The implementation of a successful Sales & Operations Planning (S&OP) project can provide a game changing foundation to drive enterprise excellence for years to come in an organization and working with ERP providers can help you implement such a system. Companies utilizing a robust S&OP process have a demonstrated history of measurable trending improvement in key operational performance measures for costs, inventory, customer service, and gross margin. However, without a focus and confidence in the S&OP deliverables, this potentially game changing process can easily fail – most often for the following reasons.
1. Ineffective Executive Sponsorship
The lack of executive commitment is generally identified in most industry studies as the top reason for S&OP failure. The executive leadership team must not only own the S&OP process, but enthusiastically embrace it. If the leadership team fails to become fully engaged and champion the initiative, a successful S&OP process will be unnecessarily challenging. If the commitment of executive management becomes concerning, a root cause analysis to determine why they are not engaged is imperative to salvage the initiative. The S&OP process must be developed with a laser sharp focus on providing the executive team with the information they require to optimally run the company.
2. Weak S&OP Process Ownership
Finding the optimal champion to drive the S&OP engine into the future can make or break implementation success. This organizational leader should have strong business acumen, including solid cross-functional business knowledge, a sound S&OP background, and familiarity with the organization and participating industry. Communication is extremely important, to clearly articulate the wants and needs of the process stakeholders. This person should be respected and trusted as fair and unbiased by the executive management team.
3. Failure to Prioritize
As business challenges evolve, companies may undergo multiple corporate initiatives intended to improve operations, reduce costs, streamline processes, and/or standardize operations to address these risks. Initiatives are kicked off with the best of intentions and often with mixed levels of success. At times, there can be multiple initiatives sponsored by various departments concurrently in process. When S&OP is one of many corporate initiatives on the list, it must be prioritized at (or near) the very top. The level of commitment and participation in the cycle activities will require each participating function to have a process voice that is continually represented where needed.
4. Insufficient Cross-Functional Participation
The most significant game changing benefit of S&OP is getting the entire organization unified in purpose and direction. This objective can become difficult to achieve without the committed involvement of all the key departmental stakeholders in the process. It is important to continually weigh the value-add of S&OP participation against the value-add of the subject matter experts executing their daily responsibilities to maximize their contributions.
5. Gaming the Numbers
A key output of the S&OP plan is the development of the Master Production Schedule (MPS), which in many world-class organizations represents the operational heartbeat of the company. An effective Master Scheduling process is driven by the expectation that the MPS is both realistic and achievable. Any manipulation of the agreed upon S&OP inputs that drive the MPS risks achieving the realistic and achievable objectives. Recognize that there are inherent conflicting objectives between business functions that support the supply/demand equation. Focused metric improvement driven significantly by one department may have a downstream impact that causes the erosion of metric performance impacting another department.
6. Breaking the Cycle
Coordinating the efforts of many key stakeholders can be challenging to manage. Develop a mindset that key S&OP plans are analogous to a point-in-time snapshot captured from a continually running video stream. The real time day-to-day business cycle will continue, while the data from these snapshots will be used to navigate through the various S&OP planning gates. Throughout the S&OP development process, there are many sets of eyes reviewing and building upon the upstream plans provided. While these participants and stakeholders may be working with one snapshot set of numbers, it is obvious to expect that the real time business conditions are continually being updated.
7. Unnecessary Complexity and Details
Challenge all plan elements which seem to be overly complex and unnecessarily detailed. Attempting to incorporate all non-standard or fringe business conditions into a tight fixed cycle can overwhelm the process. Regarding metrics, too many or too detailed can also complicate decision making when attempting to gauge the business status to correctly identify out of tolerance conditions and prioritize the necessary actions. All added complexity and process noise risks stakeholders from being able to clearly see the big picture to provide the correct guidance.
8. Failure to Document Plan Assumptions Business Rules
Learn from previous cycle mistakes and leverage these failures as continuous improvement opportunities to not repeat them. Capture all the institutional knowledge and assumptions that go into the S&OP plans and provide a mechanism to manage this information from every participating stakeholder. Establish business rules that will ultimately provide the playbook on ERP set-ups, process standardization, and rules of engagement to ensure consistency in plan development and a standardized methodology.
9. Failure to Utilize Data Ranges and Assumptions
A basic S&OP objective is to collaborate and agree upon a one number plan. While this is a milestone as it directionally aligns the organization, this only provides one key step in the right direction in the S&OP journey. Understand that one number alone limits the potential end state value of S&OP for executives. Executives are expected to identify and proactively mitigate risk – to avoid the potential pitfalls before they are manifested into an actual business reality.
One valid criticism of S&OP is that after a few cycles it can become a self-fulfilling prophecy. If the supply lead time continually fails to support new opportunities inside of a certain execution horizon, there can be a potential for the process to stagnate as the growth curve hits a plateau. The organization can slip into a lull and become content easily meeting constrained demands while unconstrained demand opportunities are left on the table each cycle. It is important to capture all unconstrained demands, upside demands, and new business opportunities each cycle and through subsequent cycles to integrate these opportunities into the plan of record as they move from potential to likely.
MCA Connect’s methodology for the S&OP process addresses organizational risks to minimize S&OP process failure. As ERP providers, we follow a process of assessment to determine S&OP readiness. We provide best practices education, assist in establishing the required process ownership, mentor the S&OP process creation/refinement, work alongside change management to break down internal barriers, and remain engaged through the first completed S&OP Cycle. Contact us to learn more or get started today.
Author: Scott Jensen, Senior Consultant
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