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Supply Chain Metrics: Improve Supply Chain Planning with S&OP

June 19, 2012
Expanding S&OP process adoption reduces inventory and staffing needs.

Many organizations have adopted sales and operations planning (S&OP) as a way to promote visibility within the enterprise and to foster collaboration among business functions. In fact, according to data from APQCs Open Standards Benchmarking in supply chain planning, 82 percent of participating organizations have a formal S&OP program.

With so many organizations using S&OP, what does the average S&OP program look like? Can organizations take steps to improve their supply chain planning?

APQC asks organizations participating in its Open Standards Benchmarking to rate specific S&OP processes based on use. Using a five-point scale, organizations rate the processes lower if they have adopted them to no extent or to a little extent. Organizations rate processes higher if they have adopted them to a significant extent or a very great extent.

When asked to rate how often they use each of the S&OP processes, responding organizations gave the highest rating to "formal meetings with sales, marketing and supply chain operations," which had a score of 3.9 on a scale of 0.0 (used to no extent) to 5.0 (used to a very great extent). None of the processes have been adopted to a very great extent or a significant extent. This is surprising for the process of holding formal meetings with sales, marketing and supply chain operations. These meetings have been adopted more than any of the other processes, but, as they are essential to S&OP, should probably be adopted to a greater extent by organizations with S&OP programs.

The two processes adopted least by the responding organizations are "optimizing transportation management based on integrated demand and supply plans" and "external demand collaboration with customers." External demand collaboration incorporates the customers view of demand into an organizations planning process. Bringing a different perspective to the supply chain planning process can broaden an organizations view of a product market and allow organizations to better anticipate changes in demand.

External Demand Collaboration

APQCs Open Standards Benchmarking data indicates that organizations engaging in external demand collaboration with customers obtain better performance on key supply chain planning metrics. Table 1 compares the performance of organizations with a low amount of external demand collaboration (a rating of one or two on the five-point scale) against the performance of organizations with a high amount of external demand collaboration (a rating of three or four on the five-point scale) with regard to two metrics.

As Table 1 shows, organizations that engage in more external demand collaboration with their customers have inventory carrying costs half that of organizations that conduct less external demand collaboration. Organizations that conduct less external collaboration need more than twice as many full-time equivalent (FTE) employees per $1 billion in revenue to conduct supply chain planning than organizations that collaborate more with their customers on external demand planning. The expanded view of a product market provided by external demand collaboration allows organizations to carry less safety stock and reduce the number of FTEs needed to conduct supply chain planning.

APQCs data shows that there is room for organizations to improve their S&OP programs. In addition to expanding the use of meetings with sales, marketing and supply chain operations that make up the backbone of a formal S&OP program, organizations can initiate external demand planning programs with their customers. By integrating the customers perspectives into the supply chain planning process, organizations can reduce inventory carrying costs and the number of employees needed to create and update supply chain plans.

APQC is a member-based nonprofit and a proponent of benchmarking and best practice business research. Working with more than 500 organizations worldwide in all industries, APQC focuses on providing organizations with the information they need to work smarter, faster and with confidence.

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