The Ten Sins of S&OP (Part 2)

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.  Hopefully, these “sins”, dealing with key attributes of an effective S&OP process, will be both instructive and practical, but from the literary gimmick of what not to do.  The first three were posted last week.  Here are “sins” 4 through 6 of The Ten Sins of S&OP.

4.  Don’t identify strategic questions, alternative decision sets, and the relevant tradeoffs.  Part of having solid feeder processes leading up to the executive S&OP meeting is unearthing the potential demand and supply scenarios with which your company might have to contend in the coming quarters.  (The current quarter, more or less, should be mostly about short-term planning and execution with given assets, suppliers and visible demand.)  You must know the range of demand possibilities and what is driving them, potential needs for incremental storage or manufacturing capacity, where the risk factors are and how sensitive the revenue and profit streams will be to those factors.  This is where your business acumen comes in.  This is all about making money with other people’s (investors’) money – how can you make the most money given the range of decisions that you have to make?  What decision set will give you the most profit?

5.  Assume that the sales goal and the demand plan are the same thing.   This should not be hard to understand.  The annual sales plan, original or revised, is a financial goal.  The demand plan should be what you think is likely to reasonably happen.  They should be in synch (based on common assumptions and context), but there will likely be differences. At the S&OP meetings, the variances and their reasons should be clearly understood.

6.  Don’t plan for a range around your demand plan. (Revised for clarity based on great feedback from multiple smart friends.) You definitely need one consensus plan to make the most money that represents an integrated decision set that has been developed out of an understanding of common assumptions, potential market eventualities, plans for resiliency, and evaluation of all relevant, interrelated tradeoffs.  But, don’t make the mistake of not going to the trouble to calculate and understand the range and potential distribution around your plan – in that sense, it is not just “one number” that matters.  The context is equally important.

Thanks for stopping by.

As you move into the weekend ahead of another work week, I hope that you think about your S&OP process and also this anonymous quotation, “You cannot always have happiness, but you can always give happiness.” – and maybe that is one of the secrets to being happy anyway.

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.

2 Responses to The Ten Sins of S&OP (Part 2)

  1. pat bower says:

    Mark –
    Always thought provoking.

    I fiercely agree with point #1. Scenario planning and alternate outcome planning is a HUGE deficit in most S&OP processes.

    Certainly point #2 is correct.

    I am not sure I agree with #3. Getting to a single realistic plan as a current estimate is a worthwhile goal. It requires a realistic apporach to planning. This does not mean that sales is not incentivized to hit higher targets (this is where quota diverge from demand plans) or finance does not have ways to help make OB if top line growth is not holding it’s own… but getting agreement on the best view of shipments / orders … not that hard if you try… and stay real.

  2. Pat,

    Thanks for reading and taking the time to post very thoughtful comments. I think we are essentially in agreement on point 3. My intent is to emphasize that all stakeholders must have an understanding that the number that is used as the demand plan that drives everything else represents a range and that stakeholders should think of it that way. It is convenient to represent it as a single number at times (midpoint of a range, if you will), but it really represents a range of what can be reasonably expected. I’ll agree that I’m overstating the case a bit to make my point because I fear some folks take the “one number” thing a little too literally.

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