It’s a journey – not a destination. Every company goes through it. The basics are in place after a lot of hard work, but how do you take the next step? How does the S&OP process move beyond the supply/demand balancing process and the jurisdiction of the supply chain organization?
The key factor to making S&OP the driver for managing the business, is to expand and create process ownership across the organization, along with the executive sponsorship. By doing so, the S&OP process becomes the one plan for the business, the point of direction, and a predictive process model that drives priorities and performance.
As identified in our recent research report, S&OP: Beyond the Demand/Supply Match, A Journey, Not a Destination, from the demand planning process perspective, four basic capabilities were identified that indicate where the Best-in-Class differentiate themselves.
- The ability to take in multiple inputs and distill them down to a single forecast is widely adopted by the Best-in-Class, and is a sign of a mature demand planning process. A key point is the ability to work across the organization to capture the necessary inputs to improve visibility and modeling, which goes beyond the supply chain organization.
- The ability to segment the demand based on the characteristics of customers, channels or products, really provides the insight necessary to increase service levels and identify problem areas without blindly increasing inventories across the board. Companies involved in Omni-Channel businesses need to incorporate this capability to better align their inventories with the demand, as a refinement to their demand planning process.
- Promotion planning and demand shaping also require working with the marketing and product management teams to begin driving that demand, rather than just responding to it.. It moves the organization to start shaping the demand to align with company strategies, and begins driving the business in a more prescriptive manner.
- Taking demand planning a step further is the ability to optimize the product portfolio and incorporate profit optimization into the decision process. At this point, the S&OP process starts to become predictive and opportunistic, by driving the business in a way that not only satisfies customer service levels, but does so in the most profitable way.
As the level of proficiency for the demand planning process improves, it should be recognized that there is an increased internal level of engagement required, as shown in Figure 1. Having sales involved in the forecasting process is required to move beyond just number-crunching since they are generally the closest to the customer and can provide valuable insight to the timing, direction and pain points the customer may be facing.
What is not nearly as prevalent is the involvement with the marketing organization, where the Best-in-Class are more than twice as likely to be engaged. The marketing team can help in many ways to shape and fine-tune the forecast. They can provide a view of the market direction, competitive requirements, product group portfolios, promotion plans, new product introductions, and potential opportunities that might exist if the organization is capable of responding. The inclusion of the marketing team in the demand planning process is where the sophistication and insight into the demand management increases, and can become very prescriptive and proactive to not only shape the demand but do so more profitably.
Mention has been made of incorporating all inputs into the demand planning process, but identifying how those inputs are rationalized into the consensus number for a given SKU (stock keeping unit) needs to be defined. This is part of the process evolution that must occur, and where the Best-in-Class are nearly twice as likely to have this capability in place. Defining a clear owner of the consensus forecast who can have the experience to create, orchestrate and manage the model that incorporates the inputs is an important step in the maturity process.
The realization is that a robust, mature S&OP process is a journey that evolves to address the business challenges, rather than a destination of a fixed set of predetermined processes. Moving beyond the demand/supply match level of maturity to a more robust process with wide organizational ownership is demonstrated by Best-in-Class attributes. To expand the ownership for the demand planning process in your organization beyond the supply chain organization, the following actions are recommended to move your S&OP process forward.
- Include sales and marketing teams in the demand planning process.
- Identify an owner for the consensus forecast
- Standardize and streamline the scenario planning process for upside, downside and risk scenarios.
- Adopt the technology/tools to enable demand shaping in order to drive a more profitable business