Companies like Brown-Forman, ExxonMobil Chemical, and Procter & Gamble are taking sales and operations planning to a new level where it harnesses the most effective technology, enables communication, and creates comprehensive business plans based on both experience and expectations. The best S&OP focuses on demand as much as supply, differentiates between what is viable and what is not, fosters real communication between all parts of the value chain, and as a result, anticipates and avoids unwelcome surprises.
SAP research has found that the best S&OP process creates an unrestrained demand forecast by accomplishing the following:
* Accounting for internal factors " The process should consider elements such as price changes, lead times, sales plans, product promotions, and new product launches
* Accounting for external factors " The process should consider elements such as customer input, the competition's activities, the trajectory of the economy, regulatory considerations, and market trends.
* Considering a product's complete life cycle" This begins with introduction and ramp-up and continues through final phase-out.
The supply side of leading S&OP processes emphasizes out-of-the-box thinking, and the analysis incorporates the availability of finished product inventory. More important, the entire manufacturing process also becomes an integral part of the supply review process from procurement through production, and including data on imports, outside purchases, and inputs from contract manufacturers.
Creating Communication Between Departments
A growing understanding of the importance of S&OP has led to efforts to ensure that the process enables communication between different departments of the company. Randy Isdahl, supply planning manager for Brown-Forman, puts it this way: "One of the biggest benefits is the fact that the process has resulted in an open, unfettered conversation across all our Brown-Forman functional groups … the results are astonishing."
As a result of this inclusive conversation, finance members share their perspective in terms of revenues, margins, and working capital; marketing members talk in terms of channels and brands; and the manufacturing and logistics members bring their thinking on products, sources, capacity, and destinations.
David Sharp, supply chain process leader at ExxonMobil Chemical, remarks, "Because we're working with a single [information] systems platform, the same information is available to everyone, allowing us to better align our supply plans with ExxonMobil Chemical's worldwide business strategy. Also, the common systems platform makes it easier to transfer supply chain best practices around the world."
The architects of these superior S&OP processes recognize that higher-quality decisions in less time require intelligent leveraging of today's best information technology. Today, companies want decision support for scenario planning in addition to industry-specific capabilities and the capacity to include global market and supply chain requirements.
Looking To The Past And Envisioning The Future
These types of capabilities also allow a company to compare plan assumptions with actual results, so that future plans can be revised to be more effective. Procter & Gamble, for example, uses the results of the S&OP process to create more effective plans by looking backward and forward. First, a team evaluates a past plan: where the business went right, where it went wrong, and what needs to change. The teams compare current plans with historical trends and other data such as market size and consumption to determine if the assumptions of the new plan make sense.
Avoiding Risk And Uncertainty
Companies often experience difficulties in foreseeing uncertainties in their supply chains. This can be disastrous in the long run. Figure 1 demonstrated how the process can easily get out of control at the end " creating a real traffic jam that could have been avoided through an effective S&OP process.
Increasingly, the best S&OP processes rely on software that allows all stakeholders to see the same data, at the same time, but each in their own terms. Software that supports S&OP integrates the data and information flow of the parts of the organization that will be relevant to the company's need to manage risk and uncertainty. The company has access to the right data and insights to make smarter decisions across all participating functions (sales, marketing, procurement, manufacturing, distribution, and finance).
The most sophisticated software applications encompass scenario capabilities that allow a company's senior executives to test their various assumptions about demand and supply in a virtual environment. They can also examine the impact of untried strategic and operational ideas for change. This type of process provides a global view of the business that allows supply, sales, marketing, and manufacturing to collaborate on a consistent basis to maximize customer satisfaction.
Most important, the right information technology can provide the contextual information necessary to maximize the impact of decisions on business value creation " to help increase profitability and achieve strategic goals. The company can adapt its actions to changing conditions without decreasing performance.
