Silencing Silos with Sales and Operations Planning (S&OP)
Silencing Silos with Sales and Operations Planning (S&OP)
If the supply chain is the lifeblood of a manufacturing organization, there is no greater threat to its circulation than supply chain silos. Silos can lead to a "load and chase" approach resulting in excess inventory, component shortages and inadequate capacity. But with Sales and Operations Planning (S&OP), organizations can alleviate silos and drive margin expansion.
What is S&OP?
S&OP is a cross-functional process that empowers executives to understand key supply chain drivers, including sales, marketing, demand management, production, inventory management and new product introduction. It provides manufacturers and distributors with information about trade-offs between go-to-market strategies and operational plans.
A mature S&OP process also includes regular communication between participants to discuss demand and supply planning to maximize profitability as market conditions change.
Benefits of S&OP
1. Better integration among business functions
S&OP builds collaboration between executives and functional areas and helps align plans to company-wide goals and objectives. With S&OP, businesses can agree and operate based on a single set of numbers.
2. Effective supply chain management
S&OP improves supply chain management by providing clear supply constraints visibility and leveraging advanced material allocation analytics that allow proactive decision making to maximize revenue.
3. Drives analysis and decision-making
S&OP connects all the data points to make more informed decisions to maximize profitability.
Overall, S&OP is a structured planning process that answers the big questions: What will we sell? To whom? How will we operate? How do we earn an adequate return for our investors?
With this insight, supply chain plans are developed to provide the right product, at the right time, in the right place, in the right quantity and at the right underlying cost.
It's important to prepare for inevitable demand changes by analyzing the data and working collaboratively with stakeholders; you will have confidence in your forecasts and plans for unexpected disruptions as a result.
Combating a Crisis with S&OP
The coronavirus pandemic triggered a ripple effect of supply chain issues, logistics constraints and demand fluctuations throughout organizations. Since the dawn of globalization, supply chains have been susceptible to shocks, and COVID-19 has been no different. Most company plans and forecasts became inadequate as they are forced to reformulate quickly. The good news? S&OP can provide a basis to strategize for supply chain resilience.
In Jabil's recent survey of more than 700 supply chain decision-makers, nearly all participants said they are investing in supply chain technology or services to address the impacts of COVID-19. Of those, 46% are focused on advance and demand planning tools.
Making quick and structured decisions about demand is crucial. But suppliers do not need to wait for the customer to right-size the demand. Rather, suppliers should leverage new technology to analyze the data and inventory to make formulized decisions.
For example, consumer demand for passenger vehicles declined over 20% during the pandemic due to lockdowns, recessions and long delivery times for parts. S&OP can help the auto makers respond to these demand changes by advising teams on how to adjust their forecasts, resize operations, downsize resources and right size material plans before a crisis intensifies.
Whether the demand is high or low, the approach is still the same—look at the data, understand the market conditions and respond by ensuring you have the right resources to produce what is needed.
Many supply chain planning teams are currently evaluating the impacts of the pandemic, including how they forecast. Whether a company is facing a crisis, new product introduction or component shortages, teams should consider the following:
- Is there a product backlog that we could not fulfill?
- Will this backlog be coming back?
- Is it going to be a slower ramp than expected?
Keep in mind, the challenge of S&OP isn't just about technology or data, it's about gaining insights for decision-making in an ever-changing environment.
Subscribe to the Jabil Blog
Sign up for weekly updates on the latest trends, research and insight in tech, IoT and the supply chain.
How to Execute S&OP Across an Enterprise
The S&OP process usually begins with salespeople presenting their forecast and demand predictions. Usually, the sales teams alone don't have the details needed to make accurate plans and demand forecasting, but with the introduction of demand planning and supply chain expertise in S&OP, teams can connect the dots and produce more accurate outcomes for the entire organization.
You can integrate a S&OP process across your organization by following these five steps:
1. Design a proof of concept
The proof of concept (PoC) serves as the preliminary work of the business case, which sets the scene for the change covering the solution's impact on the organization, process and people.
Designing a PoC for S&OP is the best way to pitch the project. Present your requests clearly and definitively to executives and participants. Your PoC should answer these questions:
- What are the problems to solve?
- What are the key requirements?
- How will we measure success?
- What vendors should be involved?
- What is the budget?
2. Develop a workflow
S&OP usually beings with demand planning.
Demand Planning: Usually demand plans rely on historical data to forecast volumes and mix. Quarterly sales volumes are used to predict the amount of materials needed for the following quarter. Often times these volumes are increased to achieve revenue targets. This approach usually leads to inaccurate forecasting as market trends change.
