That’s how often Sales & Operations Planning initiatives fail. At least, that was the number thrown out by execs at the LogiPharma Supply Chain conference in Philadelphia last month. Yikes. The consensus among them about integrated Sales & Operations Planning (S&OP) seemed to be “Why try? It’s not possible, and frankly, it just doesn’t work for my company.”
It wasn’t the right moment, but I wish I could’ve grabbed the mic and challenged that notion then and there. Because I know better. In my experience as a chief operating and supply chain officer and most recently as a consultant, I’ve seen S&OP success – and plenty of it! Even the most complex organizations can realize the value of sound S&OP. It may not be easy, but it is possible.
It’s also important. Done correctly, S&OP is the critical link to align go-to-market strategy with business operations. To drive meaningful business results and leverage S&OP as a decision-making process instead of a reporting tool, businesses need to plan and execute for success. The companies that get this right aren’t the beneficiaries of a happy accident. They accomplish this feat entirely by design, avoiding the top 5 obstacles to success:
- Confusion between budgeting and forecasting. The best way to understand the difference between S&OP and budgeting is to think of your business as a football game. Before the game, coaches get together and develop a game plan with various defensive and offensive schemes. Let’s call that plan “the budget.” When the game kicks off and as it progresses, we face events we didn’t plan for – turnovers, injuries, and trick plays. In response to these unplanned events, coaches must adapt and adjust if they hope to pull out a victory. Business is no different. At the beginning of the fiscal year, company leadership teams develop what they believe to be the winning budget. When things do not go exactly as planned, course corrections, adjustments and trade-offs are essential. The value of S&OP is that it facilitates modifications to the plan at regular intervals based on real-life events.
- Silos and misaligned performance metrics. Supply chain execs often come to us in frustration that their organizations are incessantly tugged toward functional silos. They point to change efforts, transformation efforts and organizational shifts, but typically the core issue is that their company is still measuring and rewarding behaviors at the functional level. Sales gets rewarded to sell, purchasing gets rewarded for lowering prices, manufacturing gets rewarded for cost per unit, and so on. The business isn’t functioning as a team. If we want to change the process and get different results, we must change the way we define success. This means redesigning performance metrics to go beyond functions and measure success based on the results of the entire cross-functional process. At the end of the game, individual performance metrics are important, but no player stat trumps the final score.
- Planning without execution. What good is a play if you don’t run it? Too often, we see organizations focusing solely on the planning side of S&OP, spending all their time reporting on which elements did not go as expected. In order to drive business results, we must move beyond planning and into action. After kickoff, we need to shift focus to the leading activities that will drive the results we need, day in and day out, across the entire supply chain – including sales, finance and operations. That means selecting the correct leading metrics from the start and continually making real-time adjustments to positively impact future results, rather than waiting for the month-end review of everything that went wrong. In short, the best teams know when to call an audible.
- Failure to make decisions and address conflict. Too much time in S&OP meetings gets dedicated to what happened in the past. Certainly, it’s worthwhile to learn from previous performance, but the primary focus must be forward-looking and result in actionable decisions. Do we need to change our lineup? Or should we stay the pre-determined course? It’s important to acknowledge and accept that the supply chain is one of the most complex business processes in every company. There will always be pressure to reduce costs and lower inventory while simultaneously meeting or improving customer delivery. Embrace it, recognize it and lead through it. A good S&OP process can help highlight the compromises necessary to achieve ultimate success. When conflicts come up, trade-offs are required and decisions must be made – even when they’re hard!
- Lack of executive sponsorship. Lack of engagement from the top can be lethal. Without executive ownership of the process, each team will revert to operating in silos. Leadership needs to build a coalition between sales and operations to manage the conflict between these functions, set clear objectives, and be accountable for the performance of the entire process. Best-performing companies have full support and active involvement from top executives. They talk about “why” and “who” but more importantly, they define success across the entire process – aligning each function’s goals to achievement of S&OP success. As Vince Lombardi put it, “The achievements of an organization are the results of the combined effort of each individual.”
Effective sales and operations planning can deliver increased transparency between sales and operations, improved inventory management, informed decision-making and ultimately a better customer experience. Wouldn’t it be nice to join the all-too-short list of S&OP victors? Now you know this is a game you can win.
To learn more about how Navigate can help you win at S&OP, reach out. We’re here to help.