Dick Clark, the demand planning global process owner for Procter & Gamble, concurs that the company's S&OP process has helped maximize resources to achieve better financial results. As he put it, "Our monthly S&OP meetings allocate and align company resources to a single set of sales and supply plans. Our goal is to optimize resources to support the company's business objectives. This includes assessing the financial implications of the plan as well as its impact on supply and demand."
SAP research has found that the best S&OP process creates an unrestrained demand forecast by accomplishing the following:
* Accounting for internal factors " The process should consider elements such as price changes, lead times, sales plans, product promotions, and new product launches
* Accounting for external factors " The process should consider elements such as customer input, the competition's activities, the trajectory of the economy, regulatory considerations, and market trends.
* Considering a product's complete life cycle" This begins with introduction and ramp-up and continues through final phase-out.
The supply side of leading S&OP processes emphasizes out-of-the-box thinking, and the analysis incorporates the availability of finished product inventory. More important, the entire manufacturing process also becomes an integral part of the supply review process from procurement through production, and including data on imports, outside purchases, and inputs from contract manufacturers.
Creating Communication Between Departments
A growing understanding of the importance of S&OP has led to efforts to ensure that the process enables communication between different departments of the company. Randy Isdahl, supply planning manager for Brown-Forman, puts it this way: "One of the biggest benefits is the fact that the process has resulted in an open, unfettered conversation across all our Brown-Forman functional groups … the results are astonishing."
As a result of this inclusive conversation, finance members share their perspective in terms of revenues, margins, and working capital; marketing members talk in terms of channels and brands; and the manufacturing and logistics members bring their thinking on products, sources, capacity, and destinations.
David Sharp, supply chain process leader at ExxonMobil Chemical, remarks, "Because we're working with a single [information] systems platform, the same information is available to everyone, allowing us to better align our supply plans with ExxonMobil Chemical's worldwide business strategy. Also, the common systems platform makes it easier to transfer supply chain best practices around the world."
The architects of these superior S&OP processes recognize that higher-quality decisions in less time require intelligent leveraging of today's best information technology. Today, companies want decision support for scenario planning in addition to industry-specific capabilities and the capacity to include global market and supply chain requirements.
Looking To The Past And Envisioning The Future
These types of capabilities also allow a company to compare plan assumptions with actual results, so that future plans can be revised to be more effective. Procter & Gamble, for example, uses the results of the S&OP process to create more effective plans by looking backward and forward. First, a team evaluates a past plan: where the business went right, where it went wrong, and what needs to change. The teams compare current plans with historical trends and other data such as market size and consumption to determine if the assumptions of the new plan make sense.
Avoiding Risk And Uncertainty
Companies often experience difficulties in foreseeing uncertainties in their supply chains. This can be disastrous in the long run. Figure 1 demonstrated how the process can easily get out of control at the end " creating a real traffic jam that could have been avoided through an effective S&OP process.
Increasingly, the best S&OP processes rely on software that allows all stakeholders to see the same data, at the same time, but each in their own terms. Software that supports S&OP integrates the data and information flow of the parts of the organization that will be relevant to the company's need to manage risk and uncertainty. The company has access to the right data and insights to make smarter decisions across all participating functions (sales, marketing, procurement, manufacturing, distribution, and finance).
The most sophisticated software applications encompass scenario capabilities that allow a company's senior executives to test their various assumptions about demand and supply in a virtual environment. They can also examine the impact of untried strategic and operational ideas for change. This type of process provides a global view of the business that allows supply, sales, marketing, and manufacturing to collaborate on a consistent basis to maximize customer satisfaction.
Most important, the right information technology can provide the contextual information necessary to maximize the impact of decisions on business value creation " to help increase profitability and achieve strategic goals. The company can adapt its actions to changing conditions without decreasing performance.
Dick Clark, the demand planning global process owner for Procter & Gamble, concurs that the company's S&OP process has helped maximize resources to achieve better financial results. As he put it, "Our monthly S&OP meetings allocate and align company resources to a single set of sales and supply plans. Our goal is to optimize resources to support the company's business objectives. This includes assessing the financial implications of the plan as well as its impact on supply and demand."
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