Simon Holloway defines modern Sales and Operational Planning, explains where it fits within an ERP system and discovers that it’s all about clever software being beautifully aligned with a company’s business goals.
If ERP is all about managing and controlling resources, sales and operations planning (S&OP) is the brains behind the process and understanding how to leverage it can mean the difference between profit and loss.
Andrew Kinder, solutions director at Infor, says: “As Europe moves out of recession, many business leaders are reflecting on the lessons learnt.
Thankfully the conjecture: ‘had we only known how the credit crunch was going to hit us’ has been joined by ‘what can we do to make sure this never happens again?’. Businesses are now examining the systems and processes that offer not just growth but protection and resilience.” At the top of this list of systems is S&OP. In a recent AMR Research supply chain management survey for Infor, 88% of respondents said they are already using or planning to deploy an S&OP solution in the next 12 months. The survey found that the area of S&OP that companies want the most support with is S&OP’s ability to provide “what-if” simulation capability. This simulation is a critical tool for dealing with the volatile demand many businesses experience today. But has S&OP modernised and adapted to today’s global and agile markets? Does it apply to both big and small organisations?
What is S&OP?
S&OP is a business planning process that aligns the traditional demand-supply view of the market with the financial and business goals of the organisation.
S&OP is a response to the accusation that the operational plan and business plan are often seriously misaligned.
Supporting this cross-functional business process is information. This means integrating several different pieces of planning data around sales, production, inventory, finance and HR to provide the executive with focus, alignment and synchronisation about the company’s different operations. Plan frequency and planning horizon depend on the industry specifics. A properly implemented S&OP process routinely reviews customer demand and supply resources and “replans” quantitatively across an agreed rolling horizon.
The re-planning process focuses on changes from the previously agreed sales and operations plan.
As John Dougherty said, S&OP’s “ultimate goal is to always keep the detailed sales, manufacturing, purchasing and capacity planning systems in sync with the latest high level plans of management (the business plan).” Andrew Kinder says that there are many different definitions that have evolved over time. Infor defined S&OP for the purposes of driving its new product design as: “enabling decision makers to achieve consensus on a single operating plan that profitably matches supply and demand.”
The S&OP process
The S&OP processes is characterised by:
● A top-down and bottom-up approach, linking the company’s business plan with the current demand and supply plans.
● A cross-functional, collaborative process that focuses on improving business performance.
● A structured, formal set of consensus business processes based on a set time period, usually a month.
The process starts with gathering projected demand information and compiling it in a common format. From this information, a demand forecast is generated, typically beginning with the sales forecast originally used for planning purposes, but augmented with inputs from key customers and amended by knowledge of operating and market conditions.
The next step is to match demand forecast against any known or anticipated manufacturing and logistics constraints. Any issues identified are then resolved; this often includes looking at alternative strategies. The final step is to monitor progress against the altered demand and supply plans.
This provides us with different business processes operating with different buckets of information granularity. Information flows both bottom-up (sales, customer, VMI and co-managed programmes, POS data, supply chain capacities) and top-down (budget, business plan, category or customer plans, market share objectives, NPI plans). Successful S&OP is the reconciliation of these information flows to provide actionable planning. The planning component and iterative feedback loops require common business language.
Evolution and latest developments
Early iterations of S&OP systems simply matched demand and supply, balancing supply with the best expectation of demand. This is the coordination of an inventory, production and procurement plan to meet demand, balancing supply with demand at the stock keeping unit level. This remains an essential component of any planning process, but lacks a financial view of the plan. Does the plan meet with the financial goals of the business, matching forecast to sales revenue expectations? Is the supply plan affordable in a way that delivers the expected margins of the business? The next evolution – sometimes called scenario management – was to allow the user to manipulate both demand and supply. It also included the ability to incorporate events such as new product introduction and product changes. Infor’s Kinder says that this is where most organisations strive to be on their S&OP maturity curve. Planning is more strategic – from 12 to 24 months out – and operational plans are expressed in financial terms: revenue, costs and margins.
