In Part 1 of “Setting Sail with Sales & Operations Planning” I discussed the wide variety of reasons companies move toward a more formalized S&OP process, the inputs required to sustain the plan, and the supporting technologies to make it all work. This second post will discuss the metrics that can be used to target different types of improvements in the enterprise and finally some of the headwinds to realizing the value from a technology-driven S&OP process.
As discussed in my previous post, if handled correctly the S&OP plan will get us a consensus-based plan down to the product family level. That consensus will include the agreed upon product demand and the agreed upon capacity and materials to produce that demand. For a successful process to work, members from all affected departments must be represented on the S&OP committee and each member must be given the responsibility and authority to make departmental decisions. Given the wide ranging nature of the problem, it is only practical to take the plan down to the product family level in the S&OP meetings. Once at that level the process continues downward to the item level starting with demand planning and leading to both materials and capacity planning to create the operating plan.
Once the plan levels are established and input requirements are determined along with the technology to create and maintain the steady stream of those inputs, we need to explore the process metrics, expected improvements from the process, and some of the barriers we might run into.
Key List of Metrics for Measuring the S&OP Process
- Forecast Accuracy at the family and item level
- Lead Times at item level
- Stock Outs at item level
- Inventory Turns
- % Customer Retention
- % Sales Volume Growth
- % Complete Order Fill Rate
- % Out of Stocks
- Total Delivered Cost / Unit
- % Capacity Utilization Rate
- % Gross Margin $ Sales / Employee
- $ Gross Margin / Employee
- Increased Sales / Increased Assets
- RONA (Return On Net Assets)
Expected Improvements from the S&OP Process
- Reduced end item lead times
- Reduced stock outs of end items and materials
- Improved forecast accuracy
- Improved demand and inventory planner productivity
- Improved gross margin
- Improved order fill rate
- Improved customer retention due to shorten lead times and improved fill rates
- Fewer supply disruptions
- Reduced inventory
- Better communication between departments
Barriers to realizing the benefits of the technology driven S&OP process
- Applications supporting the process are not integrated with each other
- Applications are too complicated to implement and maintain
- Users are more comfortable with spreadsheets
- Too expensive to implement and maintain
- Data gets outdated very fast due to lack of a data repository
- Too difficult to run the S&OP application more frequently (due to poor design)
- Difficult to do what-if analysis without a robust data repository
- Inadequate reporting capabilities due to lack of a user friendly data repository
What I have discussed in Part 1 and 2 posts are the basics of what is needed to establish a sustainable S&OP process. What I did not discuss is the time and resources required to execute the process or the guidelines and estimated costs of creating a technology-driven S&OP process.
A study must be conducted to gather data for establishing reasonable goals, to put a value of the process benefits, and to set company expectations. While costs and resources are extremely important in making the decision to move forward with a more formalized S&OP process, in my opinion clearly understanding and gaining agreement on the benefits and goals to be pursued is the first step in the evaluation process.
A number of business challenges are driving more and more companies to formally embrace Sales and Operations Planning (S&OP). While the benefits are usually obvious, the challenges of implementing a formalized S&OP process are sometimes hidden and can be enough to sabotage a project if discovered after the process has begun.
In this two-part series, we will look at the various elements of the S&OP process and the considerations that should be taken into account while designing the process. This post will review the front end of the process and what drives it, along with the technologies needed to support and sustain the S&OP process. View Article…
Companies use flash reports to see how the business is doing on a daily basis and to communicate key performance indicators (KPI’s) and progress against business objectives on a recurring basis to all levels of the business. The reports are intended to fill the gaps between more detailed monthly or quarterly business reports and provide management with a sense of how the business is performing and what the period-end may look like so corrective action can be taken beforehand if needed. View Article…
Marketing professionals are finding more and more creative ways to use trade funds and promotions to increase product turnover and overall sales. However, no matter how creative the promotion, when the program is complete, marketers often aren’t able to accurately analyze how promotional funds were spent and whether those investments generated a return. That makes it nearly impossible to determine whether trade funds and promotions are effective.
Having intelligence to support and validate trade fund and promotional decisions is essential to sustaining the success of any marketing program. View Article…
Estimating the Return-On-Investment (ROI) for a new demand planning system can be difficult and requires an appreciation of the downstream impacts of more accurate forecasts.
An improved forecasting and planning system involves new software and highly specific consulting services to produce the desired results. Depending upon the level of sophistication, projects can range from $40K to $80K for software and consulting services. View Article…
The volume and complexity of sales information that resides in CRM, ERP and other business systems is increasing with greater velocity to become one of the most valuable productivity assets of an organization. The challenge is turning that data into actionable intelligence. View Article…
From a manufacturer’s perspective, the effectiveness of relationships with suppliers usually nets out to be a function of price, availability and dependability (quality times on-time delivery). From a supplier’s perspective, the effectiveness of relationships with manufacturers comes down to profit, volume and consistency (order patterns).
More and more, information plays a key role in optimizing these elements not only for the manufacturer, but for the supplier as well. View Article…
In a recent study of more than 400 IT organizations using Enterprise Performance Management (EPM) solutions, 26% of large companies have implemented dashboards and scorecards over the last several years, with another 13% implementing them currently underway. Mid-size companies are following suit, with 15% currently implementing dashboards and scorecards, and another 34% of mid-sized companies in the process of evaluating them.
The ability to visualize data is a critical concern for many of those looking to invest in business intelligence software. View Article…
Employee absence is expensive. It’s an area that’s not often tracked; and even when it is, it doesn’t easily reveal its full costs or impact on business performance. Temporary workers and overtime charges raise costs – even as much as double the amount of wages. And heavier workloads for workers on the job can disrupt daily routines and increase employee stress.
Making matters worse is the fact that so many companies lack the visibility they need to assess the impact of absenteeism on costs and organizational performance. View Article…
How dashboards can help you gain greater visibility into corporate performance
Never before has there been more data available to senior executives regarding the performance of their enterprises. Pervasive computing and “big data” has made it easy to log and track even the most mundane details in the most obscure department. Yet therein lies another problem. There is so much data that many aren’t sure what to do with it or don’t exactly understand how to pull key metrics from the data in order to bring clarity to their business strategies and more visibility and transparency to their corporate performance.
That’s where executive dashboards come in.