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"How S&OP improves your organization"

S&OP (Sales & Operations Planning) allows you to fine-tune the processes in your organization in order to work more efficiently and ultimately achieve better results. But what exactly does S&OP entail and what do you need to do to make it a success?

Pepijn Rinzema - Project Manager Innovation Lab

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What is S&OP?

S&OP shifts the individual focus to an integrated plan. APICS defines S&OP as an integrated business management process that provides executives with continuous focus, alignment and synchronization across all functions in the organization. It brings all business processes together in one integrated plan.

Schedules are shared and discussed, which leads to a joint overall plan. The organization as a whole reaches consensus on sales, operations, supply chain and finance planning. The goal of S&OP is to align future demand, stock, and production capacity to achieve the best financial results.

The integrated plan contributes to the tactical goals of the organization, allowing the organization to plan better and mitigate risks.

Steps in the S&OP process

APICS distinguishes five steps in achieving a successful S&OP process:

  1. Collecting data. The data from the previous period is corrected and the KPI dashboard is updated. The data comes from sales, marketing, operations, logistics, and supply chain, but also from finance. You want to take this step as quickly as possible to be able to continue smoothly and to have as much time as possible for the next steps in the process. Thanks to planning software, many of these tasks can be performed automatically. An important outcome of this step is a KPI dashboard for the other meetings. KPIs that are relevant here include past sales, trend analyses by the marketing department and use of the available capacity. Every organization has a number of specific KPIs.
  2. Demand planning and product review. Input for this step comes from sales, marketing and product management. This process is also called the handshake between sales and marketing. Forecasting demand is a challenge, because predictions are rarely quite accurate. It is important to build up as much knowledge as possible by means of, for example, market trends and methods and techniques for forecasting. Segmenting products at product level can help forecasting. For example, you can group products according to the ease with which sales can be predicted and the impact it has on the organization.
  3. Supply planning and financial review. Based on the demand planning, the responsible team sets up the supply planning to meet the planned demand as accurately as possible. You look at the available production capacity, but also at the stock levels, the production method you will be using and supply chain strategies (make to order, make to stock, assembly to order). It is also important here to look at the friction between supply and demand and come up with a proper solution.
  4. Pre-S&OP meeting. The plans from the previous steps come together here. You will discover the possible problems in the earlier steps and prepare and present possible scenarios to solve them as well as possible. The scenarios are compared in preparation for the last meeting. Participants in this meeting are usually the tams of sales, marketing, service, operations, supply chain and of course finance
  5. Executive S&OP meeting. Here, the CEO or higher management is involved in the process and it is decided which scenario is to be used based on the input. As mentioned, the outcome is a plan with consensus about supply and demand that the management supports. After the plan is approved, it will be applied in all operational departments. This meeting usually takes place once a month, always looking ahead for a certain period: often being 24 months.

 

 

Factors that influence supply and demand

In an organization and in the outside world, different sources always influence the question:

  • Competition. The trick is to respond better to customer demand than your competitors. Competitive promotions and campaigns, quality discussions, interruptions in delivery are all things that can affect this.
  • Seasonal Effects. In a mild winter you will sell less thick coats than in a very cold one. But also think of other events in which time plays a role: the number of visitors in a restaurant, which is probably higher on weekends than during the week.
  • Economic Effects. Economic growth or recession has an influence, but a different government policy or good and bad publicity can also be decisive. Brexit is a good recent example.
  • Trends and expectations of customers. In recent years, customers have had increasingly higher expectations and the life cycle of products has been shorter on average.
  • Internet. Customers can more easily shop online, but also compare prices and delivery times and read reviews.
  • Promotions. Special offers or advertising campaigns can increase your demand. After the promotion, there is a good chance that a decrease will take place again.
  • Calamities. Unforeseen circumstances such as storm (or pandemic) can also affect demand. In some cases, this can also be a positive influence!
  • Distance. Globalization creates larger supply chains, which affects supply and demand.

The differences can be further magnified by the so-called bullwhip effect. Due to the fluctuating demand for products, it is becoming increasingly difficult to predict how many products you will need to produce as you move up the chain. It starts with a small fluctuation on the customer side and the variation increases the more you go up in the chain. The greatest fluctuation takes place at the supplier of raw materials.

There are also various sources that influence the supply. These are external sources:

  • Global growth and an increasingly complex supply chain. This requires cooperation.
  • Natural cycles. Some production cycles must take place within a certain time. For example, the power of the sun must be used to generate solar energy during the day. The availability of raw materials such as oil and steel can also have a significant impact. Consider the large quantities of steel that China bought a few years ago, which meant that the rest of the world had too small a market.

These are some internal sources that can influence the offer:

  • Bullwhip effect. This is not only related to demand, but also to the supply. If the bullwhip effect occurs on the demand side, the production capacity may become insufficient to keep up with the increase in demand. If you need more material, then you buy more material, and the effect shifts up the chain.
  • Demand planning errors. Sometimes results are misjudged, too optimistic or too pessimistic. This can lead to under- or overproduction.
  • Supply planning errors. Over or under capacity or other inefficiencies in the process can occur at all levels of planning.
  • Irregularities in the system. The production plans of stakeholders change too much, or changes become too costly or have too much impact on the process.
  • Errors at the supplier. This often has the most influence. Think of poor-quality materials, unacceptable delivery times, but also capacity shortages to meet demand.

S&OP: make a good step-by-step plan

It is clear that a solid plan is needed to implement S&OP in the organization. Keep in mind that it is a cycle, not a one-time schedule. It can also be used to further improve the process. It is wise to run a pilot for each improvement before rolling it out throughout the organization.

Cultural differences as an S&OP challenge

Especially in international organizations, it is very important to take into account cultural differences when implementing S&OP.

  • Small power distance - big power distance
  • Individualist - collectivist
  • Masculine - feminine
  • Low uncertainty avoidance - high uncertainty avoidance
  • Short term thinking - long term thinking

Conclusion

S&OP is a very powerful tool that can help your organization to streamline processes properly. It is important that it is supported by the entire organization. It is good to take a number of things into account:

  1. Research what works for your organization. Every company has a unique S&OP blueprint.
  2. Involve all parts and functions in the organization in the process.
  3. Make sure management supports it.
  4. Make sure you make decisions based on correct data.
  5. Keep improving your S&OP process and realize that it is never finished.
  6. Have self-discipline: Make sure people stick to schedules and working methods, otherwise you will miss deadlines and involvement in the process.

Would you like to know more about S&OP or are you curious about what this can mean for your organization? Please contact Pepijn Rinzema.

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