Why S&OP / IBP?

Sales and operations planning (S&OP) is considered as being the key means to execute corporate strategy. A successful S&OP process aligns an organisation strategically to execute tactically. Senior executives meet on regular basis to review projections for demand, supply and financial impact. A good S&OP or sometimes called ‘integrated business planning’ (IBP) process can add between 3-5% of annual sales, reduce inventories up to 15% and increase product launch commercialization by 20%. So there are big benefits if executed flawlessly. The key benefit/objective of S&OP process is to deliver both the customer service expectations and business financial targets every year.

But the road to S&OP excellence is often hampered by complexity. For instance, data acquisition and analysis or process governance may be difficult to achieve resulting in the process becoming hard to achieve.

  • Demand uncertainty: many new products, services and channels.
  • Supply volatility: supply chains getting longer and weaker.
  • Price / cost pressure: competitive market place.
  • And still need to deliver strategic plans.

IBP is a set of decision-making processes to balance demand and supply, to integrate financial planning and operational planning, and to link high level strategic plans with day-to-day operations.

The S&OP/IBP journey

The journey towards S&OP excellence starts by realizing that outstanding results do not appear overnight: they require time and persistence. At the start of the journey there are several potential obstacles including limited technology enablers, lack of governance, rigid functional silos, lack of shared performance measures, and more. Every company goes through this process:

Stage 1: React

Imbalances in demand and supply lead to reactive mode of working resulting in short term focus and very likely higher costs, imbalances in inventory and missed sales. Meetings tend to focus on sales review.

Stage 2: Anticipate

Recognition to balance demand and supply by supply chain organisation to improve business performance. Formal structures established to manage demand and supply. Key performance metrics on customer service, inventory are implemented.

Stage 3: Integrate

Increasing involvement from business such as sales, marketing, finance and operations assessing demand and supply changes as well as financial impact. Business processes are connected and significant issues/opportunities reviewed and actions taken.

Stage 4: Collaborate

Focus on profitability emerges in the meetings – particularly the financial impact of any decisions. A number of scenarios are developed and one is recommended to optimise the business plans to the leadership team. The S&OP process is now truly integrated business planning process.

Stage 5: Orchestrate

Business ownership at multiple levels with strong participation from executives and finance. Collaboration extends to include customers and suppliers. Process becomes balanced, dynamic and event driven. Tools support risk-value trade-offs and price optimization.

S&OP building blocks

Timely decisions
Regular process
One number plan
Statistics
Focus enrichment
Event planning
Robust supply
Optimize inventory
Collaborative behavior
Fit-for-use tools
Planning skills
Improvement