Reason #2: Poorly executed or non-existent sales and operations planning
Over the years, working for and with numerous manufacturing companies, I’ve seen many supply chain practices that cost companies money. Over the next several weeks, I’ll outline these issues and discuss some ideas around how to avoid these practices. You can find the previous post here:
Tell me if you’ve heard this one before. Your company has implemented an S&OP process. At first it showed some promise, but now it has turned into a blamefest attended if at all by lower level representatives that aren’t empowered to make decisions. No one trusts the numbers, inputs are late and you aren’t seeing any improvements month over month and people are starting to wonder “why bother”. Sound familiar? So how does a poor S&OP process cost money?
- Excess and obsolete inventory. S&OP is all about aligning manufacturing and sales. When you don’t make what you sell and don’t sell what you make you create inventory. Lots of it.
- Lost sales. This is the corollary to the above. Typically companies with poor planning don’t have too much of everything. They have too much of things that aren’t needed and too little of things that are.
- Lost market opportunities. Companies without an effective S&OP are typically much slower to react to market changes. This means that their competitors will beat them into new markets and products.
A well-executed sales and operations planning process can transform a company; allowing them to better control inventory and costs while meeting rapidly changing demand pictures. It does this by gaining alignment across the sales, demand planning, manufacturing and finance organization. In effect making sure all areas of the company are working towards the same plan and towards the same goal. 5 years ago, I wrote a blog post in which I discussed the 3 pillars of S&OP. They are; Process: Trying to run sales and operations planning without a clearly defined process is like driving in a city where no one obeys the rules of the road….you probably won’t get where you are going. If there were no process driving S&OP, then there is a very good chance that key information would not be presented (or presented poorly), key people would not be in attendance and that critical decisions would not be made. It is important that the structure, timing and agenda of S&OP is documented, published and adhered to. If the process needs to change due to changing business requirements, those changes need to be documented and published. Executive Commitment: It is very difficult (bordering on impossible) to implement an effective S&OP process without executive commitment. Why? First let’s ask what is the purpose of S&OP? The purpose of S&OP is to align supply and demand and the various departments contributing to that alignment. Departmental alignment can only occur if the top level department executives are involved in the key decisions…because those top executives have the decision making authority. Sales and Ops is a failure if the representative at the meeting needs to go back to their executive to get a decision. Effective S&OP Tools: This includes the tools to analyze the data, present information and make decisions. Effective S&OP tools also include the ability to integrate the data that drives S&OP. While Excel can be fine to do the initial S&OP model, moving to the next level of S&OP effectiveness requires a more integrated, responsive and collaborative application. S&OP is a powerful tool if performed well. Inventory reductions, improved efficiency, improved customer service and reduced expedites are all expected benefits. However, If there is no buy in, if executive commitment isn’t there, if data isn’t reliable and doesn’t drive action your S&OP process won’t delivery these results. Have you experienced poor S&OP planning processes? How about excellent planning? Comment back and share!
One thing I'd like to comment on is that poor S&OP tool usage is applicable to not just the supply chain / manufacturing world, but also in non-profit organizations. I used to work for a non-profit where we were trying to keep track of donations through a system that didn't exactly suit our needs well. Although we were dealing in donations and had no manufacturing, I found that this system contributed to a huge lack of possible donations from individuals. In addition, we lost out on the potential share of company donations to other non-profits who were more up-to-date and connected with local businesses. Part of the reason our S&OP planning was subpar was because of the high turnover of volunteers who input the data, as well as the lack of training on policies and procedures for contacting donors.
After the director decided it was finally time for a switch, I was brought in to revamp the whole system and shift it to cloud-computing. All workers were then able to access the information anywhere (instead of just that one office computer) and we were able to instill procedures that kept the data up-to-date and clean.
It's a small local non-profit, but the shift between systems took months - I can only imagine the hurdles a large company faces when an obsolete S&OP system is already in place and an entire shift of technology management is needed.
As you've no doubt discovered, one of the biggest challenges of implementing any system like this is not the technology, it's managing the change, regardless of the size of the organization. Even the best implemented software will fail if people don't use it. Education and training is the key - Education to answer the Why - why is this change better, why will it help the organization, why will it help me? Training to answer the how - how do I do my job now with the new system.
Once implemented, look for opportunities for improvement. It doesn't matter how much work you put into the original deployment, you will always learn things in the first months after you deliver the system. Features that work differently then you thought, forms that are unclear, performance issues, now that everyone is using the system can all be gradually improved and will foster continued use.
Thanks again for commenting Diana!
Firstly great article it is very interesting and an easy read! I am currently studying Supply Chain Management.
I just can't believe that Companies, small businesses etc. still can not plan for the future. With all the new systems and technologies it should be easy to plan ahead so that the supply chain practices doesn't cost the company extra money.
Then why is companies still failing at planning for sales and operations? Do they think that they can just talk about it and make a decision without putting it on paper?
I hate it when I want to buy something that is high in demand, and the business tells me, that they are out of stock. In my opinion if a business tells me time after time that they can't help me, then I don't go back...Does this mean that they have a poor sales and operation plan? If so, what should they do differently? Should they implement a new system, better personnel etc.?
There are a number of reasons companies fail implementing S&OP;
- Lack of management commitment (This is key in my opinion!)
- Error prone plans. If you have lots of errors people start losing faith in the numbers - at which point your S&OP process is dead. This is driven by two key factors.
1) Bad data - either the inability / difficulty getting information that is needed to drive the S&OP plan or the data coming from the ERP system is bad.
2) Poor / error prone S&OP planning tools (Excel is a good tool to experiment with but has challenges when used on a continuous basis).
- Fire fighting supersedes planning - companies get caught in the trap of spending all their efforts fighting fires and not doing the upfront planning that prevents the fires in the first place.
I'm sure that there are other drivers for companies failing at S&OP but these are pretty common.
When companies have stock-outs it is often the result of planning failures; Forecast accuracy, inadequate supply, distribution issues. While S&OP isn't a magic bullet that will solve all of these issues upon initial implementation, over time, these problem areas get identified and eventually resolved. In other words, if you show me two companies, one with an effective S&OP process and one without, I'd bank on the one with S&OP as the one most likely to have the product I want when I want it.
Best of luck on your studies Uné!
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