Characteristics of Stage 1 “React” and Stage 2 “Anticipate”
Stage 1, the React Stage, is where a company lacks shared S&OP goals and planning takes place with an informal process and strategy. Companies usually have no formal S&OP or Supply Chain Planning (SCP) organization, and little in the way of formal, standard metrics. Demand forecasting is driven by sales with little consideration of available capacity. If capacity planning takes place, it is conducted on an ad-hoc basis on-site at each facility. Spreadsheets rule the day and ERP systems provide the planning foundation. These companies are reactionary and focused on developing a unit-based operation plan.
Stage two companies have established an S&OP process usually owned by the supply chain organization. This process is focused on developing a multi-month, unit-based, supply-centric plan. Demand forecasting is based on a combination of historical sales and field input. Capacity planning is more prevalent on a site-by-site basis and is starting to be used to develop a capacitated S&OP plan.
The yearly financial plan and monthly S&OP plans are developed independently of each other and are only aligned on an infrequent basis. A Supply Chain Planning (SCP) System of Record (SOR) for demand, inventory and replenishment planning is established but there is still a heavy reliance upon spreadsheets for analysis, reporting and decision making. The S&OP process is still reactive though there is a growing awareness for proactive, scenario planning capabilities.
A major challenge for stage one and two companies is misaligned supply and demand which creates repeated stock-outs and excess or obsolete inventory. Another major challenge is the amount of time required to manipulate data.
Without a robust data management strategy, teams spend countless hours extracting, cleaning and aligning data across the organization instead of analysis and planning to avoid problems and mitigate risks. Challenges also arise due to the lack of cross-functional participation and buy-in from commercial and financial leaders.
Recommended Actions to move from Stages 1 & 2 to Stage 3 “Integrate”
Assigning a sponsor and owner of the S&OP process is often the first step to climbing the S&OP maturity ladder. Focus should be on anticipation and proactive solutions to demand and supply mismatches through a repeatable planning process. The S&OP process should look out at least three months with a goal to move to an 18 month rolling horizon.
To enable one plan in both volumetric and financial units the commercial and financial organizations should be included. Functional metrics should be established with a vision to measure performance across integrated operations. The initial components of a SCP SOR should be fully implemented to support demand, inventory and supply planning.
A key action to enable a move to stage three maturity is the implementation of the S&OP component of your selected SCP SOR. A dedicated S&OP solution should streamline data management, facilitate the collaborative process, and enable more robust analysis and accelerated decision making.
Even though S&OP has been widely adopted since the 1990s, today most companies still struggle to reach Stage Three “Integrate” maturity. Understanding your company’s S&OP level of maturity is an essential step to determine what should be worked on next.
Part two in this series, “Climbing the Sales & Operations Maturity Ladder - Turning the Corner,” will publish in September and explore the characteristics of a Stage Three “Integrate” S&OP process, provide recommendations to reach Stage Four “Collaborate” and provide a checklist of solution capabilities needed to support higher levels of S&OP process maturity.