Ten Sins of S&OP (Part 3)

This is the final post in a series of three on the “Ten Sins of S&OP”.  Hopefully, these “sins”, (not necessarily in order of priority) 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.

7.  Track lots of metrics for each business function.  S&OP process stakeholders must jointly be held responsible for a few shared metrics that drive profitable business and enterprise value for your company within your industry.  At a minimum, they should include revenue growth, margin growth, and inventory turns.  Metrics within each function should directly drive these.  The dangers in establishing metrics for the S&OP process are in setting too many metrics, metrics that are not clearly understood, and metrics for which there isn’t shared responsibility.

8.   Only include sales and manufacturing in the S&OP process.  Omitting key stakeholders like finance, marketing and even procurement from participating in the process can create blind spots in the business plan, the whole point of which is to avoid such blind spots by creating an integrated decision set that is informed by the identification of risks, scenarios and alternatives.

9.  Focus on detailed product mix.  The purpose of S&OP is to determine, as a company, the best way to make money in the coming quarters.  The primary focus here is on volume – volume of sales and the resulting implications for capacity, inventory, sourcing, working capital, etc.  These are “big picture” issues and therefore, primarily questions of how much you will sell, source, make, store, deliver, etc.  Where constraints in manufacturing or risks in sourcing impact decisions about what to sell in order to make the most money in future quarters, then product mix (i.e. which portion of the business to pursue to what extent) at an aggregate level becomes relevant.

10.  Don’t worry about having solid “feeder” processes.  To avoid “sin #4”, you need to have robust supporting processes that deliver quality output to the S&OP process.  While forecasting is a business requirement, you need to have a functioning demand planning process for S&OP (see Forecasting vs. Demand Planning) in order to validate and reconcile quantitative and qualitative forecasts, determine the range and confidence of future forecasts, evaluate forecast accuracy and bias, estimate the magnitude of previously unmet demand, coordinate demand shaping requirements with promotional activity, collaborate with customers, etc.   All of the work from the “feeder processes” such as demand planning and supply planning builds the foundation for delivering a complete picture upon which to base an S&OP decision set.

Thanks once more for reading Supply Chain Action.

This week’s quote is from the first sentence of chapter one of Jonathan Byrnes’ book, Islands of Profit in a Sea of Red Ink, The most important issue facing most managers is how to make more money from their existing business without starting costly new initiatives.

I’m a little late with this post, so I hope that you are having 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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