Sales & Operations Planning (S&OP) is a multi-disciplinary process in which the various business disciplines work together in attempting to balance forecast demand levels and manufacturing volumes. In view of a shift in focus from unequivocal operational excellence to integral business optimisation, it is becoming increasingly diffi cult for the supply chain manager – who is traditionally responsible for S&OP – to align these two aspects. How are various companies approaching this in the Netherlands? And which factors are holding them back in the growth
process? By Caroline Jooren
A discussion of the maturity of S&OP and forecasting
Managing supply and demand volatility I
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n the 2011 Supply Chain Officer Report, 80 percent of the respondents rated ‘Demand Management’ as being very important in maintaining customer satis- faction. An effective S&OP process is cru- cial to companies being able to optimally forecast, and even regulate, product sales levels. But during our round table discus- sion of S&OP and forecasting, held on 5th October 2011 in Bussum, The Neth- erlands, it emerged that the way in which S&OP is implemented, and its stage of maturity, varies from one company – and even from one division – to another. This session, jointly organised by Supply Chain Magazine and SAS, brought together 12 supply chain professionals to discuss the current status of S&OP and forecasting, and the key challenges they face.
Shift from supply-to demand-driven
Charlie Chase, the chair of the session and author of the book Demand-Driven
Forecasting, reflects on the rise of S&OP. “The supply chain has changed radically in the past 25 years. Back when demand was relatively stable, it made sense to focus on operational excellence. As a result, companies came to associate the term ‘lean’ with supply chain manage- ment. However, the economic crisis and events such as the Icelandic ash cloud and the tsunami in Japan have demonstrated that operational excellence can quickly turn into inflexibility – with all the asso- ciated costs. Companies should instead be focusing on customer excellence, and designing and developing a demand- driven supply chain. Since it usually costs more to underutilise manufacturing capacity than it does to hold surplus stock, it is necessary to collaborate internally on proactive S&OP and ‘demand shaping’. It definitely pays off to work on a demand- driven approach, especially since past trends provide an insufficient basis on
which we can predict the future.” S&OP is the process in which the critical business disciplines make the key tactical decisions jointly so that these remain in line with the strategic plan – based on as accurate a forecast of the demand as pos- sible. According to Chase, this addresses three objectives: “Picking up demand signals more quickly, adapting the sup- ply chain to fluctuations in demand more rapidly, and synchronising demand and supply by using levers such as pricing and promotion or by bundling products and services – the latter with less stock, waste and working capital and higher customer service levels.” He states that the optimal S&OP equation contains the following components: sales, marketing and opera- tions/finance. If all three components are in balance, the company has achieved market-driven status, and demand and supply are optimally aligned to achieve the company’s strategic objectives. All the