The Secrets to S&OP Success
By Maha Muzumdar and John Fontanella -- Supply Chain Management Review, 4/1/2006
Ask any supply chain professional this question: Is sales and operations planning (S&OP) important to your company? The chances are good that no matter what type of company they work for the reply will almost always be “Yes!” But if this attitude is so commonly held, why are so few companies willing to step forward and say they are actually doing something to institutionalize a strong S&OP process in their business?
It is no secret that most companies struggle with even the basics of balancing supply and demand in their supply chains. Retailers have excess inventories for some products while facing high product shortages for others. Consumer products companies are challenged with building ahead of the seasonal curve, which is based at best on questionable histories and more often on uninformed hunches. High tech and industrial companies work hard to put master plans in place only to have them unravel in the face of customer and supplier churn and uncertainty. And distributors must balance not wanting to have an oversupply in their distribution centers against the hefty discounts that usually result from carrying too much inventory of their product in the stores. Even worse, stories abound of companies that were not prepared for the demand created by highly discounted promotions, resulting in product shortages and a record number of unsatisfied customers. Could all of these symptoms have a common root cause? Could significant progress be made in reducing these undesirable effects in so many companies? Certainly all supply chain professionals and executives want to reduce uncertainty and continuously improve how they manage risk. If there are so many opportunities for improvement and so much support for S&OP, what are the obstacles and what are the steps to overcome them? In this article, we address these key questions.The Potential of S&OP
Regardless of size and industry, most companies in recent times have faced significant business challenges including shrinking profit margins, reduced customer loyalty, growing global competition, and increased supply chain velocity. At the same time, business growth is either below plan or below potential. These market factors have created new obstacles for supply chain executives and managers and have altered the global competitive environment into one of high uncertainty and risk. What has become clear is the importance of integration across operational silos as well as trading partners.
The goal of the S&OP study was to survey a wide variety of large and mid-size companies to identify successful strategies for sales and operations planning. One of the key findings was that most enterprises have some sort of S&OP process to align demand and supply. In fact, more than 70 percent of respondents to Aberdeen’s survey indicated that they are actively engaged in enhancing their existing S&OP capabilities. As shown in Exhibit 1, a significant number of participants revealed that they expect an enhanced S&OP program to significantly improve operational performance across the value chain, from sales to procurement. These respondents are motivated to improve their S&OP process by a combination of decreased business growth, diminishing profit margins, and competitive pressures. Continued...
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