The concept of Sales and Operations Planning (S&OP) has been with us for some years, and is known to be a key business driver when done effectively, so it is perhaps surprising how ineffective many operations still are. The concept refers, of course, to the package of measures companies can take to wrest maximum power and profit from an effective balance.
‘S&OP happens in every major business I’ve ever come across,’ says TPL Logistics Management consultant Tim Knowles. The key problem in many of those companies, he argues, is that those making the decisions often lack the necessary knowledge or responsibility to make them effectively.
‘For it to be effective, S&OP should take place within a senior management forum, with the emphasis on the senior,’ says Knowles. ‘The members of an S&OP forum should be the managing director, probably the finance director, definitely the sales director and almost certainly the operations director.’
The forum’s task sounds simple: to assess what the business is planning to sell, to asses what it is capable of making and to come to what Knowles calls ‘a high level agreement’ that they don’t agree to something they can’t deliver. But because such decisions often concern overall business strategy, they are far from simple. Those at the top of the company are likely to be the only ones who are able to make key financial decisions – if, for instance, a short-term imbalance between manufacturing and sales is considered an acceptable strategic risk.
Failing S&OP operations often boil down to a lack of effective communication between sales and manufacturing.
For obvious reasons, it’s hard to persuade sales people to accept forecasts if they fall short of the target to which they have committed. In other words, S&OP is strongly influenced by hard-to-predict behavioural forces, as well as more familiar managerial and logistical issues.
Done properly, however, S&OP can make a big difference to the level of collaboration between different departments of large companies and therefore can considerably improve results. It’s an alluring concept – not only does S&OP show how manufacturing can meet sales and marketing objectives but it also provides a precise forecast of financial output: it helps deliver key business objectives.
It pays to take the issue seriously. Tim Knowles has seen enough badly run S&OP operations to know what happens when things go wrong: ‘If your S&OP process is poor you’ll have frustrated operations people, very demoralised sales people and unhappy customers.’
For larger companies that operate in a pan-European context, cementing an effective link between sales and manufacturing is made doubly complex. The problem is that the system of supply and demand becomes more complex by the year, and if you are working across several sites – or several countries – overarching strategic business goals can easily become obscured beneath a welter of differing political and logistical issues.
Lead times vary from country to country and, increasingly, factories manufacture products for multinational companies aiming at several European markets: same product, different countries. So how does a multinational company deal with lots of different national operations, each of which has its own managing and manufacturing directors? How do you structure the business in order to make sure you’ve got a forum in which the necessary level of communication can take place in time to meet the requirements?
It is impractical for companies to have different lead time agreements for different companies, says Knowles, who adds that a number of large corporations still don’t have full control over these issues, largely because those at the top have failed to fully embrace their S&OP responsibilities.
‘If this issue is to be dealt with at the pan-European level, the only solution is for senior management to put in place a structure that allocates the right calibre of senior people to resolve the high level issues,’ agrees Bob Wileman, commercial director of TPL Logistics Management. ‘If this isn’t done, continued failure is guaranteed.’
The internationalisation of manufacturing, he adds, means that solving the conflicts inherent in S&OP is an absolute priority for multi-national manufacturers across the continent.
Says Wileman: ‘Unless you invest in the right internal communications, manage country expectations to take account of the consequences, and professionalise the forecasting process, you are doomed to the frustrations of apparently intractable ongoing supply chain problems.’
The principle of S&OP, or Joint Demand Reviews, when it reflects a corporate philosophy and is used knowledgeably as a management technique, becomes a truly powerful asset for any business. TPL now offer a senior management briefing, advisory and implementation service, based around the theme of S&OP.
Contact Bob Wileman, Commercial Director TPL LOGISTICS MANAGEMENT + 44 (0) 1252 737 939