S&OP. Why is it so Hard?

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The ideas that underpin sales and operations planning (S&OP) are simple and intuitive. Getting the sales and manufacturing teams collaborating with one another, and aligning on a sales and production forecast seems so obvious. So obvious in fact that one may ask why companies need a dedicated process. And while it's true that the underlying concepts are common sense, the implementation of S&OP is very difficult, and many companies are frustrated with the maturity of their S&OP process (Kreuter et al., 2022). The reasons for this discouragement are nuanced and complex, but it boils down to the way each group looks at the business, and how their role supports it success.

For example, the sales teams are focused on customers, and anticipating the sales volumes they will order. Most of their time is spent talking with customers, trying to gain new distribution, protecting existing distribution. and tying all those activities back into a sales forecast. These sales forecasts are developed at a high level, normally at an aggregate product family level and at a monthly or quarterly level. There is enormous pressure on sales teams to meet their sales goals and forecast future demand accurately. In my experience, most salespeople are high level thinkers, optimistic, forward-looking, and externally market focused.

In contrast, the manufacturing teams are focused on vendors and plants, and ensuring that they have a steady supply of raw materials, labor, and plant capacity to produce the forecasted demand for products. A good deal of their time is spent on executing at the lowest cost possible, and overcoming a bevy of operational constraints such as machine failures, labor shortages, and raw material quality issues. Their production plans are very detailed, usually at the SKU, day, and resource level. Moreover, the concept of aggregation is meaningless to a manufacturing group, they need to make a SKU on a particular day, on a particular line, at a particular plant with a finite amount of resources. In my experience, manufacturing folks are judicious, internally focused, detailed oriented, and organized.

So many of the challenges of S&OP are rooted in the divergent mindsets of these two teams. Salespeople put together high level sales forecasts each month, and manufacturing teams try and convert those projections into daily work plans by resource. So sales is constantly trying to pull manufacturing out of the details, and manufacturing is trying to drag sales down into the ground truth details. When it comes to their functions, both teams are right, but when it comes to S&OP, they must find common ground (Ling & Goddard, 1989). This common ground involves agreements on sales forecasts (committed vs. uncommitted sales), planning levels (SKU vs. product family), reporting levels (day vs. month), and gross margins (promoted vs. base consumption). These are all points of conflict within the S&OP team, differences that powerful players can use to slow down the maturity and effectiveness of the process.

So while I agree that S&OP is very difficult to implement, I believe the effort is well worth it. The communicative value alone of getting a group of talented people all working together on a shared goal is significant (Goh & Eldridge, 2019). However, team chemistry is incredibly important, and CxO support is paramount. But if teams recognize the divergent mindsets up front, leave some ego at the door, and agree on a common playing field while participating in the S&OP process, then there is light at the end of the tunnel. Finally, while I can't help you with S&OP team chemistry dynamics, I can help your organization with the data, reporting, and analytics necessary to support the S&OP process. Send me a note to discuss.

JimSwallow@AnalyzeBrand.com

References:

Goh, S., & Eldridge, S. (2019). Sales and Operations Planning: The effect of coordination mechanisms on supply chain performance. International Journal of Production Economics, 214, 80-94. https://doi.org/10.1016/j.ijpe.2019.03.027

Kreuter, T., Scavarda, L., Thomé, A., Hellingrath, B., & Seeling, M. (2022). Empirical and theoretical perspectives in sales and operations planning. Review of Managerial Science, 1(1), 1-36. https://doi.org/10.1007/s11846-021-00455-y

Ling, D., & Goddard, W. (1989). Orchestrating success. Improve the control of the business with sales and operations planning. Richard Wiley Publishing.

Wallace, T., & Stahl, B. (2004). Sales and operations planning: The how-to handbook. TF Wallace & Co.