This is the first in a series of blog posts about S&OP, written by S&OP expert and Valizant CEO Ed Lewis.
Most companies have established a planning process for the purpose of aligning operational activities. The process is typically based on the well-established principles of sales and operations planning (S&OP) developed in the 1980s to facilitate cross-functional collaboration and alignment.
The importance of aligned operational activities cannot be overstated. It is the primary factor in a company’s operational effectiveness—how well it carries out the activities required to create, produce, sell, and deliver products to its customers. While each company will have a different mix of strengths, the companies providing market-leading value—more value than that available from the competition—will survive and thrive over the long run.
Market leaders in any industry will have the highest degree of alignment across functions: product, sales, marketing, supply operations, and finance. They also are able to consistently deliver high customer value because information about unexpected events (demand spikes, capacity fluctuations, component shortages), which could compromise that value, is shared across the organization while there is still enough time for alternative solutions.
The inverse is also true: Limited cross-functional alignment is a primary driver of poor operational effectiveness. When processes for sharing information about unexpected events are limited, some functions are blindsided and have little or no ability to respond in a timely manner. The result is operational ineffectiveness, which can result in unmet demand, operational disruption, idle capacity, and excessive inventory investment—each one a direct and unfavorable impact on customer value and financial performance.
S&OP vital signs
Examples of S&OP success are not difficult to find and are regularly featured by leading analysts and industry experts. But for too many companies, the S&OP journey stalls before the true potential of cross-functional alignment is realized, leaving market-leading value just out of reach. Performance metrics that lag industry leaders or fail to meet individual company targets can indicate drift in one or more of the four vital signs that are essential for S&OP health and success:
- Executive support and participation in the S&OP process.
- Fully cross-functional S&OP scope.
- Practicing constructive issue resolution.
- Minimal process compromise imposed by technology.
Performing a health check of S&OP vital signs should be the first priority for companies looking to make significant performance improvements. If the vital signs are found to be outside of normal ranges, corrective action can be taken to restore those that have deteriorated and re-establish a solid S&OP foundation.
This blog series will cover each of the S&OP vital signs in posts over the next two months and provide practical suggestions for improvement. Check back regularly for updates. The next post will cover executive support and participation in the S&OP process.