S&OP requires both alignment and clarity

Chain-wide sales & operations planning (S&OP) holds considerable promise, but the challenges associated with cross-disciplinary collaboration are equally great. A shared performance indicator that provides clear guidance for the alignment process can help. That is one conclusion that can be drawn from Supply Chain Media’s inNOWvate Supply Chain Event held in the Dutch city of Amersfoort on 22 May.

By Jaap van Ede

Everyone at inNOWvate agreed on at least one thing: from an operational perspective, there are very few gains left to be made in terms of supply-chain cost savings. You’d be wiser to spend your time investigating how to capitalize on these disruptive times we live in. Besides that, much can be achieved by taking a chain-wide approach to aligning the planning processes, according to the S&OP software vendors at the event. The added value of S&OP lies not in producing things more efficiently, but rather in making products that are better aligned with the demand. To achieve that, Marketing, Sales and Production need to work together in harmony.

Spreadsheets

“Many big companies still do their planning using spreadsheets,” said Jan-Jaap van Wikselaar (photo), Presales Consultant at Anaplan. “Not only that, but a staggering 70% of the time is spent on gathering and copying data, leaving just 30% of the time for decision-making. Moreover, 88% of the spreadsheets contain mistakes plus they make it difficult to share the information.” Anaplan’s customers include big names such as Unilever and Tata Steel. “Our software enabled Tata Steel to make its planning cycle two to three times faster.”

Change management

It is not easy to implement S&OP successfully. First of all, you need to ensure that the production and sales data is available for everyone concerned. After that, it’s all about connecting people, which calls for a combination of change management and a well-designed planning cycle. “You also have to be able to take corrective action quickly,” added Michel van Buren, Managing Director of Solventure in the Netherlands, which counts Perfetti Van Melle and AkzoNobel among its customers. “Imagine if someone posts a very positive review of one of your products on Facebook and gets a hundred thousand likes. In that case, you know you can expect a huge peak in demand.”

Integrated business planning

S&OP revolves around alignment, but what provides the necessary clarity? Companies initially used to focus on trying to strike an optimal balance between the operational costs (Operations) and the service to the customer (Sales), but recently they have also started taking more in-depth financial considerations into account: how can we make optimal use of the working capital? S&OP software which does that too is referred to as integrated business planning (IBP) software. “In IBP, you strive to achieve an optimal balance between costs, service and cash,” continued Van Buren. “For example, McCain supplies fries to McDonald’s. A fast-food chain like that doesn’t want to hear that you can’t deliver the fries they need, so in this case service is the top priority.”

Return on capital employed

It would be a big help if salespeople, production planners, marketing professionals and financial specialists could all work with a single performance indicator which shows them whether their work contributes to the company’s bottom line. “We believe that the return on capital employed (ROCE) should serve as that performance indicator,” stated Van Buren. The ROCE is the EBIT, i.e. the general profit, divided by the capital invested. The result is a percentage which indicates how effectively a company is utilizing the available money.

It seems most relevant to apply the ROCE indicator within publicly listed and capital-intensive companies, because their existence relies on substantial investment plus they are assessed in short cycles. Van Buren advised supply chain managers to learn more about finance and marketing: “That increases the mutual understanding.”

Jaap van Ede is Chief Editor of the Dutch knowledge platform called Procesverbeteren.nl.