The Top 10 Myths And Realities Of S&OP

By Fred Baumann, Vice President, Industry Strategies, JDA Software Group And Colleen Crum, Managing Principal and Member of the Board of Directors, Oliver Wight Americas

A new paradigm for sales and operations planning (S&OP) has emerged. After more than 20 years of focus on supply-demand balancing, today's S&OP integrates time-phased revenue, cost and margin plans with a company's operational plans. This process is also increasingly being used by executives to ensure that the company's operational plans are aligned with the company's strategic goals and priorities. With executives firmly in control and held accountable, this revised approach to S&OP — which some companies are now calling Integrated Business Planning (IBP) — is enabling significant improvements in overall business performance.

While S&OP (or IBP) best practices have evolved, elevated and transformed, some companies along with the suppliers that service them are still clinging to outdated processes that focus on historical data and near- or mid-term operational issues. This old-school approach has teams involved in creating S&OP plans that execute according to one set of numbers, while corporate and financial management are simultaneously communicating a completely unrelated set of financial plans and projections to the board and other stakeholders. These mixed messages lead to sub-optimized performance across the company. For example:

• Last-minute changes to plans are poorly communicated and managed
• Poor communications result in unsynchronized plans in the demand, supply and finance organizations
• When the unsynchronized plans result in performance failures, there is neither analysis to determine what went wrong nor the creation of procedures to avoid similar operational breakdowns in the future
• Opportunities to increase sales, service and profits are lost forever