Since a few years companies highly prioritize the embracement of the principles and indispensability of a proper and well managed S&OP process. The realization that a poor forecast, and therefor a badly executed operational plan, leads to delivery reliability issues, lower customer satisfaction, lesser sales and more costs is no longer a myth or a buzz in the board rooms. It is a painful truth and reality. So, where do some S&OP process implementations with smaller companies go wrong?
Very often S&OP is displayed in capital letters. It is described as being in need of large investments, newer IT systems as well as requiring a lot of people and time (read: lots of money). Such “mountain” usually scares off the smaller companies from taking the S&OP route. This should however not be a reason for not looking at possible changes. Such prerequisites may well be applicable to very large and complex companies with the likes of Unilever, Glaxo Smith Kline, Walmart, Carrefour or Samsung. It will not so much apply to all these smaller companies that are also around. Where scale and complexity force large enterprises to put huge efforts and investments into the set-up, running and maintenance of their forecasting process, smaller companies can often suffice with paying attention to what they already have available and by using simpler tools like an existing module in their ERP system or even Microsoft Office (which company is not run on MS-Office). Bottom line remains in all cases, that the process needs to be steered by one or more knowledgeable resources. And that their tasks are centered around S&OP. This should not be considered as a side job.
Following that, it is not a secret that implementing and managing a proper S&OP solution in your smaller company can still cause a few serious headaches from the get-go. Most of the start-up issues that you may encounter can be captured in a very comprehensive ORCAD short-list:
- Resource availability
- Data availability
While some companies think they have a working forecasting process in place, their process is often based on loose elements, inconsistent data (*) and irregular reporting, which will lead to bad input for operations. No surprise that such input then causes downstream issues like wrong manufactured products, positioning the product has gone wrong, lead times are increasing and inventory levels go up on products that are not being sold. Obviously now the question rises on how this can quickly be overcome.
It is vital to such a change process to have all the right people and departments involved from the beginning. Major involvement is asked from Sales, Finance and obviously Operations. They need to be 100% aligned and in agreement with the changes that a revision of the process will take. This S&OP triangle between Sales, Finance and Operations has to be seen in conjunction with three elements: Sales Targets, Forecast and Current State(**). Whilst running a Forecast for the next 12 to 18 months, the Current State and Sales Targets are a vital input to the whole picture. This holistic view will drive a realistic and comprehensive operational outlook with which the company needs to deal. For this purpose, accurate and timely data availability is key.
The first phase should always be a quick-scan of the existing process and a determination of the low hanging fruit. All these can be found when skimming the elements in the ORCAD list. Is there a clear corporate owner of the whole process? Who ultimately carries the end responsibility for this process? Are there resources available to manage the process? Are these resources knowledgeable enough? Have all the key participants been made accountable for the results of the S&OP process? Are compensation plans partly dependent of the results? Is the right data available? Is IT involved? Is your ERP system an enabler, or an inhibiter to the process? Is there a fixed agenda with monthly milestones that is religiously followed? Are you using standard templates and dashboards? Is my product life cycle management process well enough tuned into this process?
Whenever there is doubt in any of these areas, a change should be considered to remedy any negative effects. These are the simple, down to earth measures that can quickly drive improvements, clarity and consistency. Having a correct process base in place, will make sure that data will start to become available. This data can then be fed into a next level in-depth analysis. The results from this analysis can then drive further improvements and awareness of bottle necks that can be addressed as a second phase on your road to S&OP success. These next level improvements will drive more Supply Chain enhancements and efficiencies into your business. The questions that for instance belong to this phase could be: is my inventory strategy correct? Does my current local, European or Global footprint support my business effectively? Are we using the S&OP results to generate financial scenarios and capital planning reports? Is my product portfolio well balanced? Should we consider (major) IT investments? Are my suppliers located where I need them to be? Do I consider dual sourcing?
Smaller companies do not need to spend huge amounts of money in trying to establish a well working S&OP process. By simply working with what is already available to them, by creating accountability and by investing into the right resources, such forecasting process can be just around the corner. It simply needs some dedicated attention to start with. In the end, such investment will deliver its multitude in cost savings and customer satisfaction.
It is my professional recommendation to bring on board an interim coach and counselor with the right expertise to help run the set-up and improvement projects. There is no need to re-invent the wheel when the knowledge can simply be brought in. Like I already stated, it requires some up-front spending and experienced resources. And when there is a will to make such changes, the rest will follow.
NB: there is one “Biggy” that should never be left out of sight. The one question that should always be on top of any list of questions:
“What is my customer’s expectation?”
Knowing the answer to that question will give you your overall direction. That is your core. Never forget that in any of your change projects!
(*) Sales forecasts very often display what the desired saleslook like, rather than the realistically expected sales.
(**) Current State includes sales history and trending.