve reached some kind of conclusion, we literally “dump” the output of this separate system back into our business management software. And every connected piece of the puzzle also changes.

The third flaw. The language we speak is not universally understood. The Operations folks might say something like, “we have a machine that broke down.” Everyone in Operations might know what that means, but the Sales people don’t. The Sales folks might say, “We’ll do a promotion in March with a 20% spike in sales expected.” Now, the Operations people struggle because each person will have their own interpretation of what to do because of the projected increase.

The fourth flaw. Most S&OP processes are on a regular cadence. Let’s say monthly. If we agree on the second flaw, everything is done outside the system. And if we agree that the pace of change is accelerating, then the length of time between pulling the data out of the system and putting the data back in the system is significant. The data pulled from the system to make all the calculations may be outdated, which makes the resulting answers less than stellar.

The Challenges.

The first challenge. The communication from Leadership and from the Sales teams do not directly translate to the Operations and Supply Chain teams. When Sales talks about running a promotion or new customer plans, Operations is left to wonder what exactly should be their corresponding action. There needs to be an “interpreter” to bridge the gap.

The second challenge. Some parts of an S&OP process should be constant and ongoing. And they should remain attached to the system that is being used to run the business. Outside the system, how long is the “snapshot” valid?

The third challenge. The dialogue and conversations must be two-way. In addition to the Sales team strategy and expectations, we should ask “What are the challenges of the Operations team and how can they be impacted by the Sales team?”

The fourth challenge. The relative timeframes cause a disconnect. A strategic goal might be to open a new market and distribution center in 12 months. But the timeframe for tactical decisions requires us to ask, “What do I do today that will impact our company’s 12-month goal?” And, if all these questions are asked and answered outside of our business management software, how and when do we execute the plan inside the system? How and when do we know that our plan was successful?

In a Demand Driven Sales and Operations Planning process, the prerequisite is that a Demand Driven Operating Model is in use. Here is a summary of the DDS&OP process steps and some potential questions asked or answered at each step.

  1. Review our capabilities. How are we performing? Have the Operational actions we are taking in response to the Sales input been effective in our business? We remain connected to our Demand Driven Operating Model and this step should always be happening.
  2. Projecting performance. How can we improve systemic flow by improving our capabilities? If sales increase 20%, where are the opportunities or constraints?
  3. Reconciliation. How can we reconfigure our planning model to reduce the impact of those limitations and to be able to handle the expected increases or decreases? Based on our current capacity and inventory levels, don’t offer promotions on XYZ, but offer promotions on ABC.
  4. Tactical preparations. Do we need to add overtime or temporary workers? Do we need to outsource some work or shift work to alternative work centers?
  5. Strategic Recommendations. We need an additional shift or another warehouse. We need to add a machining center or another test station. We can bring our outsourced production back in-house, because we have excess capacity.
  6. Strategic Projection. Achieving the long-range projections (expanded market, new product lines, targeted increase in ROI) via aligning the operating model to the business initiatives.

Step 1 provides the remedy for the second challenge. We take a process that we are doing all the time and report as to how we are performing. Not a separate snapshot in time.

Steps 2 and 3 are about connecting the tactical actions to the strategic information. And vice versa.

Steps 4 and 5 are about the tactical and strategic realities based on our capabilities and future vision.

Step 6 is the longer outlook and related implications. What creativity can we apply to help achieve the strategic range company goals?

Questions or comments welcome! Let’s get the conversation started.

John Melbye, DDPP, DDLP, CSCP

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