The Importance Of S&OP Transformation In Today's Business Environment

Today's business environment is changing rapidly, driven by consumer preferences, customer and market channel structure changes and evolving supply chain challenges.
Worldwide Corporate/Commercial Law
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Today's business environment is changing rapidly, driven by consumer preferences, customer and market channel structure changes and evolving supply chain challenges. As these changes evolve, an organization's ability to respond swiftly, integrated and holistically will stand out in an ever-growing competitive marketplace.

Sales and operations planning (S&OP) is vital for projecting, balancing and managing supply and demand integration. A critical function of an effective S&OP process is to integrate external and internal changes that may impact the supply and demand of resources, products and services and make the right business decision as quickly as possible. While internal processes can be "sandboxed" and controlled, external factors often create variabilities and uncertainties in the system. Here are some examples of external factors in today's businesses:

  • Ever-changing consumer demands: Consumers' expectations are increasing demand variety (e.g., flavors, packaging types, sizes, etc.). The speed of these changes is ever-increasing (e.g., fast fashion) and the ability to capture the demand signals early and respond is critical to businesses.

  • Channels expansion to meet business growth: As trade channels deepen from modern and organized trade into traditional and unorganized trade, or expand into omnichannel (e.g., online, online-to-offline, etc.), companies must re-evaluate their capabilities to plan and serve these different channels' unique requirements. Columbus research1 found that the percentage of consumers making over 75 per cent of purchases online more than doubled to 48 per cent post-lockdown, indicating a permanent shift in purchasing channels is a necessity for companies.

  • Increased competition: With increasing market competition such as homegrown, private labels, companies must respond with speed when it comes to introducing product innovation and new product speed to market (e.g., new product introduction, reconfiguration of the current portfolio, etc.).

  • Prevalent external shocks: Over the past couple of years, unplanned and significant geopolitical events and supply disruptions have created shocks to the supply chain. A study2 conducted by Gartner showed that 75 percent of organizations report that the number of regional and global high-impact disruptions is higher than five years back. Companies now need to develop capabilities to react with speed and agility when these incidents happen.

Therefore, there is a compelling need for any organization to have an S&OP process that is robust and integrated, while being flexible, to enable the organization and the management team to have the right information and analytics to make smarter and quicker holistic decisions.

Five Pillars of the S&OP Process

  1. Robust

    Each process within the S&OP cycle must be set up in a robust manner, including business and process owners identified, and an agenda clearly identified with key analytics to support the discussion. It should also provide the decisions required and outcomes to be expected from the process.

  2. Integrated

    Each step of the S&OP cycle must be closely integrated from one to the next. It's important that the information (e.g., questions, recommendations, decisions) flows clearly between each step (i.e., to the next business function) so that a proper assessment and final recommendation to the executive decision-makers can be provided.

  3. Flexible

    The S&OP must also be flexible should an external shock require a quick review of the situation and cause decisions to be adjusted swiftly.

  4. Data-driven

    Over the last 10 years, the amount of data generated has increased by 13x3 (approximately nine zettabytes in 2013 vs. approximately 120 zettabytes in 2023); an effective S&OP must be able to ingest information effectively (e.g., depth, real-time, etc.) and provide recommendations for rapid decision making. The right technology enabler must be considered. Studies have shown that while the generation of data has increased, an average company only analyzes 37-40 per cent4 of its data, leaving immense potential on the table.

  5. Holistic

    Executives depend on information to make good decisions, and a holistic S&OP need can provide a balanced view by ensuring clear market insights, decisions and trade-offs, risks and opportunities and a clear financial outlook (with potential sensitivities) is available to make the assessment on recommendations.

In our experiences, there are clear differences between companies with a strong S&OP process vs. a weak S&OP process. A study conducted by The Hackett Group showed that while approximately 70 per cent have adopted a formal S&OP process only approximately 25 per cent have implemented a full and consistent approach (strong S&OP process) across the entire organization. Failure to address S&OP gaps can have a direct impact on a company's revenue, working capital, margins and market share.

  •  Customer Service 
    • Late shipments
    • Declining customer satisfaction
    • "Surprise" customer orders
    • Stockouts
  • New product launch issues
Working Capital
  •  Inventory
    • Not having the right inventory to satisfy customer orders
    • Excess inventory
    • Obsolete inventory
  • Increase operating cost
    • Higher overtime
    • Increased expediting fees
    • Capacity mismanagement and constraints
  • Supplier issues
    • Higher costs
    • Material requirements volatility
Market Share
  • Market competitiveness
    • Lost sales
    • Lost shelf space
    • Delisting

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1. Source : Columbus Global, 2020

2. Source : Gartner, 2023

3. Source : Statista, 2022

4. Source : Statista, 2022

Originally published 13 May 2024

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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