S&OP should offer companies a helicopter view

Is Sales & Operations Planning (S&OP) a science or an art? That is the question Jan Kraaijeveld of Slimstock discussed during Webinar Wednesday. The reason that many companies struggle with S&OP, he said, is because Supply Chain approaches things from a different perspective than departments like Sales and Marketing. ‘It’s about the art of getting everyone at the table and on the same page.’

By Marcel te Lindert

‘Working in the supply chain will never be boring again,’ claims Jan Kraaijeveld, Sales Director at Slimstock. He points to the disruptions that have affected supply chains in recent years and will continue to do so in the years to come. ‘Disruption is the new normal. Look at fluctuating container prices, climate change, new technologies like AI or trends like reshoring. That is why it is more relevant than ever to think about scenarios. We have been telling you this for a few years, but most supply chain professionals are focused on day-to-day operations. A large proportion of them still do not see the need for scenario planning.’

More decisions than ever

Kraaijeveld observes that his customers’ world has changed considerably since the first implementation of Slimstock’s software for inventory optimization and S&OP. ‘I see more products, more sales channels, more warehouses and more volatility in customer demand. Both the complexity and the amount of data are increasing. That means companies have to make more decisions than ever before. To avoid getting lost in all sorts of details, they need to occasionally take a helicopter view of their own business and apply focus. For example, I hear many companies talking about portfolio management, but in the meantime their portfolio continues to expand.’

S&OP is the process that can offer companies that helicopter view. It is a monthly cycle of identifying customer demand and aligning the inventory planning, taking into account new product introductions and the company’s financial targets. ‘This process may not solve all problems. But it is imperative that companies take more of a long-term view when making crucial decisions. It may seem like a nice idea to open a big shop in China, but also consider the impact of such a decision on supply chain complexity.’

A science or an art

In practice, many companies continue to struggle with setting up an effective S&OP process. The problem is that the departments involved approach things from different perspectives. Supply chain professionals regard their field as science. ‘They are often trained in operations research and have learned to make statistical forecasts and recognize patterns in data. Their objective decisions are based on facts and figures, supported by empirical evidence,’ says Kraaijeveld. ‘At nine out of ten companies I visit, supply chain professionals take a science-based approach.’

It is different in other departments such as Sales and Marketing. ‘They may not create artworks, but their work is more about gut instinct and emotions. They look at the same issues through a different lens, which often results in subjective decisions,’ observes Kraaijeveld. ‘That is why it is sometimes so difficult to implement S&OP. A supply chain professional might come up with a nice analysis in Excel or PowerBI. A sales colleague might just dismiss it because they think they know their customers will decide differently. It’s the difference between being right and being vindicated.’

No time to waste

The art lies in bringing everyone to the table, from Supply Chain to Sales and Marketing. Talking to each other creates mutual understanding. Kraaijeveld: ‘Setting up a good S&OP process is mainly a change management issue rather than just a software implementation. The software is no more than a tool to get reliable data on the table very quickly. The cultural change needed within the company is much more important than that.’

At the same time, companies lose a lot of time and talent due to manual processes, miss out on opportunities to make the right decisions, and struggle with working capital tied up in the wrong stocks in the wrong stock locations. ‘Everyone cries out for new talent, but then makes them struggle in Excel. That is not the right way forward. Organizations with an efficient and streamlined S&OP process free up time to solve crucial issues. But in practice, I see many companies continuing to waste time.’

Everyone on the same page

S&OP is about teamwork, Kraaijeveld stresses. It is a cross-functional decision-making process involving several departments. Not just Supply Chain, Sales and Marketing, but also Purchasing, Finance, R&D, IT and even the senior executives. ‘S&OP is the process of getting everyone on the same page, but we know plenty of examples of companies where that fails. Often, Purchasing is not even at the table and Finance sticks to its own financial data and planning processes. And the involvement of R&D might be less relevant for a wholesaler, for example, but product changes and product introductions have to be taken into account somewhere in the process.’

Kraaijeveld cautions companies to make a clear distinction between Sales & Operations Planning (S&OP) and Sales & Operations Execution (S&OE). S&OP is mainly about long-term decisions, such as setting up new production lines or new warehouses. ‘S&OE is a short-cycle process – with a horizon of three months at most – that focuses on short-term decisions. Think of a sourced product that is sold out, so another supplier needs to be found quickly.’

Bogged down in details

A well-functioning S&OE process can help prevent S&OP discussions from getting bogged down in details. Before you know it, an entire meeting is spent discussing that one product that is out of stock, leaving no time for long-term decisions. Kraaijeveld: ‘The important thing is to prepare meetings well and stay focused on the goal. That is a crucial prerequisite for a successful S&OP process.’