Is S&OP Still Important?
Brian Hoey - September 24, 2020
Every couple of years at least, someone asks the question: is S&OP dead? Usually, those questions are brought up because of some perceived bigger and better planning process that will render S&OP obsolete, or because new reports are showing the many businesses struggle to implement S&OP successfully. Lately, these sorts of articles and think pieces have been specifically spurred by the coronavirus crisis, considering what the implications of the global disruption are for planners going forward.
Reports of S&OP’s death have been greatly exaggerated—and yet, it’s not unreasonable to wonder about the state of demand planning in an era where demand is more volatile than ever and existing supply streams are no longer reliable. Should planners look at these new circumstances as a reason to ditch their S&OP process for something that’s more modern? Or should they take this as an opportunity to better integrate S&OP into their larger corporate planning structures? What techniques should planners be using to make informed predictions in these tumultuous times?
S&OP vs. IBP
For S&OP skeptics, the most commonly cited alternative is IBP, or integrated business planning. On paper, the two processes aren’t really that far apart. S&OP seeks to better match supply to demand on a quarterly or annual basis by collaborating across touchpoints to estimate emerging demand across your portfolio and then ensure you have the capacity to meet that demand. To make this happen, you need to gather high-quality data from touchpoints up and down the chain, share it with planners who can analyze it carefully, and work to turn those analyses into a comprehensive demand plan that can be referred to throughout your operation. IBP seeks to do something similar, but it also integrates financial planning and budgeting into the overall workflow—in order to make the process even more comprehensive—and it usually covers a longer timeline.
From our perspective, the two processes aren’t dissimilar. And, in fact, some proponents of IBP include S&OP as part of the larger IBP process. In this way, it’s easy to see the continued importance of S&OP as a standalone function even in cases where larger, more overarching business processes might take precedence. Far from being an either/or, both of these processes represent a response to the same need for integration up and down the planning chain. More than that, the two processes rely on similar principles: they both require transparency and cross-functional collaboration, which means having the right supply chain tools and solutions in place.
Why Planners Still Need S&OP
If you’re in a position where your sales and operations planning isn’t yielding the desired value, it’s possible that what you need is a more integrated process like the one that IBP offers. It’s more likely, however, the same factors that led to failure of one form of demand management would lead to a similar failure if you replaced it with a different form of demand management. S&OP processes tend to fail because of poor integration, data and planning silos, incorrect tool and solution implementation, or a lack of buy-in throughout the organization. These failures, in turn, make it difficult to reduce your capital commitments and avoid costly shortages and outages. But if you can’t resolve those issues and overcome those challenges to make your S&OP function more effectively, why would you expect to be able to overcome the same challenges when it came to an IBP process? In all likelihood, the same factors that held you back in the first place would continue to plague your planning efforts.
Thus, the simple answer to the question of why planners still need S&OP is this: as supply chains get more volatile, planners need cross-functional, collaborative approaches to estimating demand and securing the capacity to meet that demand. It doesn't really matter what you call this process, but it needs to be there, and it needs to be technology-driven. In this way, you can break out of the cycle of using nothing but past orders to estimate future capacity needs. You can take a holistic view of your value chain in order to create alignment between your corporate goals, your capital commitments, and your month-to-month supply chain activity. And, what’s more, you can do so in a highly-visible, connected, and transparent way. In turn, this transparency makes it possible to respond to unexpected events more quickly and more efficaciously than ever before.
How S&OP Is Evolving
Just because we’re arguing that S&OP isn’t dead, that doesn’t mean we see it as a stagnant process. On the contrary, as the supply chain evolves—and supply chain technology along with it—S&OP needs to do the same. In a world that’s still struggling to deal with the COVID-19 crisis, this means that securing freight capacity, for instance, is more difficult and higher stakes than ever—meaning that effective capacity planning will account for shifting freight prices and parameters and provide a heuristic for securing necessary capacity before orders even materialize. This might require the introduction of something like transportation forecasting technology into your existing TMS, which would then have to be integrated into your larger IT environment.
Another way that S&OP might adapt is with the introduction of shorter-term, more limited supply chain execution workflows into larger operational planning structures. This might take the form of S&OE (sales and operations execution) processes that adjust inventory levels and transport plans on a daily or weekly basis, while also providing an up-to-the-minute demand snapshot for the rest of the organization. Something like this can be a crucial way to bridge the gap between longer-term plans and daily operations—s especially in more volatile supply chain situations. With a system like this in place, you can adapt to whatever the newest source of disruption is in a given week, whether that's a supplier going out of business or a demand in a certain region failing to materialize. Thus, you can prevent losses and even reduce costs along the way. As with larger S&OP workflows, the trick here is to make sure you have the right IT and planning solutions in place to empower rapid replanning in a highly visible environment.