Integrated Business Management using Sales and Operations Planning

Changing market dynamics, shorter product lifecycles, end-item proliferation, shrinking profit margins and shorter customer order cycles are challenges that enterprises must learn to deal with agility. As these challenges increase manifold, they create opportunities for organizations to run leaner operations that align well with true market demand and improve performance.

Organizations therefore need to achieve a fine balance between strategic and operational plans to generate optimal & profitable responses to these dynamic market conditions. In this context, we examine the crucial role that Sales & Operations Planning (S&OP) plays in achieving Integrated Business Planning (IBP) through collaboration across both, the intra-organizational functions and global supply chain partners.

Aligning demand and supply profitably determines the competitive positioning of an enterprise in a challenging marketplace. In our consulting experience with organizations across the globe, we often hear comments like "we are never able to arrive at a consensus", "we never had a meeting with all the stakeholders", "our data is not current", "budgets are not fairly allocated", "the demand is unclear till the last minute", etc. We have noted that such breakdowns in communication & collaboration have often resulted in an unsuccessful S&OP process cycle. The situation gets further complicated owing to uncontrollable factors such as, volatile customer demand, proliferating SKUs, increasing new product introductions, global sourcing options and competition from several local players.

In this paper we discuss Wipro's perspective on the role of S&OP in enabling organizations to offer a profitable demand response.

S&OP as an organizational process has been around for more than 20 odd years and was intended to bring about better demand-supply synchronization in manufacturing industries. It has since evolved into a more mature process that focuses on profitability, customer centricity & business transformation. The fact however, is that most enterprises still struggle to get the basic demand-supply synchronization done. Challenges range from the lack of a mature process, missing executive management commitment and/or the absence of an enabling IT infrastructure.

These challenges drive organizations to constantly evaluate tradeoffs around "Efficiency - Responsiveness" to arrive at the most optimal way of satisfying customer demand. Organizations evaluate several levers like stock reduction, revenue expansion, cost efficiency or risk mitigation to address these challenges. However each of these levers, if exercised in isolation can lead to a one-dimensional optimization that will introduce challenges in other areas:

?? Changing consumer preferences lead to introduction of newer products, which in turn contribute significantly towards overall revenues while simultaneously cannibalizing existing lines

?? Demand volatility caused due to factors such as seasonality, and demand spikes due to promotions

?? Global sourcing options lead to significant reduction in procurement costs while increasing procurement lead times and supply risks

?? Inventory imbalances – stock-outs and obsolescence caused due to multiple factors like demand volatility, product phase-outs etc

Compounding these challenges is often the lack of an enabling infrastructure. Lack of features such as workflow management tools, scenario simulation tools, and dashboard availability hamper the organizations efforts to try and weigh different options while being able to monitor progress for effective planning.

There are multiple factors that influence the functioning of an organizations supply chain. These factors can either contribute towards the growth or have a detrimental effect on the organizational growth if they are not evaluated on a common ground.

The challenge therefore is to facilitate a fact based decision making that will help executives evaluate trade offs and reconcile demand & supply plans against financial goals. It is crucial for the various stakeholders to arrive at a consensus that is in line with the organization’s business goals.

The renewed focus on organization wide optimization, calls for cross functional collaboration to monitor the efficacy of individual plans against overall business goals. This is where Sales & Operations planning fits into the overall planning process, reconciling demand and supply plans within the financial boundaries.

Gaps in current S&OP processes

While many organizations believed near Real Time Demand Sensing & Shaping would help them achieve better S&OP results, very few have been successful in implementing it as part of their S&OP practices.

A key finding by the research was around simulation capabilities to understand and overcome supply chain risks caused due to market volatility. While about 40%–50% of the organizations believed it would reduce supply chain risk, in practice only 20-25% of these organizations managed to implement this process in their S&OP cycle. A significantly large number of organizations felt that “Communication & Collaboration” was the issue, if resolved, would ease 80% of the process related challenges, but only 50-60% of the organizations actually managed to overcome this challenge.

Our research validates that the biggest gap with respect to importance v/s performance was also in the area of internal stakeholder collaboration. Respondents also reported significant gaps in identifying demand shaping and sensing opportunities.

Benefits received from a robust S&OP process Experience has shown that areas where organizations have benefited after implementing an S&OP process successfully have been around improved "Forecast Accuracy", better and leaner "Inventory Management", and better capacity management.

Our research confirms that Forecast Accuracy and Reduction in Inventory are seen as the two biggest benefits of the S&OP process followed by increasing revenues and improved new product launches.

To know more email: shreyas.srivatsan@wipro.com