Amazon founder Jeff Bezos once said, “The stronger our market leadership, the more powerful our economic model. Market leadership can translate directly to higher revenue, higher profitability, greater capital velocity, and corresponding stronger returns on invested capital. Our decisions have consistently reflected this.” This quote is a reminder that to ensure successful S&OP, accurate decisions, direction, and unified processes are crucial.
To improve supply chains sales and operations planning (S&OP) effectiveness, consider the following:
- Focus on opportunities and risks for better decision making.
- Develop accurate reporting and anticipate future performance.
- Provide stronger relationships between Finance, Sales, Operations, and Marketing.
- Integrate demand and supply/inventory planning.
Improving S&OP: What Amazon can teach us
From ordering a new product on Amazon to telling Alexa about their to-do list, Amazon has infiltrated the world in dramatic ways. Topping Gartner’s list of Best Supply Chains in 2015, Amazon (AMZN) which started its online shopping in 1995, now processes about 400 orders ever second during peak times. Amazon revenues are near $90 billion annually.
From the beginning, Bezos focused on logistics and decreasing delivery times. As growth increased, Amazon continuously improved S&OP. Bezos is not only a relentless retail mogul, but a business innovator and owner of the world’s biggest e-commerce company. His long-term vision and persistence with Amazon took years to achieve from its initial start-up in his Seattle garage when Bezos quit his Wall Street job.
Narrowing scope for better organizational alignment
Looking at how Amazon works on S&OP, businesses that struggle with S&OP may have a lack of strong executive decision-making or may have competing or misaligned priorities. Additionally, poor organizational alignment can negatively impact S&OP process effectiveness.
Bezos first worked on delivery, then same-day delivery, the “dash” system, and then drones. Aside from narrowing the scope, Amazon has a simplified supply chain and customer fulfillment process. Orders are placed, items are loaded into bins, sorted by barcode, and sent to central distribution centers, where they are matched with the customer before being boxed and shipped.
Incorporating demand planning into S&OP best practices
Good S&OP practices aim to reduce safety stock, increase working capital and improve performance. More mature S&OP processes leverage demand planning software to improve accuracy, downstream impacts to production or inventory, and model real-time changes from the various teams involved. These changes can include demand mix, prices, labor, volume, production capacity, vendor capacity, lead times, and exchange rates.
Leveraging demand planning software is part an of basic S&OP practice. An integrated software platform that includes support for S&OP, Demand Planning, Supply Planning, Inventory Optimization, and Financial Forecasting is part of leading S&OP practices. Additionally, it must include support dashboards, reporting, KPIs, and real-time revisions of demand plans to address and model impacts of subsequent changes made by the collective team. KPIs should be agreed upon by the executives and managed to by the respective teams.
Additionally, businesses can:
- Align S&OP for both long and short-term goals: Advanced demand planning can support both short and long-term horizons. Aligning this with S&OP helps organizations to direct investments associated with trends and shifts in the market.
- Increase forecasting accuracy: While 100 percent accuracy will never happen, businesses can always improve. Aside from measuring forecasting accuracy with confidence intervals (or ranges vs. point forecasts), anticipate accuracy over longer timeframes and plan for increased degrees of variability over longer horizons.
- Model changes with supply, demand, and financial impacts: Scenario planning and modeling help with multi-variate forecasting. Run “what if” analyses for planned and potential scenarios. Include supplier flexibility with demand and lead time changes.
Maturing your S&OP process and focusing on the customer, as Amazon has demonstrated, yields results. IBP platforms that are designed to support S&OP can help you emulate Amazon’s success. Interested in learning more about improving S&OP? Vanguard Predictive Planning can help you leverage predictive analytics, artificial intelligence, and advanced automation.