The discipline of Sales & Operations Planning (S&OP) has been around for a few decades now and industries have explored innovative ways to improve their demand and supply orchestration processes. However, many of them must grapple with discrepancies between the lauded potential and actual benefits of S&OP when they are unable to attain desired levels of synchronization in their supply chains.

The recent economic downturn has highlighted the need for a robust and agile S&OP capability that ensures a sustainable competitive advantage. While for most organizations, the focus is to contain cost and ensure survival, some organizations are also considering new revenue generation opportunities in a recovering market. Interest in S&OP has been rekindled as companies engage in rapid demand and supply synchronization at the operational and executive levels and create new growth opportunities.

Some recent technological advances have helped improve process maturity in mainstream demand and supply management functions, such as:

• Improved S&OP tools to reduce data acquisition time during the initial cycle
  
• Better business intelligence and simulation tools to perform rapid what-ifs and generate detailed scenarios, thereby accelerating arriving at the right business plan in the pre-meeting step.

However, to actualize its potential and realize true business benefits, S&OP needs to overcome some key challenges as listed below:

• Shorter Reaction Cycle: The reaction cycle i.e., time for companies to adjust to sudden changes in the market, is continuously getting shorter. This challenge is especially acute in the high-tech and consumer electronics sectors, where overall inventory levels need to be planned in a single instance. Reduced differentiation in these sectors and constant new product introductions further accentuate this problem. In several cases the planning and execution boundaries are beginning to blur.

• Multiple Consumer Data Streams: Social media has fuelled an explosion in consumer data streams such as consumer reviews, competitive intelligence and similar product launches. These sources are abundant and easily accessible to companies. The challenge lies in the speed and sophistication with which companies can assimilate this information into the short S&OP cycle and use it to drive actions in the exec S&OP meeting.

• Choosing the Right Demand Measure/ Lever: Companies must use the data gathered and analysis performed in the initial S&OP steps to determine further action. They can no longer depend solely on forecast as an adequate demand measure to influence revenue. Customer feedback, customer service, competitive intelligence, pricing, and supply constraints all serve as levers that need to be looked at simultaneously to shape profitable demand. This requires a comprehensive understanding of the competitive strategy and a clear connection between the correct operational metric and the associated overall goal.

Next-Generation S&OP Model

Since S&OP is a business enabler, companies seeking to improve this process must clearly define their business goals and plans in terms of the right metric model and build core processes around this model.   A robust, new-generation S&OP model must have three distinct yet interconnected and closed loop functions as described below:

• Visibility: By first choosing the right data model and integration mechanisms, this function can provide optimum visibility into planning data.

• Analysis: The right analysis framework enables analysis of metrics connected to business goals and can quickly perform what-ifs around these key indicators.

• Control: By establishing and executing key control mechanisms, companies can communicate the new goals and targets, rapidly sense execution gaps and respond to closing the same.
  

The figure below depicts the discussed challenges and the new opportunities and areas that can address these challenges:

Final Thoughts

Companies must reinvigorate their S&OP model to address the issues thrown up by the globalized post-recession market. Technological advances have helped to improve process maturity in supply chain functions. However, companies seeking to drive revenue need to overcome some key challenges – such as shorter reaction cycles, multiple consumer data streams, and choosing the right demand measure – to realize the benefits of S&OP. These challenges can be overcome by choosing a robust metric model that is aligned to business goals and plans. By building the core processes around this model companies can benefit from right visibility into planning data, accurate metric analysis using key indicators and control into communicating new goals and targets. Implementing the above methods will enable companies to leverage their S&OP process for more effective and agile supply chain that not only helps lowering cost, but also generate revenue.

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