Integrated Planning for S&OP
In my consulting experience, the major reason for S&OP processes fail is simple – the demand side of the organization just ignores it. People simply do not show up for the meetings from the Sales Planner all the way to the VP of Sales.
S&OP stands for Sales and Operations Planning.
When there is no participation from the Sales or Marketing department, then the meeting becomes just an OP meeting. I have attended some of these meetings and it is interesting to see how the Operations deparment discusses the forecast, the rough cut plan, and the manufacturing constraints and finally decides everything is OK.
What is the reason for Sales to show such disinterest in this important corporate planning process?
- Sales does not find anything of value for their goals and objectives.
- Often this is in a language they cannot relate to.
Although the second appears to be cosmetic, this is, in fact, the major driver for the organizational planning divide. Often Sales Managers are required to develop a Sales Forecast in dollars for sales planning and management. This allows management to assess risks and opportunities to plan and where to invest the funds to plug the budget gaps. More recently, there is this requirement for a monthly tactical call where Sales Managers are required to call the current month (A forecast that has no value to the supply chain) and how it will close. This focus on the short-term also does not align the goals of the Sales function with S&OP.
The focus on dollars and the nightmarish sleepless nights to create a dollar forecast is a far cry from the unit-based demand plan presented in the S&OP meetings. Although in principle most sales managers agree that it is a noble thing to improve the forecast accuracy of the volume plan in units, this just does not get on the priority list given the extreme pressures in other “salesy” things.
For Demand and Supply to meet and discuss the Sales operations of the company, this communication and objective gap has to be bridged.
- The result of the short-term forecast from Sales has to be recognized by the supply chain in some shape or form.
- The needs of the supply chain for medium to long-term plans need to be accommodated by the demand side stakeholders.
- Finally and most importantly they need machinery that can easily translate short-term, long-term, units, and dollars seamlessly into one purposeful platform that is integrated and holistic.
I have been preaching Integrated Business Planning for well over a decade despite criticism that this is just a new name for S&OP. We can call it integrated S&OP if that appeases the pundits, however, the key is to integrate the commercial planning forum and the operational machinery that executes the plan.
And in the last few years, many of the industry giants and solution partners have moved in this direction and attempted to fill this divide.
I have been advocating clients look for tools that can seamlessly convert the volume plan into any Unit of Measure and translate this easily into dollars for revenue planning. Once we solve this pain point and create the magic, Sales will come to the meetings.
With the advent of the cloud, I am pleased to see a select set of tools that actually does provide the magic.
- The effect of the demand plan can be seen immediately in the replenishment plan.
- Supply adjustments and production smoothing can be reflected in the financials.
- Any change in Demand or Supply can be assessed for its financial impact and margin consequences.
One such tool is Vanguard Software, which is entirely implemented on the Cloud. The predictive planning algorithm ensures inventory optimization and supply planning are not just isolated exercises, but they go hand-in-hand with a probabilistic demand plan that gets fully used in the supply chain.
My firm, Valtitude (formerly Demand Planning LLC), has added Vanguard to our set of tools that we offer to the mid-market clients. As always, we pride ourselves on providing usable solutions to our clients and the Vanguard APS that we implement will come with our unique brand of accelerators and best practices.
About blog author
Dr. Mark Chockalingam is the President and Founder of Demand Planning Net, which became Valtitude beginning in September 2019. In an operational capacity, Mark serves as Chief Executive Officer of Valtitude and is responsible for strategy and general management.
Mark has over twenty years of consulting and corporate experience in the areas of Predictive Analytics, Sales forecasting, Supply Chain Optimization, and Integrated Business Planning.
Mark has worked with companies ranging from the Fortune 500 such as Pfizer, Miller SAB, FMC, Colgate-Palmolive, Honeywell, Eastman Kodak to the small and medium-sized companies.
About Valtitude (formerly Demand Planning LLC)
Valtitude, based in Boston, MA, specializes in demand planning, S&OP, Sales Forecasting, and supply chain strategy.
We have worked with companies like Honeywell, Schlumberger, Pepsi Foods, Abbott, Jack Daniels, etc., to optimize their overall Supply Chain.
We provide strategy and solutions consulting to customers across a variety of industries – pharmaceuticals, CPG, High-Tech, Food and Beverage, Quick Service Restaurants, Utilities, Oil and Gas, Aerospace, etc. Our expertise includes solutions consulting in SAP APO, Oracle Demantra, Manugistics, Logility, and various other applications.
We also work with smaller footprint cloud-based tools which can be implemented as an add-on to the existing ERP systems for functions like Planning, Scheduling, Forecasting, etc.