How a Better Executive S&OP Maturity Model Ensures Better Business Results

By Juha Martikainen | Director, Chainalytics | In this first post in a two-part blog series, we will present the four maturity steps necessary to achieve...


By Juha Martikainen | Director, Chainalytics |


In this first post in a two-part blog series, we will present the four maturity steps necessary to achieve state-of-the art S&OP. Part 2 will address the data and supporting tools related to each maturity step.

The long-established executive sales and operations planning (S&OP) process framework has been implemented in thousands of organizations. And as result, there are more than a handful of maturity models to help organizations understand where they are relative to other organizations and where to focus to improve their processes to support your best supply chain approaches.

Maturity models are seldom an “exact fit” for any particular company, but they do provide an extremely useful benchmark for companies to use to identify the biggest improvement potential.

We normally begin our executive S&OP improvement engagements by mapping our client’s executive S&OP maturity. Although there are multiple very good theoretical maturity models (including widely cited theoretical maturity models like Gartner’s five-stage S&OP maturity model), we developed a simple four-step maturity framework to help businesses better understand the impact of the decision making in the executive S&OP process and the level of integration to other business processes:

Step 1. Cross-Functional Planning The most striking difference between Chainalytics’ model and other maturity models is that in order to reach our first maturity level, the organization actually needs to have both a closed-loop executive S&OP process in place with demand and supply review phases, but also a structured executive-level S&OP meeting.

The key emphasis in this step is setting up the structured (usually) monthly process and meetings for review. This step can take a lot of effort and change management to get the foundation laid, but it’s mandatory to ensure the organization’s ability to reach the next maturity steps. Taking time to define roles and responsibilities and planning data hierarchies and seamless flow of information within the process will be rewarded. Some of best practices that many companies neglect at this step are:

         Taking time to clearly define roles and responsibilities, meeting agendas and monthly calendars

         Setting up planning metrics early on in the process to be able to really understand how the plan improves when maturity increases

         Defining a process for maintaining planning data as part of the monthly process (not the sexiest part of the process, this portion is tedious, but one the key success factors in making the executive S&OP process work)

         Focusing on defining useful planning hierarchies and modeling a seamless flow of S&OP data through the process, considering, for example, value-to-pieces conversion and aggregation/disaggregation rules to be able maintain one set of numbers that is meaningful for every function in the process

Step 2. Scenario Planning Once the organization has the maturity to manage planning with one set of numbers, it can consider jumping to the next maturity level, creating multiple/optional plans and finally selecting one. The most common way to address scenario planning is to consider two (upside, downside) or three (neutral, upside, downside) demand plans. All the demand plans are then normally also addressed from a supply perspective. Although this sounds simple on paper, it does create much more complexity from both process and tool perspectives. Another common approach is to use scenarios in supply planning. For example, a company might want to understand the implications of applying various capacity constraints in its supply chain and compare the impact to purely demand-based unconstrained plan without any capacity bottlenecks.

Step 3. Profit Optimization From a financial consolidation perspective, the first requirement in the step is to understand revenue (net sales) plans. Many companies that are already in maturity steps 1 or 2 in order to understand the value-based plans to better understand the business impacts of the plan and different scenarios.  In the third step, the companies are aiming to further tie the S&OP to financial planning by starting to plan costs and gross margins and eventually use rolling plans from S&OP as the basis for financial budgeting.

Step 4. Profit Optimization with Network Design Modeling After mastering the financial integration in S&OP, companies are considered to be functioning at a high S&OP maturity level. However, even this advanced stage can be improved to achieve truly state-of-the-art S&OP. Most companies run their S&OP purely based on their current network structure. The last step involves running S&OP by assessing changes on the supply chain design to ensure profitability. Understanding the impact to the overall profitability of the changes across the supply chain provides the means to realize the full potential of S&OP as the key decision making process in your organization.

As you can see, Chainalytics’ unique S&OP approach provides insights, planning capabilities and financial benefits that go far beyond those of many organizations, enabling more efficient businesses with better supply chain optimization. Following Chainalytics’ four-step maturity model can be a win-win for every part of your organization.

Juha Martikainen is a director at Chainalytics and has worked extensively in supply chain management and business process management consulting, including business concepting, business process automation, process improvements, solution architecture design, and implementation, training, etc.  

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