Teams should analyze both historical and future sales inputs along with statistical data streams to create a consensus demand plan and increase forecast accuracy. Without an S&OP process in place, sales targets are regularly missed, with little understanding why. Not having good cross-functional collaboration between sales and demand planning teams may lead to missed opportunities.
Manage Constraints: Once a consensus demand plan has been created, it is important to consider supply and capacity constraints to ensure the demand plan is feasible. For example: in case of insufficient capacity, plans may need to be adjusted to pull in production early to take advantage of all the capacity, or if there are material constraints for Product A, volumes for product B may need to be built earlier to free up capacity once the constraint is resolved for product A.
3. Provide an integrated platform
Often times, most of the S&OP efforts go into gathering and preparing data. By leveraging technology, supply chain planners can digitize processes and ensure data integrity across a common platform, which allows teams to understand and communicate the data and plans effectively with their stakeholders.
S&OP requires large amount of data inputs required from different functional teams, which complicated the implementation of a common platform. It is helpful to identify the core sub processes and build the integrated solution one piece at a time, creating a process roadmap. Once one process has been implemented and adoption is mature, then move to the next process.
4. Facilitate platform adoption
Center of Excellence: The flow of decisions and analysis can be overwhelming to S&OP contributors. A Center of Excellence (CoE) is a team of subject matter experts whose primary goal is to lead the way in exploring and adopting new technology to better support the business processes. They engage with IT to drive enhancements and offer training to empower teams to make business decisions and have confidence on their plans.
5. Measure your success
Once teams are trained and the S&OP process is clearly outlined for all participants, it's important to integrate stakeholder perspectives and identify KPI metrics that will guide the trade-off decision making depending on the company's priorities. For example, maximizing revenue, improving cashflows or reducing costs. Here are a few categories you should look at for your organization: operational, strategic and financial metrics.
- Operational metrics: inventory reduction, improve on-time delivery or decrease in stock-outs
- Strategic metrics: increase market share and new product introductions
- Financial metrics: margins and freight charges
How Jabil Optimized S&OP for Customers' Benefit
Providing real-time analytics and actionable feedback to stakeholders and internal teams is incredibly valuable. Rather than just giving teams a data output, a robust S&OP process will generate a common level of understanding on the company's goals and plans to reach them. This level of transparency makes all the difference for S&OP participants to buy in and contribute to the strategy.
As a manufacturing solutions provider, Jabil would receive demand reports from the customer, load it into an Enterprise Resource Planning (ERP) system and execute the data. However, this approach didn't consider the value of collaborating with the customer to understand their goals and how Jabil could contribute to them. When demand inaccuracies impacted operations as well as our suppliers, the teams were questioning each other instead of working together to adjust the plans to overcome the challenges.
We found that a customer-centered approach to S&OP can lessen the risk of unused capacity and production plan errors. Generating a consensus plan in collaboration with our customers and suppliers can deliver results, maximize revenue, optimize inventory levels and lower cost.
Here are five things that helped us improve collaboration with our customers:
- Understand the customer S&OP cycle and define a collaborative process
- Learn and understand customer market and product life cycle changes
- Provide value add insights leveraging statistical and supply planning analytics
- Elevate our supply response time, provide clear visibility of materials and capacity constraints
- Develop consensus plans to support business KPIs.
Evolving Your S&OP Process
S&OP needs to be a constant cycle of analysis. Participants should review results during a monthly S&OP meeting. Cohesiveness across all business functions starts with S&OP alignment meetings because they create visibility, which allows the organization to see vulnerabilities and opportunities that benefit the company and its customers.
Understanding your S&OP maturity level can be helpful to define how you should evolve your S&OP process and tools. Gartner's five stages of the S&OP maturity model can be a great starting point.
For the sake of S&OP's success, there needs to be a significant focus on globalization, digitization and shifts in consumer trends. This will drive supply chain flexibility, responsiveness and end-to-end visibility.
Innovative technologies are impacting S&OP processes, such as Machine Learning, which will increase the accuracy of demand signals. Digitization of finance and operation processes can enrich the S&OP process if systems are integrated.
S&OP can impact margin expansion and clarity among departments, executives and stakeholders. We need all of these for better business continuity to prepare for the next significant disruption.
The year 2020 has been full of instability and has forced us to adapt. Your sales and operations planning process should too. Now, more than ever, every supply chain team has a chance to align processes and data points, so nothing is out of sight or out of mind.
Special Report: Supply Chain Resilience in a Post-Pandemic World
Insights from over 700 supply chain decision-makers at OEMs with more than $500 million in revenue on how they are managing their supply chains in light of COVID-19 and other market dynamics.