Today’s challenges are forcing companies to balance supply and demand. Implementing a Sales and Operations Plan helps bounce back quickly.
By Pedro Castillo
A company’s supply chain is not only a business function, but also a critical business process. Effectively managing your supply chain can help you minimize risks associated with current market disruptions and boost your bottom line by reducing costs, waste and time.
As the global supply chain is being significantly affected by the COVID-19 pandemic and its impact on businesses across all industries, it’s more important than ever to include the different areas of the organization in the planning process. You need to analyze and understand the impact that different strategies will have on the company performance to allocate resources efficiently.
4 objectives of sales and operation planning (S&OP) process
An effective sales and operation planning process aligns demand with supply and financial targets through collaboration between departments. In times like this, it is crucial to continuously communicate with your customers and key suppliers, enabling efficient resource allocation to reduce costs, increase sales, and free up working capital.
Business leaders should continually explore what their processes would look like under different conditions – by forecasting different scenarios, companies can check their budgets and make decisions about where to invest or cut. Consider evaluating your vendors: will they be around next month? When you’ve created different forecasts, you should have a better understanding of where potential risks lie and how to mitigate them. With the current uncertainty, it is vital to be prepared and have the agility required to react when changes arise.
When properly implemented, the S&OP process allows a business to not only foresee opportunities and risks, but also to quickly act on them by:
- Aligning demand with supply and budget
- Integrating operational plans with strategic plans
- Integrating product mix with total volume
- Enabling management to act proactively
Current market dynamics dictate the need for an effective S&OP process for your business to succeed. Proper implementation can help you to mitigate risk, improve forecasts, reduce inventory issues, improve customer service, and increase sales.
Using data effectively
Modern supply chains generate massive amounts of data throughout the chain process. Given today’s conditions, it’s important to have the right analysts and data scientists on your team to sort through this bounty of information and help guide management’s decisions. The supply chain leaders should be using enterprise resource planning (ERP) systems and business intelligence tools to not only manage the operations, but also to surface insights from the data in real time to allow for quick adjustments.
In today’s market, you should be gathering as much business insight as possible. By using a combination of transactional data as well as input from various functions, such as sales, marketing, operations and finance, you can prepare plans for different scenarios. Ideally, those plans should provide you the flexibility to adapt to any condition. It is essential to continually analyze what worked or didn’t to determine what lessons will be implemented in the next cycle to improve the process. Be diligent in keeping track of one-time events, such as delayed inventory turnover due to supply chain effects, so you can adjust projections accordingly.
Process: from silo to collaboration
A scenario plan can’t succeed without collaboration between all functions within the organization. Businesses need to recognize that useful forecasts are not prepared in isolation; instead, the forecaster needs insight from all departments.
Let’s look at the example of a manufacturing company that wanted to improve its growth rate. To do so, the company needed to improve customer service and reduce inventory. As the management team looked deeper into the issue, they realized their communications functions were siloed, their technology was outdated, their sales and marketing departments weren’t focused on a cohesive plan, there was no agreement on sales forecasts, and there was little accountability throughout the organization.
With help from an outside consultant, the management team looked at opportunities to increase the effectiveness of people, processes and technology. They tied sales and marketing objectives to the supply chain to roll out demand plans. They identified their top-selling products and concentrated on high-revenue-generating products. Key performance indicators (KPIs) were set and reviewed regularly. Then, they set up a demand planning and forecasting process based on collaboration and input from various stakeholders including sales, supply chain, and finance. The company was able to reduce forecast errors by 6%, and fulfill rates increased from 88 percent to 93 percent.
Uncertain times often force us to take a look at our business processes and determine what is essential, where to focus resources and where to cut costs – ultimately, how can we sustain or improve operations by doing more with less? Streamlining starts with effective communication and increased collaboration. Generating business insights as early as possible will help you plan for changing conditions. By creating different scenario plans, your supply planning group will be ready to act quickly under any conditions, minimizing disruptions and ultimately improving your bottom line.
Pedro A. Castillo is a Business Consulting Services Manager at Kaufman Rossin, one of the Top 100 CPA and advisory firms in the U.S. Pedro has worked with a wide range of clients, from micro caps to Fortune 500 companies, helping them define and implement strategies for shareholder value through performance improvement, operations improvement, target setting, capital allocation, and executive compensation. You can reach Pedro at firstname.lastname@example.org.