Manufacturers needing to make decisions about what to build before there's clarity on what will be sold should constantly be evaluating their Sales & Operations Planning (S&OP) process. This means actively balancing supply and demand by managing tradeoffs between inventories, margins, competitiveness, and customer satisfaction. This also means working with lots of data. Effectively working with and understanding S&OP data is critically important today. With constantly changing SKUs, stronger competition in a global market, and more frequent product promotions driving customer purchasing decisions, S&OP data is the lifeblood of any company.
What should you do to capture, manage and share this ever important S&OP data? What are the key areas and measures you should focus on when deciding how to manage and take advantage of all this data? The following recommendations are not exhaustive-each manufacturer is different and should carefully evaluate the "pain" areas of their business and make sure their S&OP process is generating the necessary data needed to better manage the overall process. In general, however, most manufacturers will share these commonalities.
Minimize Surprises
Let's face it, as a manufacturer you hate surprises. If you're a public company, a surprise that's not effectively managed and communicated means a drop in valuation for the company. An effective S&OP process that focuses on collecting and understanding demand data from internal stakeholders and trade partners is essential if you want to minimize surprises. It's not uncommon today to see even very large companies, including ones over $30B in revenue, doing weekly bottom up forecasts. Yes, weekly! This means lots of data, but it does not mean it needs to be painful. In fact, if you make it easy to participate in the S&OP process -- and make it relevant by providing the information your stakeholders want- - then you can get the data you need. This means reaching all stakeholders as often and as close as possible to the point where you need to make a decision on what to build. Providing easy to use systems that allow you and your trade partners to share forecast and other information is the key element in capturing a timely consensus demand signal, which will allow you to minimize surprises. That's good for your margins and your business.
Optimally Manage Inventories
Your S&OP process must be laser-focused on managing inventories. As a manufacturer, the benefits of optimally managing your inventories are felt in many areas but can be summed up with having the right amount of product, at the right time, in the right place (yes, price should be here, too, but more on that in a minute). Your S&OP data is the key to making this happen, and your ability to actively manage this data must be flexible and collaborative. For example, S&OP data such as weeks-on-hand calculations (which should be tailored to specific products and channels) will help you lower inventory buffers at all points in the supply chain, as well as the associated carrying costs. Newer inventory management processes such as VMI are becoming more widely utilized in industries beyond consumer goods, so you need to get better at managing your inventory data throughout the extended supply chain. Doing so will enable you to drive optimal inventory decisions, which leads to increased margins, increased cash to order cycles, and an improvement in customer satisfaction.
Improve Margins
Using S&OP data, especially across functional areas within the company, will lead to improved margins-if not, something is very wrong with your S&OP process. Improving margins is often an area that's under-emphasized in an S&OP process, and yet is ultimately the most important factor in the health of a company. An improved S&OP process can lead to margin improvements in many areas. However, the entire S&OP process needs to be collaborative and needs to include all functional areas of the business, not just the supply chain organization. We often see revenue and costs overlooked in S&OP processes, and this is worrisome. Making sure the relevant S&OP data, such as average product unit cost, inventory levels, logistics costs, anticipated margins, customer satisfaction rates, etc. is shared across marketing, finance, supply chain and the executive suite is critical to adequately measure total costs against total revenues. Having input and shared data amongst all functional groups is what drives margin improvements, which benefits everyone.
Improve Customer Satisfaction Rates
If you've never had a customer cancel an order because you've missed delivery dates, then you're doing better than 99% of your competition. For the most companies, this is an area where S&OP data, like available to promise or committed ship dates, can make a big impact. One of the key tenets of S&OP is collaboration and making sure all stakeholders leading out to your customers are aware of delivery dates, cost, quality and other S&OP data. If you're not doing this, you must start now. Improved customer satisfaction gives you the ability to build stickiness with customers, which leads to profitable relationships. Moreover, improved customer satisfaction should be viral-it will give you the ability to make your next, and your next, customer satisfied.
Better Resource Utilization
S&OP data should not make more work for everyone. An effective S&OP process means operational data is more easily captured from the right people, at the right time, in the right environment. For example, giving sales people the ability to work offline and easily make updates to planning data and submit this data as soon as they know (while at the customer site.) Or giving demand planners the ability to easily perform "what-ifs" so they can better evaluate tradeoffs, means everyone can work more effectively, and resources are better utilized. S&OP data from a process that's setup correctly can eliminate stakeholders having to manually collect all the data so they can "see where we are" and instead lets them focus on making decisions to drive the business more profitably. Each part of your S&OP process should leverage the data as fuel for the decision making process-don't create yet another "data source" which is underutilized across the company and takes three people a week to aggregate and report on.
Of course, these recommendations are related, and none can work alone -- they all are key components in an effective S&OP process that is focused on giving people the ability to collaborate and manage to one optimized plan. The ability to optimize internal and trade partner collaboration on your company's S&OP data will enable you to make more profitable planning decisions, while still being within the lead time to benefit from these decisions.
Andy Duncan is CEO of Boardwalktech. J.B. Kuppe is vice president of marketing for Boardwalktech which provides Enterprise 2.0 Technology for business process management solutions.
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