Manufacturing companies’ ability to compete oftentimes hinges on meeting customers’ delivery expectations. Customers want the product when they want it, and delivery failures result in customer attrition. With the introduction of platforms connecting producers to consumers, moving from one supplier to another can happen overnight. Unfortunately, customer product demands are difficult to predict. Customer unpredictability requires manufacturing companies to closely manage the balancing act between material requirements, production capacity and inventory levels.
To address the predictability challenges, manufacturing companies must have a robust integrated business planning process aligning sales, operations and finance. In many organizations, the Sales and Operations Planning (S&OP) process is disjointed and cobbled together with various spreadsheets and emails. Companies can leverage technology to innovate and streamline the S&OP process. An S&OP platform can automate processes across sales forecasts, demand planning, materials planning, network optimization and financial planning.
Keep in mind, processes must first be standardized and organizations aligned before investing in a technology solution in order to realize any real benefits. Before starting an implementation, consider the following:
Know where you stand today. Business functions operate in silos and have unique processes, systems, success metrics, and terminologies. Understanding the current state and identifying pain points within the process is key. For example, the sales organization speaks in “dollars” and the plants speak in “units.” This means that the pricing process must be well-defined to interpret what sales is saying versus what the plant must produce. Assess the current processes across the supply chain, then determine actionable steps for improvement. Automating an ineffective process will not yield greater effectiveness. Be realistic about the current state and develop a plan to implement the desired future state.
Roles within the organization will change. To effectively implement and utilize a S&OP tool, everyone involved in the S&OP process should understand their individual role and accountability. Undefined roles and responsibilities lead to duplication of effort and multiple versions of the truth. The plant receiving one forecast from sales and yet another version from the demand planners will experience confusion and second guessing. Developing a RACI (Responsible, Accountable, Consulted, Informed) model for each step in the S&OP process is a great tool to align roles. Clarifying how each individual contributes to the S&OP process and fostering collaboration across teams are essential to success.
Data is everywhere. Identify authoritative data sources and clearly define data inputs, calculations and outputs. Most companies with a manual S&OP process have data stored in multiple systems, spreadsheets, servers and hard drives. With data coming from multiple sources, companies spend the majority of the time validating the data, leaving little time for analysis. Demand Planners plan production at a more product SKU level, and finance forecasts production at a product line level. The two versions are rarely reconciled or shared between operations and finance. This creates a tedious and time consuming task, leaving little time for analysis. Before implementing an S&OP tool, the team should design a data model that aligns the company’s sales, financial, supply, and operations planning process and requirements.
Build consensus among key stakeholders. It is difficult to argue the benefits for implementing a platform for S&OP process automation. Sales, finance, operations, supply, pricing, marketing and product management teams must be aligned, given the cross-functional nature of S&OP. Establishing who will be accountable for the S&OP implementation isn’t always easy. Organizations need top management from commercial, finance and operations commitment to be aligned. This includes aligning project objectives. A good exercise to start the S&OP implementation, includes developing S&OP Guiding Principles. The Guiding Principles set the tone for the implementation and give all functions a clear understanding of the path forward. Any disagreements will be resolved by the Guiding Principles for the project. With executive leadership in place, buy-in from key stakeholders and the rest of the team in place, the S&OP process can succeed.
While technology can automate and simplify the S&OP process, processes, data, organization roles and expectations must be aligned across the business.