Sales & Operations Planning - Back to Basics for SMEs
Friday 4th March 2011
With the increasing adoption of Sales & Operations Planning (S&OP) by major corporations, there is an ever-increasing volume of case studies, books and seminars exploring the widest horizons of S&OP as a platform to fully integrate all business functions. It is the complexity and depth of this current analysis that is leading many SMEs (and managers) to perceive S&OP as a complicated, time-consuming process; a process more applicable to the size (and resources) of large multi-national corporations. This is not the case.
S&OP has, at least as a recognised concept, been around since the 1980's. In its first conception, S&OP was simply a process to ensure that businesses focussed on balancing supply and demand on a mid to long term rolling horizon (often 3 to 18 months). In this original form, the sales teams would meet with the operations teams once a month and provide their sales forecasts over the horizon. The operations teams could then work with sales to ensure capacity was in place to meet those sales requirements. This was the first conception of S&OP, and remains the foundation stone of the process.
The power of implementing the original concept of S&OP was that a business was no longer waiting until the customer order was on the table before working out how they could supply - they were no longer fire-fighting for a solution, but rather they were planning and optimising their resources well in advance. The sales and operations teams were synchronised, working together from a single plan to ensure orders could be met within the required service and cost constraints.
Of course, as S&OP developed into a powerful platform for aligning sales and operations, so the process started to integrate other functions - financial planning, market strategies, new product development and strategic initiatives. If you can synchronise sales and operations, why exclude the other functions? It was a logical development for S&OP to become a fully integrated business management process.
However, as S&OP broadened its horizons, so did the process complexity; S&OP was no longer just about the sales and operations teams meeting once a month to review forecasts and agree the capacity plan; now it was a board room initiative, tracking strategic objectives with integrated financial plans.
This evolution, and deepened complexity, has led to the intellectual and theoretical development of S&OP by business academics, commentators and business leaders. Strands of evolution have appeared, and it is no longer a simple concept to the outsider. Consequently, a great deal of SMEs perceive S&OP as a large, time-consuming corporate initiative which needs to be supported by training, cultural change management and expensive IT systems. This does not need to be the case.
The original concept of S&OP as a simple supply & demand balance, overseen by the sales and operations teams, is still the critical element of S&OP, the foundation stone. As a stand alone process, without the 'bells & whistles' of business-wide integration, the original concept is still a hugely valuable tool to any business.
The core concept of S&OP can be easy to implement. Three or four well structured monthly meetings, supported by a few hours of data collection using robustly designed spreadsheets, is all many companies need. In exchange for this, your business can start to reap the rewards of improved margins, stable production, cross-functional team work, reduced inventories, and ultimately customer service improvement. This will make your customers happy - the 'bells & whistles' can come later.