January 2022 | Commentary | The Lean Supply Chain

S&OP: Bringing the Outside In

Tags: Demand Planning, Risk Management, Finance

Sales and Operations Planning (S&OP) is an integrated business management process through which the leadership team continually achieves focus, alignment and synchronization among all functions. This ensures that supply meets demand while the organization meets general business objectives, including profitability, productivity, competitive customer lead times, and others.

Paul A. Myerson, Instructor, Management and Decision Sciences, Monmouth University and author of books on Lean and the Supply Chain for McGraw-Hill, Pearson, and Productivity Press, 732-441-3879

The goal of S&OP is to understand how a company achieved its current performance, and to direct its focus on future actions and anticipated results.

Because the time horizon of an S&OP process may span anywhere from one to six-plus months, it is critical to also include an element of risk management on a regular basis, especially in today's volatile external environment.

Risk management—risk identification, assessment, treatment, and monitoring—through S&OP is just as important as financial alignment. Risk management permeates all functions and levels of an organization and might even extend to suppliers and/or customers. So, it should naturally be part of Sales & Operations Planning.

From Inside Out to Outside In

Historically, companies used an "inside-out" approach in S&OP, guided by the belief that an organization's inner strengths and capabilities will produce a sustainable future to meet anticipated demand. This approach looks primarily at internal supply elements and then works outward.

To achieve success in today's volatile global environment, however, companies need a more "outside-in" approach that uses information from the extended supply chain to maximize customer value and overall supply chain surplus. This approach includes not only collaboration with key customers and suppliers but also demand sensing, shaping, and enterprise tradeoffs, including risk/reward analyses.

Besides matching demand with supply while meeting financial and operations goals, best practice and mature S&OP processes uncover risks and opportunities that lead to scenario planning and help the organization prepare for a range of future circumstances.

Here are some steps to consider to help develop scenario planning capabilities in your Sales &Operations Planning process:

  • Identify risks and opportunities that might impact the demand or supply plan by validating key assumptions as well as a range of internal and external supply chain drivers.
  • Develop a culture of identifying risks and opportunities. Challenge the plan by engaging finance teams while using a common language—for example, develop a strong link between S&OP and financial planning.
  • Use risks and opportunities to drive decision-making by moving them through the S&OP process using an agreed-on way of handing over information to the following step.
  • The final executive S&OP step requires teams to think about sharing not only the risk or opportunity but also the impact, possible actions, and expected results.

Integrating Risk Management

Risk management can no longer be considered a purely long-term, strategic tool. It must now be integrated with more tactical tools such as S&OP to ensure your organization's future success.






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