S&OP: More Than Forecasting (Part 2)

Sales & Operations Planning is a hot topic for wholesale companies. As a concept it’s significantly more powerful than the traditional excel-based forecasting many MKB businesses use to support the supply chain. Here we discuss what it is, and how its sophistication can drive performance beyond that achievable with spreadsheet planning.

Managing expectations over time
Expectations and ambitions then need to be clearly communicated. The vision, mission and goals must be understood by all stakeholders, enabling them to successfully cascade from the long term plans to everyday execution. It’s also important that leaders are able to confidently differentiate between trends and exceptions and adjust plans as necessary – an idea that isn’t flexible is likely to break under strain.

Planning horizons, period sizes and review frequencies should reflect the underlying dynamics of the business. Business with long supply lead times need to look several months into the future, even for operational planning. The time it takes to make a substantial increase in capacity drives the planning horizon for the capital investment calendar. With the S&OP also linking product mix and product innovation plans to operations, most companies should look to plan at least the next 18 months on a rolling basis.

KPIs
With a set of well supported plans in place, the business needs to establish the right set of objective criteria to measure progress. Strategically aligned Key Performance Indicators (KPIs) are the tool for this job, representative of commercial priorities and suited to active monitoring of planning accuracy.

Keeping track of how effective financial and sales volume forecasting has been is a key area. Closely reviewing up-to-date sales volume and revenue data is essential, as are more operational performance indicators like inventory turns, total inventory, lead time adherence, return on promotional spend and new product introductions success.

In general, any business will get a good idea that forecasting was well considered when stock declines steadily to each re-order point, and service levels maintain consistency. Careful monitoring against well-considered forecasting will also ensure that exceptional occurrences are highly visible and easily considered for future planning.

The role of IT
By definition, connecting top level strategy with organization-wide operations is a genuinely complex matter. Creating an accurate view that touches all relevant processes and stakeholders requires the handling of large volumes of data.

To effectively interlink past performance with future expectations, the historical and current information needs to be complete, accurate and highly flexible in how it can be mined, reviewed and presented. In order to serve multiple perspectives, it must be possible to work with the data on a range of levels. This will allow upper managers to visualize the overall status of the business, whilst maintaining clear links to all operational activities.

Choosing the right tools
As a result of these demands, S&OP success is largely dependent on the software employed to support it. Many companies use MS Excel as an S&OP tool, it being easy to configure, flexible, inexpensive and familiar to almost everyone. However, it will always fall short in comparison to a properly configured, integrated planning tool. Excel is not real time, has poor version management and is not multi-user. As such, it’s a major challenge to use it for effective collaboration.

In part 3, we’ll look at the limitations of Excel based approaches, and the advantages offered by dedicated S&OP solutions.

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