What should the Sales and Operational Planning process deliver?

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The “Sales and Operational Planning” process (or S&OP for short) is a business tool used to develop a set of plans (which includes sales, production, inventory and financial plans) which provide a timed plan of what products to produce, in which quantity and for which customer. An effective S&OP process facilitates competitiveness and provides clear demand signals to its supply chain.

All business will have slightly different review period requirements (for example FMCG and small volume suppliers will have different needs) but most business will review their S&OP on a monthly basis and appraise a 12, 18 or 24 month planning horizon.

S&OP is a decision making tool, its outputs (in particular production plans and inventory plans) commit costs (resources, materials etc) and determine outputs. A best practice S&OP business process will engage both functional and senior management in plan development (Senior management must be involved in the sign off of the resultant plans). This is especially true given that the the resulting plans directly correlate to businesses financial planning (e.g. budgets).

Most businesses will deploy performance measures along side their S&OP to measure its effectiveness – many organizations choose to include measures that help the organization determine (and improve) the accuracy of their plans – KPI’s that assist with this typically include:
• Delivery Schedule Adherence to customer
• Production Plan stability
• Demand Forecast accuracy
• Accuracy to budget
Many organizations try to move beyond the traditional S&OP plans by incorporating more advanced techniques such as scenario planning or modeling (what happens if my customer demand increases by 10%). Closer ties with financial controls are often a key objective. Many businesses also seize upon the unique structure of S&OP and utilize it as a tool that improves organizational communications.
Problems with S&OP
Like all processes S&OP is not without its issues – the more typical challenges that accompany S&OP are:
• Poor quality data used for planning
• Organizational politics and silo departments
• Clear understanding of roles and responsibilities
• Ensuring compliance with the resultant plan

This last issue is perhaps key – what do businesses do when their plan is challenged by the customer. S&OP works best with stability (when everyone knows what the need to do over the medium term). Consistently fluctuating priorities can kill even an excellently constructed S&OP.

Summary

S&OP processes are an integral part of many manufacturing organizations. The process provides a unique, cross functional tool that provides the business with a strategy (what to build, in what quantity, within what time period, for which customer). The by-product of a successful S&OP can be an efficient supply chain, a well directed work force and high levels of customer satisfaction (providing the plan is adhered to!).

While there is no specific rule of what S&OP process have to include businesses should ask themselves if their process is delivering the expected benefit? And if not what action plan could be put in place to recover the situation.

Applying the six forces model can improve market understanding

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Assessing the market, during strategy development, is often a key task but one that can be complex due to the myriad of influencing factors and participants. Utilizing modeling techniques that can provide insight into market competitiveness and the relationship of its various players and stakeholders can offer vital insight when decision-making.

The Six forces model supports a thorough analysis of the strategic position inside the market, delivering an understanding of the completion and potential profitability. When utilized as a strategic tool, utilized up front without committing resources and strategy deployment it can offer valuable insight into complex highly competitive markets. The results can often facilitate a move to less competitive markets that might offer greater profitability and success.

The model does have its weaknesses, the original five forces model received criticism for various reasons significantly that factors within the market, such as competitors and buyers do not join together. In adapting the five forces model the result builds on its parent through analyzing the markets complimentary aspects.

Unsurprisingly the model should be utilized as part of a broader strategic planning procedure and as such be regularly assessed (at least once a year) due to changing factors and stakeholder that can influence the market.

The model analyses six key attributes:

• Competition- How much competition is present within the market? Which stakeholders are key players and hold dominant positions?
• New entrants- How easy is it to join the market whilst being competitive?
• Buyer- Can buyers influence pricing? Can buyers operate as a group? Do they hold greatly dominant positions over suppliers within the market?
• Suppliers- consider the status of the seller network? Are there huge numbers of suppliers? Are there a few dominant ones or an even smaller number operating monopolistically?
• Substitutes- duplication/substitution can be a key issue in highly competitive markets – what is the position of the product/commodity and how easily is it to bring about a change.
• Complemetors- Products or services that are complimentary can sometimes influence the market.

Whilst its often used in developing business strategy, the six forces model can be utilized as a planning tool facilitating a detailed assessment of the market. Importantly, it can be used very effectively in developing sourcing strategies as it provides key insight into factors that influence suppliers and their pricing.

The model can be utilized either as a direct alternative too or in conjunction with the more commonly known SWOT analysis tool. The six forces model has some distinct advantages over its compatriot SWOT tool: specifically it is a little more detailed in the area of analysis pin-pointing the key factors driving the market rather than just reviewing external opportunities and threats.

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