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How Can Technology Enable
Your Sales & Operations Planning?

Sales and operations planning (S&OP) has garnered a lot of attention of late; however,
is it gaining the benefits companies expected prior to implementation?
How can the process be improved by using technology to enable S&OP?

by Christopher D. Norek and Mark Humphlett

SALES AND OPERATIONS PLANNING (S&OP) has garnered a lot of attention of late; however, is it gaining the benefits companies expected prior to implementation? How can the process be improved by using technology to enable S&OP?

S&OP is the set of business processes and technologies that enable an enterprise to respond effectively to supply and demand variability with insight into the optimal market deployment and most profitable supply chain mix.* There is still a great deal of confusion within companies as to who owns what portions of the process and how best to make the process most efficient. We will address how specifically technology applications can improve the S&OP process.

S&OP has evolved over the years from simple supply and demand matching at the Master Production Schedule (MPS) level of an ERP system to more of an integrated business process incorporating supply, demand, financial and product lifecycle information. Part of the S&OP challenge is that it crosses so may of the functional and systems disciplines. For instance, who owns “the” corporate forecast— most likely, there isn’t one forecast but many across departments. Bringing all the people and data together at a suitably aggregated level requires systems architectures that can sit across multiple operational or execution systems.

There is no one single S&OP process or system that dominates. By far, the technology used most often is the ubiquitous spreadsheet. But obviously spreadsheets have their limitations especially when it comes to testing out different supply and demand scenarios and assessing their operational and financial consequences.

The Four Basic Building Blocks of Technology for Supporting S&OP Processes:

• Supply Management – including inventory at location and planned supply (manufactured or purchased parts). This could also include eProcurement options that speed the order management and approval process.
• Demand Management – including statistical based forecasting, incorporation of market intelligence and collaboration. These packages allow modeling of various forecasting methodologies to determine the best “fit” for your particular business. Improving forecast accuracy will allow a reduction in inventory safety stocks.
• Financial Management – typically costs, prices and margins at the aggregated levels.
• Performance Management – comprehensive analysis of operational performance and the establishment of key performance indicators (KPI’s) for monitoring and reporting.

These are the foundations upon which a solid S&OP process can be built. Of course, you can utilize any or all of these and adjust them as your business processes change.

Most of these technologies allow scenario planning or “what if” scenario management. Within most of these building blocks are optimization routines that find efficiencies that human beings can’t figure out due to complexities and multiple parameters to consider. In addition, the speed of these technologies allows you to test out different supply scenarios and establish the best decision across a range of demand scenarios quickly – this is the real value of a modern S&OP in supporting integrated business planning. You can easily change modeling parameters, rerun the numbers and see the potential value in seconds. Of course, this requires first gathering/downloading data into the models. This is often difficult due to having to access multiple systems within your company and then validating the data for completeness and accuracy.

An additional, more advanced technology is supply chain event management (SCEM) or alerting technologies which we covered in an earlier Technology Toolbox column. This SCEM technology acts as the ‘eyes and ears’ of the supply chain – constantly scanning for problem events in the supply chain and quickly alerting the correct people to the problem. Problems might include missed shipments, higher than expected demand spikes, sudden stock-writedowns – anything that might impact service or harm profitability. These tools are being used by leading organizations to deploy to support their S&OP processes and cope with the vast amounts of data that such processes demand.

Benefits of Efficient S&OP Processes

For those considering the cost of supporting S&OP in terms of management effort or systems support, significant benefits can be achieved by leaders who are faster than their counterparts in engaging the technology options. The following are some of the potential benefits that can be realized:

• 10 % to 20% lower inventories
• 10-15% higher customer service levels
• Up to one-third shorter cash-to-cash cycle times
• Lower total supply chain costs equivalent to 3-4 percentage points of sales revenues.

In today’s economic conditions, who wouldn’t want these results?

*Source: Muzumdar, Maha and John Fontanella,“The Secrets to S&OP Success,” Supply Chain Management Review, 4/1/2006.