Manufacturers industry-wide are being hard hit by an unprecedented confluence of economic conditions negatively impacting consumer spending.
The economy is forcing companies to scrutinise their business strategies and better align their changing demand patterns with their capacities, resources, marketing programs, and budgets to ensure they are investing in those product lines and channels of sales that can deliver the highest profits during these volatile times.
Leading companies, recognising the need to transition from disparate, decentralised business decisions, are rethinking the role that Sales & Operation Planning (S&OP) can play in managing their business. They are moving beyond simplistic and purely tactical approaches of using S&OP as a means of balancing supply and demand within their supply chain, and instead using it as a way of aligning product launches, marketing and sales programs, production plans, and resource allocations to ensure their investments are being made appropriately to achieve their strategic business objectives.
We are seeing industry leaders implementing enterprise-wide S&OP processes through a synergistic combination of people, processes and technology, notes David Johnston, senior vice president, manufacturing and wholesale distribution, JDA Software Group, Inc. They understand that the optimised alignment of supply and demand can only be achieved through a formal, disciplined S&OP process that blends cross-functional collaboration, business process integration and advanced technology into a single and comprehensive solution.
JDA offers the following five strategies - based on industry best practices - that can help companies develop, implement and maximize the benefits of next-generation approaches to S&OP.
1. Transition S&OP from Tactical to Strategic. The view of S&OP as a means to tactically balance supply and demand within the short-term horizon in the supply chain is restrictive. Leading companies view S&OP more strategically, shifting from a purely tactical implementation to utilizing S&OP as a critical element for more strategic integrated business planning. A strategic S&OP orientation aligns all supply chain plans with the corporate financial objectives and strategy, eliminating internal and external silos and taking a company to the next level of planning.
A solution that provides the information and workflows to support the proven S&OP best-practice processes will enable the synchronization of supply, demand, marketing programs, sales programs, financial goals and the achievement of a strategic business plan. Using S&OP to focus on the medium- to long-term horizon where decisions can have a strategic impact has delivered significant improvements to companies that have truly adopted S&OP as an integrated business process.
2. Cross-Functional People and Process Integration is Key. In an industry best-practices survey conducted by JDA in April 2008, 89 percent of respondents use S&OP or some other process for balancing demand with supply. For 38 percent of the respondents, the supply chain organization was taking the lead to deploy and facilitate the S&OP processes. A majority (60 percent) utilized their S&OP processes as a means of managing the supply side of their businesses.
Next-generation S&OP processes and solutions are bridging gaps between the demand and supply side of manufacturing operations, logistics, purchasing and upstream suppliers; while also integrating profitability analysis and securing senior leadership involvement to drive strategic business decisions. Synchronizing plans upstream and downstream provides the best possible decision making process for demand-side sales, marketing, financial and the supply-side operational plans - for a far faster return on investment.
3. Leverage the Power of an Integrated S&OP Solution. Companies have traditionally employed a range of software applications to support S&OP processes, often requiring time-consuming data extracts and manually transposing data into multiple spreadsheets and reports. However, independent, disconnected software applications can place a company at risk with outdated data lingering on desktops - fostering inconsistencies in terms of analysis assumptions. It doesnt take long for downstream users to start questioning data integrity, allowing the opportunity for problems to arise. An integrated solution with built-in, best-practice workflows provides significant benefits by reducing resources spent collecting and analysing data, building spreadsheets, and transposing the data into presentable formats to support management review.
The right next-generation S&OP solution offers effective capabilities for providing forward-looking views of the business to support the appropriate product, demand, supply, financial and management reviews in a graphical orientation that quickly identifies business impacts, allowing for rapid, informed decision-making.
4. Incorporate Key Corporate Metrics and Long-View Forecasting and Planning. S&OP has the power to impact key corporate metrics, including improvements in customer service, inventory levels, as well as purchasing, production and expediting cost reductions. The process ideally provides continuous improvement in inventory turns, sales, cost metrics and manufacturing efficiencies - with relevant benchmarks linked directly to individuals involved in cross-functional processes and held accountable to a unified S&OP plan.
Industry best practices have evolved from short-term demand and production planning, to a more strategic time horizon that enables a more worthwhile effect on the attainment of corporate-wide goals and financial commitments. Companies that previously may have had only a cursory understanding of current fiscal year projections are now able to expand their horizon to two to three years or more. Leading S&OP solutions offer unconstrained and constrained views of demand and capacity needs for proactive long-term planning - facilitating optimal responses, as well as shaping future demand to meet business objectives.
5. Formalise Leadership Structure and Accountability for Optimal S&OP Benefits. In JDAs survey, nearly 75 percent of respondents cited corporate culture issues as barriers to effective S&OP implementation. In particular, there was a lack of leadership and support from executive ranks, with only 16 percent of CEOs regularly involved in the S&OP process. Accountability was low across the board. Additionally, demand and manufacturing plans were most commonly cited as the sole outputs of S&OP.
S&OP offers strategic capabilities to ensure plans in all functions and geographies are aligned and support company strategies. Cross-functional integration optimises transparency and facilitates better communication from upper management, with clear lines between leadership decisions and their impact on departments and results. The process should be formalized and spearheaded by senior management on a monthly basis, evaluating and making decisions based on accurate time-phased projections that ensure corporate objectives and strategies are attained.
Forward thinking companies are already implementing best-practice S&OP processes and technology to synchronize their supply, demand and execution to achieve the desired financial results. While an ambitious goal, the process can be approached incrementally as resources permit. S&OP integration is applicable to virtually all enterprises, regardless of their capabilities, size and industry. The right strategies can yield dramatic and brisk returns in terms of inventory reductions, improved fill rates to customers, reduced costs and enhanced revenues. Those companies that succeed in planning beyond near-term forecasts and short-term goals will find themselves well positioned to compete despite volatile market forces and future economic conditions.
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