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ASCM Insights

How to Make S&OP Truly Strategic

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For a long time, I have wrestled with how to make sales and operations planning (S&OP) strategic. Not because it is difficult conceptually, but because S&OP maturity truly exists along a continuum. And the lion’s share of S&OP implementations I have observed are very tactical — reflecting low process maturity — and thus not poised to be strategic in their execution. I often wonder how business leaders can even begin to discuss building a more strategic S&OP process when so many organizations struggle with the most basic blocking and tackling. It’s like remodeling a kitchen when the foundation is crumbling.

I believe my dilemma hangs on the word “strategic.” It is repeatedly misused and ill-defined with respect to S&OP. For example, I often hear that executive presence somehow makes S&OP a strategic process, as if mere C-level engagement were some mystical cure-all. Is executive presence necessary? Yes. However, executive presence only makes a process strategic if the conversations and decisions arising from such participation are strategic.

By design, S&OP should involve both strategic and tactical elements. As S&OP guru Bob Stahl often notes, strategy is choosing the right things to do; tactics is the work of doing those things right. Both are required for corporate success, and S&OP should address both appropriately. If you have too little in the way of strategy, then the tactics are likely to be misdirected. Too much strategy, and teams often lack the tactics to execute the plan.

Similarly, I often hear that depth of horizon — looking out multiple years — is what makes an S&OP process strategic. Again, depth of horizon is only strategic when the decisions being made with respect that horizon have a requisite long-view strategic gravitas. Likewise, talking in terms of product family aggregations during an S&OP executive review meeting does not necessarily elevate the conversation to a strategic level. It is a low-maturity expectation of the process to converse in aggregations. And while, as a practice, I believe product family discussions are correct, I have also observed and elevated many stock-keeping unit (SKU)-level issues (mostly new or retiring products) to the executive team, especially if volume levels are driving short- and long-term decisions.

If your executive S&OP meeting is nothing more than reporting out of the updated, current plan, without any meaningful discussions around the strategic initiatives buried somewhere in the aggregated numbers, then it is the opposite of strategic: It is a burdensome time-suck. Eventually, the executive team won’t want to attend the meetings, and the maturity level of the overall process will decline, as S&OP requires that facilitators bring strategic issues and metrics to the discussion.

So, how do you make your S&OP process strategic? By aligning everything — the meeting, the metrics, the conversation and the decision-making — around strategic issues.

First, find the issues

I was compelled to write this article after reading that Mondelez CEO Dirk Van de Put said his company would reduce its net SKU count by 25% to further reduce cost, complexity and inventories while attempting to solidify these gains beyond the pandemic. The SKUs represented just 2% of the company’s total sales. This is the perfect object example of how a stated strategic goal should portend broad implications for matters of supply, demand, portfolio, metrics, finances, and S&OP. And I suspect that this net SKU count-reduction goal is at the heart of most of the S&OP process meetings at Mondelez these days.

In fact, if you look at the public statements of nearly every consumer goods company, you will find some discussion of intended strategy, such as growing business through some increase in new-product innovation. If your company is making similar proclamations, great! A strategic S&OP process requires that you measure, discuss and dollarize your objective — and then, of course, take correction action if metrics fall below expectations.

Maybe your key strategic initiative for 2021 is to break into a new class of trade. If this is your goal, then track your product and distribution success as you venture into these new channels. You might leverage your executive S&OP meetings to manage volume expectations in these new channels by discussing obstacles such as margin, pricing or supply chain issues, as well as what steps (tactics) can be taken companywide to overcome them. This is the mark of a true strategic discussion with tangible, actionable and measurable demand and supply plan implications.

Further, the recital of metrics that usually kicks off S&OP process meetings tends to bear little correlation to any stated goal or focus. Forecast error, on-time deliveries in full and inventory levels are great S&OP metrics. But unless you have a strategic initiative to improve these numbers — or to correct them if they are demonstrably out of control — then you may be better off focusing on strategic metrics and then drilling down into go-to-market goals and their respective measures. This helps assure that at least some of your measures align to strategy.

So, how do you identify strategic initiatives if your company doesn’t have any bold public pronouncements? Strategy initiatives are stated both internally and externally; they are talked about in corporate town halls and in analyst calls. You will often find the tactical details spoken of in new product or portfolio plans, sales budgeting exercises, brand review meetings, financial modeling discussions, and supply chain strategy talks. They exist, and it may be up to you to discover them. If you’re still unsure, look to the strategic pillars of any business:

  • commercial strategy (typically focused on product, price, channels and customers)
  • supply chain strategy (relating to sourcing, risk, distribution and manufacturing)
  • financial strategy.

Nearly every company I have worked for has had a go-to-market plan that targets products and customers of strategic importance, both in the moment and in the future. Every business has had a midterm financial plan meant to identify risk and inflection points — in costs, margin and top-line revenue — that reflects its go-to-market and supply chain plans. And every organization, by virtue of its commitment to and investment in S&OP, has had a longer-term view of its supply chain, with factors such as necessary capacity and network expansion eventually outlined as the business truly developed and took on this deeper-horizon perspective.

While reporting that a current year’s operating budget is off by 1% is important, it’s not strategic. However, noting that there will be severe margin risk two years out if product mix and pricing models stay the same is a conversation I want to have. Discussion points and analyses of topics such as these are what make S&OP truly strategic. It does not make the tactical discussion of this year’s operating budget less important; it simply balances it with longer-view strategic elements.

Making it happen

Go find the real underlying strategies of your business, and then incorporate metrics and conversation relating to them into the content and discussions of your S&OP meetings. Consider involving your S&OP meeting chair in strategic initiatives and measures. If you do both, you will have little problem driving executive engagement. Your horizon will reorient itself toward a properly cast forward horizon, facts and assumptions will become the underpinnings of your meeting, and you will mature your process overnight.

S&OP is not strategic right out of the box. It becomes strategic only when you elevate the metrics, dialogue, people, content and focus around strategic goals and with constant alignment of business strategy and tactics. If you develop your S&OP process with a mindset of finding the right strategic elements to improve the discussion and decision-making, you can’t help but push your process model forward.

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About the Author

Patrick Bower

Patrick Bower is the author of SCM Now magazine’s “Sales and Operations Planning Department.” He may be contacted at plbowerone@yahoo.com.

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