Ten Sins of S&OP (Part 1)

There are lots of “experts” telling us about “best practices” and “biggest mistakes” in S&OP.  Most of the pundits say the same things with varying semantic schemes.

Few if any of the loudest voices are really giving any new practical insight.  I have been writing (e.g. When Cheaper, Faster, Better is Not EnoughSales and Operations Planning:   The Key to Continuous Demand Satisfaction), speaking, and working with manufacturers on S&OP for years now.  In this blog, I have written about an emerging best practice that I call a “forecast reality check” that I see manufacturers in consumer products and other industries embracing, although sometimes with different names (e.g. “forecastability [I know it isn’t a word] analysis”; “forecasting priorities analysis”; “demand curve analysis”, etc.).  Other companies are still struggling because they have not effectively addressed the challenge I have described last month in Supply Chain Action.

Here and in the next couple of posts, I am going to talk about key attributes of an effective S&OP process, but from the literary gimmick of what not to do.  A competent treatment will take a bit of effort to write and to read, so I’ll start with the first three of the Ten Sins of S&OP.

  1. Run an S&OP process without P&L ownership involved.  This isn’t news, but it is important enough to reiterate.  An S&OP process is about how you will run the business.  You can’t have a decision process about how to run the business without a decision-maker with P&L responsibility.  ‘Nuff said.
  2. Incent the stakeholders to act in conflict.  This point languishes in obscurity, but it remains absolutely essential, not only to integrated business decisions, but particularly to integrated business actions.  If sales leadership is incented only on revenue, while manufacturing is rewarded for overhead absorption and procurement is rewarded for reducing per unit purchase costs, then meaningful agreement on the business plan will stay out of reach.  Certainly, coordinated actions to meet a coordinated business plan will continue to elude you.  The stakeholders in the S&OP process must be held accountable for performance across metrics that drive business value – revenue, costs, and working capital.  More on S&OP metrics later.
  3. Express the S&OP plan only in dollars at an aggregate level.  The mantra that S&OP is people, process and technology is frequently repeated, and the technology contribution is minimized without being explained.  Let me bring that into sharp focus.  The principal contribution from software to the S&OP process is translation.  Stakeholders, including operations, sales, marketing, finance, and procurement, as well as the P&L owner, need to be able to simultaneously see the plan in their own terms.  When marketing plans to introduce a brand into a new region through a particular channel, manufacturing needs to understand this in terms of capacity utilization at a plant.  Finance needs to see the impact in terms of revenue, margin and working capital.  Whether you use an enterprise software application or Microsoft Excel to express the S&OP plan, it needs to be capable of instantly translating the impact of alternative actions in multiple dimensions (think a marketing hierarchy, product hierarchy, and geographical hierarchy) and in terms of both currency and units.

I’m not as generally thankful a person as I would like to be, but I am always grateful for and flattered by those who read any of my work.

As you head into the weekend, consider with me these words from Cicero, “A thankful heart is not only the greatest virtue, but the parent of all other virtues.

Have a wonderful weekend!

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About Arnold Mark Wells
Industry, software, and consulting background. I help companies do the things about which I write. If you think it might make sense to explore one of these topics for your organization, I would be delighted to hear from you. I am employed by Opalytics.

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