The latest evolution is to make the planning process even more agile and flexible as well as robust. Kinder says that practitioners at this level sometimes use the term “integrated business planning”, elevating the process to a higher level than sales and operations.
The goal is an executive planning process that seeks to define the total strategic plan for the business and completely align strategy with execution.
“A business may incorporate product portfolio planning into their S&OP processes, scrutinising when products are retired and when new ones are brought on-stream,” says Kinder. “Other considerations will include pricing options, channels to market, expansion and consolidation plans, mergers and acquisitions, and network design changes.”
Who’s in the market?
As S&OP is an important part of a manufacturing planning process, all the big ERP packages provide modules that support S&OP. Yet this is not the case for every ERP and a survey Aberdeen Group revealed that 85% of organisations resort to spreadsheets to support their S&OP processes. However SAP, Oracle, Sage, Infor, Microsoft Dynamics, Epicor and IFS all claim to provide S&OP solutions.
The specialist supply chain management solutions such as I2 Technologies, ICON-SCM, Kinaxis, Logility and TXT e-solutions similarly provide S&OP support but these solutions are very supply chainfocused and don’t support the complete range of S&OP applications.
IBM positions Cognos as one solution for S&OP.
Cognos is a well-known and well-used business intelligence product – therefore to use for S&OP one needs to configure the product. For this, IBM provides its customers with a free set of frameworks called the IBM Cognos Performance Blueprints that provide a set of preconfigured settings. However the BI product family does not provide detailed demand planning or constrained supply planning which are important aspects of simulation within the S&OP process.
There are also several specialist niche
providers such as:
● Demand Solutions S&OP is fully integrated with Demand Solutions Forecast Management and Demand Solutions Requirements Planning, and it imports data through the Forecast Management database. The user-defined Import/ Export utility within Demand Solutions products makes it easy to interface with other business systems.
● JDA’s Executive S&OP Workbench was developed to take account of the Integrated Business Planning concepts described earlier. It utilises key-metric graphs and charts to visually present the aggregated state of your business.
● Steelwedge’s Sales Planning & Performance Management suite leverages four modules (executive, sales, operations and collaborative) and an S&OP platform that incorporates best practice S&OP collaborative technologies with business workflows and performance management capabilities. Together these help companies take enterprise-wide top-down, bottom-up and middle-out control over the revenue planning process.
Conclusion
What does successful implementation of S&OP deliver to the business? According to research from Aberdeen Group, S&OP leaders report healthier financial results in terms of customer service levels, forecasting accuracy, profitability and cash-to-cash cycle times – key measures for any business.
Simon Pollard, VP manufacturing operations and execution for SAP EMEA, provides this scenario: “Most companies do S&OP on a weekly or monthly basis. Once the plan is done the real world takes over, destabilising the plan. If you join plant floors to ERP you can monitor those operations up from the shop floor to business goals. But the problem now is that information at the lower levels can only be picked up quarterly and only key stakeholders are involved.” A recently published IDC report says that “inaccurate forecasts can make planning and allocation of resources and servicing new projects very challenging – it can make adequately servicing customers difficult if orders come in all at once.
With strained economic conditions in 2009 and 2010 planning was harder as previous year’s revenues provide little indication of future sales.” IDC recommends that discrete manufacturers adopt S&OP to synchronize the demand forecasting process with production and customer fulfilment planning.
Infor’s Kinder says, “S&OP has become an essential business process in de-risking the supply chain. The reality is that in any operational planning process there are multiple ways to meet customer demand. But which is the best plan, and is that best for customers or best for the business? S&OP, and the modern technologies that support it, delivers confidence that a business has explored the alternatives and hit upon that elusive best plan.” Although S&OP is a key element in manufacturing IT today, it has different meanings to different companies depending on what stage they are in their enterprise planning journey. If you want to move to the nirvana of Integrated Business Planning, then you are looking to join shop floor data from Manufacturing Execution Systems (MES) with data from your supply chain partners (certainly for your tier one suppliers) with you HR data, capacity data and sales data to produce a plan which may now need to be refined more than monthly. Effective S&OP is about integration and collaboration not only at a technical level but also at a business process level.
