At its heart, S&OP is an aggregated planning process. In a recent research study entitled “Sales and Operations Planning,” Ventana Research found that companies reporting the largest gains in revenue, margins, inventory turns and customer satisfaction all plan the same way. In general, they practice S&OP at the strategic level – not as a tactical, day-to-day or week-to-week planning activity. Rather, it is an aggregated planning activity that includes all lines of business or brands and all factories or regional operational facilities, across product lines. The top-performing companies reported that they all follow these steps each month:
- 1.'New-product-introduction planning
- 2.'Consensus-demand planning
- 3.'Supply planning and manufacturing planning
- 4.'Formal demand, supply and capacity reviews
- 5.'Financial plan reconciliation
- 6.'Formal executive S&OP meetings.
Companies that create plans on a monthly basis perform better than those that create plans once a quarter or once a year. Companies that set plan horizons of 18 months or longer achieve larger gains than those with shorter horizons, such as 12 months or six months.
To get to a more mature, effective approach, use S&OP to align operations with long-term corporate strategic objectives. Conduct regular, formal executive review meetings that look at actual-versus-forecast targets and review demand and supply scenarios. Set plans to cover 18 months and include lines of business or brands and all factories or regional operational facilities across product lines. Finally, evaluate the effectiveness of the overall S&OP process itself. Key measurements include meeting preparedness, attendance, action plan follow-up, efficiency of review meetings and S&OP process improvements. Commitment to these steps should put you in the same class as the top performers and increase your likelihood of success.
Colin Snow is a vice president and research director at Ventana Research. Write him at [email protected].