The Secrets to S&OP Success
New research confirms the clear and direct link between sales and operations planning (S&OP) and growth, profitability, and customer satisfaction. In many cases, however, the S&OP effort fails to meet its potential because companies don't really know what's involved in the process. By understanding the five key components of a successful S&OP program described here,you can start realizing the benefits that the leaders have already chalked up. By Maha Muzumdar and John Fontanella -- Supply Chain Management Review, 4/1/2006
Ask any supply chain professional this question: Is sales and operations planning (S&OP) important to your company? The chances are good that no matter what type of company they work for the reply will almost always be "Yes!" But if thisattitude is so commonly held, why are so few companies willing to step forward and say they are actually doing something to institutionalize a strong S&OP process in their business? It is no secret that most companies struggle with even the basics of balancing supply and demand in their supply chains. Retailers have excess inventories for some products while facing high product shortages forothers. Consumer products companies are challenged with building ahead of the seasonal curve, which is based at best on questionable histories and more often on uninformed hunches. High tech and industrial companies work hard to put master plans in place only to have them unravel in the face of customer and supplier churn and uncertainty. And distributors must balance not wanting to have an oversupplyin their distribution centers against the hefty discounts that usually result from carrying too much inventory of their product in the stores. Even worse, stories abound of companies that were not prepared for the demand created by highly discounted promotions, resulting in product shortages and a record number of unsatisfied customers. Could all of these symptoms have a common root cause? Couldsignificant progress be made in reducing these undesirable effects in so many companies? Certainly all supply chain professionals and executives want to reduce uncertainty and continuously improve how they manage risk. If there are so many opportunities for improvement and so much support for S&OP, what are the obstacles and what are the steps to overcome them? In this article, we address these keyquestions. The Potential of S&OP Regardless of size and industry, most companies in recent times have faced significant business challenges including shrinking profit margins, reduced customer loyalty, growing global competition, and increased supply chain velocity. At the same time, business growth is either below plan or below potential. These market factors have created new obstacles forsupply chain executives and managers and have altered the global competitive environment into one of high uncertainty and risk. What has become clear is the importance of integration across operational silos as well as trading partners.
Sales and operations planning is one of the key strategies and approaches that successful companies are taking to respond to an increasingly complex businessclimate. The need for S&OP is being fueled by customer demand for faster response to market shifts and for more made-to-order products and services. For companies looking to create a sound strategy to mitigate and manage risks while increasing profitability—S&OP is the answer. First a definition: S&OP is the set of business processes and technologies that enable an enterprise to respond effectively todemand and supply variability with insight into the optimal market deployment and most profitable supply chain mix. S&OP strategies help companies make "right-timed" planning decisions for the best combination of products, customers, and markets to serve. The typical planning period ranges from four weeks to as long as two years. When applied correctly, S&OP has the power to enable an enterprise...
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