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Sales & Operation Planning – Standard vs. Best Practice

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A few weeks ago, I attended CSCMP’s Annual Global Conference in San Diego. Compared to 2009, the overall attendance was higher; there were approximately 3,500 attendees and well over 100 vendors that participated in the Supply Chain of the Future Lab.

When it came to the educational sessions, I attended a number of tracks with a specific interest in Sales & Operation Planning (S&OP). To my surprise there was an entire track dedicated to S&OP with standing room only participation. What I found amazing is that although S&OP is a 30+ year old concept, many companies, regardless of industry, are not executing on such a common sense practice. The genesis of S&OP is to synchronize and balance supply with demand through a formalized process that evaluates aggregate demand and demand influencers with supply and the variability that affects supply. A simple example is how lowering the price of an item sold on the internet or in a retail store creates more demand and that there must be enough supply in turn to cover the influential demand.

It sounds simple, yet many companies’ sales organizations do not effectively communicate with their operational teams. Matter of fact, a common question asked during the CSCMP presentations was who should own the S&OP process. Surprisingly, many of the participants and speakers stated that the Supply Chain (operational) organizations were driving the process versus Finance or Sales. Quite frankly, I believe Senior Executives should own this process. How can you effectively run any company without an integrated financial business plan that reconciles top-down revenue by sales channel and category with bottom up item planning? Yet many companies do not have a formalized and predictive process that plans and measures what was committed to by a sales organization and how supply will be sourced to cover the demand.

S&OP should be a “Standard Practice” versus Best Practice. Why? Because your company can increase revenue while improving forecasting accuracy and lowering total supply chain cost to deliver or serve. What will S&OP do for your company: 1) improve communication lines between Sales, Finance and Operations, 2) improve problem solving, 3) improve problem prevention, and 4) improve both tactical and strategic decision making. 

While attending the S&OP tracks, I contemplated why ERP or Supply Chain Planning Execution software companies don’t have a “Demand Chain Management” module that helps organizations formalize how they run their business. Surprisingly, the larger software companies don’t have a solution that integrates advanced financial planning, sales planning (top down) and operational planning (bottom up), and then allows the organization to simulate scenarios through “what if” analysis. Not surprising, the most commonly used tool for S&OP is Microsoft Excel. Regardless of whether your supply chain is manufacturing, distribution or purchasing centric, S&OP needs to be “Standard Practice” within your organization. You can expect there will be change management, process redesign and technology components required to successfully implement S&OP. Competence over excellence is required first. 

While attending the session by Mars, Inc. I had a thought, Why do we use the term, “Supply Chain Management” instead of terms like, “Demand Chain Management” or “Integration?” Without demand there is no need for supply and I predict over the next five to ten years Supply Chain Management will be passé.

Many of you are in the process of planning and budgeting for 2011. If you do not have S&OP processes in place within your organization, or if you are interested in learning about the basics, I recommend the books below. And of course, as a strategic supply chain partner, enVista is here to help as well.

Recommended Reading: Richard Ling | Tom Wallace | Oliver Wight | Dave Garwood

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