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Recent research has shown a mere 10 percent of organisations claim to have ‘excellent or world class’ sales and operations planning (S&OP). It reveals the substantial divide between those organisations striving for business excellence and those that aren’t. A paradigm shift in both planning processes and culture is key to bridging the performance gap, says Oliver Wight partner, Andy Walker.
Preoccupied with firefighting the issues of today rather than planning for the challenges of tomorrow, many organisations remain trapped in a perpetually reactive cycle.
It is well established that pursuing a path to business excellence through consistent and quality forward planning is likely to yield sustainable improvements in performance: revenue growth, efficiency, customer service and inventory levels in the supply chain. Surprising then, that, according to the recent CSCO Insights ‘Benchmark Study of S&OP/IBP’, a fifth of organisations surveyed still have no recognisable S&OP process in place. Why? Well 44 percent simply “don’t get the benefits”.
Here we meet a cultural crossroads: those organisations that choose not to pursue a journey of business excellence and follow instead a very different route characterised by blind corners and constant uncertainty, and those, on the other hand, which choose the right path. But whilst the former may forever be lost to chaos, what of the others? Are they reaping the true benefits of S&OP?
Apparently not, as nearly 50 percent rate their S&OP performance as no better than adequate. So why the struggle?
The research confirms what common sense and experience already tells us; the two most common causes of S&OP failure are: 1) A lack of buy-in at the top (only 25 percent of organisations have full commitment from the senior executive) and 2) Using the process just for basic demand and supply balancing (64.2 percent).
S&OP or, more accurately its more able successor, Integrated Business Planning (IBP), has to be embedded into the organisation to be truly effective – and it shouldn’t just be endorsed by the senior executive but adopted by the leadership team as the new way the company does business. Unlike S&OP, IBP brings with it a truly strategic perspective and integration is what distinguishes it from its predecessor. By operating from the core, it links the current plan to the business strategy, providing visibility of performance against the plan over a 24 to 36 month horizon. Its purpose is not to merely balance supply and demand but to provide the means for effective and timely decision-making. Properly implemented IBP typically increases productivity by 30-45 per cent and sales revenue by 10-15 per cent.
It is the link to business strategy that defines IBP and here the research is revealing – only 16.7 percent believe their S&OP process is strategically forward-thinking. It is crucial to identify key goals and objectives and then align the entire organisation behind these priorities, in order to drive performance. IBP delivers this. Monthly review meetings for the core processes of product, demand and supply, assess current performance against the plan and identify any looming gaps (over the 24 month horizon).
A consensus view is created via an integrated reconciliation review process for presentation to the senior executive using IBP’s scenario planning capabilities (apparently lacking to any effective level in all but nine percent of cases, according to the research) to enable effective and timely decision-making.
Analysing how key variables can affect your performance is patently a vital facet of planning ahead, but while many organisations are engaged in an increasingly complex global supply chain, juggling variables from unstable fuel prices to the increasing cost of offshore manufacturing, a striking 45 percent say their current scenario planning capabilities are poor.
In gathering this monthly view of performance, there are two significant characteristics of IBP missing from traditional S&OP: The integration of product portfolio management and connected financials: Product portfolio management is a critical element of the review process and fundamental to understanding which product ranges or key initiatives will have a direct impact on the business. For example, rapid technological advancements in a global marketplace hold the power to render products obsolete faster than ever before, so keeping a close eye on lifecycles is crucial.
At the same time, establishing a single set of numbers using fresh and accurate data is key to the entire IBP process but linking the volume forecast to revenue allows the true financial picture to be constantly measured and monitored, even to the point of rendering the annual budgeting process redundant, saving huge amounts of energy, time and grief all round. Failing to assess the real financial implications of meeting customer demand threatens to derail a path to business excellence, but this capability is present in a depressingly low 18 percent of organisations.
When all is said and done, optimising processes is rendered meaningless without an action-orientated approach to deal with what the new information reveals. According to the research only 13 percent of organisations claim to have an “actionable culture flowing from the results of S&OP planning”.
It may be that a paradigm shift in behaviour is required, rather than this being any fault of the S&OP process itself, however. The real power of IBP is in enabling decision-making, and the most difficult decisions are those relating to future issues (where the circumstances may well be uncertain).
Nonetheless, decisions made today will have a defining effect on the business in one, two or five years’ time. Deferring or avoiding these decisions can prove fatal. The key lies in establishing a culture so the IBP process creates the same practical and emotional response for the decision-maker when reviewing future planned performance, as it does when they are faced with the reality of performance today. It then becomes clear they have to act immediately to recover the situation and avoid future disaster.
On Wednesday, 6th November 2013, Oliver Wight’s expert speakers will share their insights on how Integrated Business Planning (IBP) can enable strategy execution excellence.
Key lessons include how to:
- cost-effectively align all elements of strategic and tactical plans
- Influence executive decisions quicker, easier and more effectively
- understand powerful steps to help your long-term planning issues
- Plan and manage the entire organisation in rapid time using IBP
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