The Importance of S&OP

A recent article from The Aberdeen Group highlights the ever increasing importance of S&OP (Sales and Operations Planning). This is not a new concept, although more and more companies are now realising its importance in helping to provide the ideal balance between demand and supply. (something which sounds very simple, but in reality, is an intricate process in aligning all factors into an effective plan)

Business Pressures (Why is S&OP Required?)

• Reducing Supply Chain operating costs
• Understanding and planning for demand volatility
• Improving top line revenue
• Need for better, tighter integration between Supply Chain planning and Supply Chain execution

The Aberdeen Group report conducted detailed surveys which show the emphasis placed on the above business pressures by a number of companies, and the report compares between 'Best in Class' companies based on the top 20% of companies based on performance and a number of other companies. The 'Best in Class' companies showed more focus on reducing operating costs within the supply chain and managing demand volatility, while the other companies showed more focus on improving revenue and slightly more focus on tighter integration of planning and execution.

Among other things, forecast accuracy was measured by all companies in terms of combined accuracy at 'family' level. The overall results were as follows;

'Best in Class' companies (Top 20%) - 86% accuracy

'Industry Average' companies (middle 50%) - 68% accuracy

'Laggards' companies (bottom 30%) - 25% accuracy (with hardly any forecasting processes in place)

Unsurprisingly, the 'Best in Class' companies showed a much greater focus on developing an effective S&OP process, containing within it, a full Demand Planning process.

The Aberdeen Group report highlights a whole host of comparisons from the survey but the results show an overall trend where the 'Best in Class' companies have robust Demand Planning and S&OP process in place, while some companies have little of these processes in place, which has an obvious impact on their overall performance. The survey also highlighted more 'Best in Class' focus on utilising specialist S&OP systems rather than attempting to develop internal systems which are not fit for purpose.

In summary, the three groups of companies 'are in different places' regarding their processes and performance, and all have differing areas to focus on going forward. It is not just about systems though. Effective S&OP requires a company willingness from all stakeholders to collaborate effectively, review performance regularly and to then proactively plan for key areas like demand volatility and promotional/new launch activities.

To read the full article go to www.logility.com/newsevents/analyst-coverage