What’s Holding the S&OP Process Back, Part Two: Establishing a Business Efficiency Planning Process That Works

| By Sanjiv Raman | Senior Manager, Integrated Demand & Supply Planning | Chainalytics |

In my last blog, “What’s Holding the S&OP Process Back?,” I highlighted seven key reasons why organizations commonly fail to reap the full benefits a well-developed S&OP process can deliver. I also pointed out how the ever-evolving business environment will only continue to add to the challenges many companies already face in their S&OP process. In this blog, I will introduce a centralized framework – Business Efficiency Planning (BEP), that will give organizations the tools necessary to stay competitive in an increasingly complex marketplace.

Effective BEP is built upon well-established foundational processes such as S&OP, PLM & FP&A.

Business Efficiency Planning is not a novel concept, but part of a continuum of progression towards deeper integration across disparate business functions within the organization to facilitate deeper alignment and maximize business value.

Business Efficiency Planning seeks to alleviate S&OP process challenges in a variety of ways:

  1. Clarity of Vision: BEP aligns all functional areas around three common business goals to develop an efficient and effective plan.  
    • A feasible plan: Maximize revenue and minimize risk and disruption  
    • An optimal plan: Improve costs and maximize price margin realization
    • An efficient plan: Control assets and resource utilization while improving cash flow
  2. KPI Alignment: BEP aligns with metrics driving the business and allows organizations to develop strategic plans to realize an optimal balance of cash, cost and service.
    • Revenue – Income, Growth Rate, Market Share
    • Earnings – Profitability, Margin, Cost
    • Cash – Return on Invested Capital, Cash Conversion
  3. Decisions Driven Process: BEP’s primary goal involves creating alignment across all functional areas to a unified set of assumptions to enable and coordinate decision making across the full planning horizon (output – Enterprise plan). BEP’s focus on business strategy forces longer time horizons and with a clear perspective of the impact on crucial KPI’s that drive the business.
  4. Alignment to Strategy: BEP applies  data driven decision making to drive organizational strategy
    • Revenue Strategy – Develop a feasible, accurate, and actionable plan to maximize revenue while minimizing risk and disruption
    • Earnings Strategy – Synchronize a constrained/unconstrained optimized view of the supply and demand signal to develop the an optimal plan to improve costs and maximize price margin realization
    • Cash Strategy – Integrate revenue and earnings and alignment to targets to develop an efficient plan to control assets and resource utilization and improve cash flow
  5. One Number Plan: BEP operates as the centralized plan driving the business to a single set of aligned plans that everyone is operating off.
    • BEP (demand driven enterprise strategy) = S&OP + FP&A + PLM + IBP + ERM
  6. Focused Mindset: BEP establishes a common framework for functional alignment across the organization.
    • Executive Team – Make decisions on critical issues, authorizes spending, reviews financial plans to business performance, and aligns plans to strategic objectives
    • Process Owners – Set top management expectations, leads the monthly step process, manages conflict, and guides the teams toward consensus
    • Revenue Planning Team – Determines the consensus sales forecast and sets production plan and validates resource availability to meet demand
    • Earnings Planning Team – Details production rates and operational cost to service plans and sales and/or customer incentives to define total customer or item profitability  
    • Cash Planning Team – Reviews product (including EOL, SKU complexity, and component rationalization), inventory, and investment assumptions to help manage debt to asset ratios
    • Extended Team – Directors and Senior Leaders in the functions that provide insights, ideas, and ensure decisions and business plans are executed with excellence.  Directly engaged in the reasoning and impacts of the conclusions to support execution
  7. Integrates Planning to Execution: With BEP the organization establishes a clear plan to be executed by all functions. There’s a common understanding of the risks and opportunities across the organization. Alignment enables consistency of plan across demand, lifecycle management, go-to market-strategies, and operational execution.  

Establishing a BEP requires a change in skill set, tool set, and mindset.

Rethink People: Building the team out of people with strong analytics capability, business savvy & influence fosters an environment that can reject biases, challenge the status quo, and innovate to drive business value. Talent is scarce, so organizations should recruit internally and nurture potential candidates.

Rethink Process: Establishing a fully integrated forecasting, business planning, and analytics function that supports decision making along with a repeatable process will help create value, manage risk and coordinate enterprise wide decision making.

Rethink Technology: Organizations should invest in a technology landscape that includes core applications with embedded capability, open-source stack and self-service tools to consolidate data and provide prescriptive and predictive analytics for all business functions. This includes: customer analytics, consumer insights and/or geospatial analytics in addition to traditional forecasting and supply planning capability.

BEP, like any successful process, must develop over time, but organizations can realize early returns by aligning supply chain with merchandising/ product development and finance. Establishing a centralized data & analytics function to serve the organization’s needs, while acquiring leadership buy-in to define a roadmap to integrate the foundational processes with the overall business strategy will lay the groundwork for Business Efficiency Planning.

Future leaders are the ones who efficiently foresee, interpret and act. Engaging with experienced supply chain professionals who possess deep planning expertise can help organizations take the steps they need to establish ongoing BEP excellence.

Sanjiv Raman is a Senior Manager in the Integrated Demand & Supply Planning practice at Chainalytics. He has a strong background in optimization and solution architecture and is passionate about helping companies apply technology and analytics in their planning environments to drive measurable improvements.

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The thoughts and ideas expressed throughout this blog have been adapted from the article “Why Is the S&OP Process Stuck in Third Gear,” which I co-authored with Eric Wilson, Director of Planning at Escalade Sports, and was published in the 2017 Fall Issue of the Journal of Business Forecasting.
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