Blog-hero.jpg

The Innovator's Solution

     

Gartner says “Add S&OP to your Financial Planning”. Here’s Why.

Posted by Jeff Bodenstab on Jun 27, 2017 11:00:00 AM

Gartner Study - S&OP Improves Corporate Performance.jpg

“Based on our research, every organization which aligns top-down financial plans with bottom-up demand plans, as part of their S&OP, sees an improvement in the accuracy and predictability of their financial forecast.”   - Matthew Spooner, Research Director at Gartner

In Real Examples of Advanced S&OP and How S&OP Can Be Used to Create Value at Gartner’s recent Supply Chain Executive Conference, Spooner stressed that “no process is more fundamental to predictable financials than sale and operations planning (S&OP, SIOP, or IBP).

And he showed that S&OP delivers real business benefits by enabling execution of the business strategy.  “Advanced S&OP is something that positively impacts your balance sheet and your profit and loss,” Spooner declared. His analysis of 163 companies showed that 4 out of 5 firms can quantify revenue and profitability increases and clearly correlate them to the success of their advanced S&OP process. In addition, 89% of companies reduced costs.

Advanced S&OP Process Success

Business Improvement

Percent Success

Average Improvement

Increased Revenue

79%

5.6%

Reduced Cost

89%

7.5%

Raised Profitability

82%

7.2%

Today there’s more collaboration between the financial and operational sides of the business than ever before. But a disconnect remains—between financial plans shaped around business and accounting processes, and operational plans that need detailed SKU item and location data. Aligning financial planning and S&OP requires trade-offs—between financial goals and constraints, and demand, supply, and inventory—to balance business aims in a go-to-market strategy. Without this alignment, everyone focuses on optimizing using their own functional bias —sales with their sales numbers, manufacturing stressing asset utilization, and supply chain fixated on minimal inventory.

Advanced S&OP supports E2E value trade-offs based on business priorities and risks; trade-offs between supply and demand, service level, margin and cost. Stakeholders must cooperate around a shared model—a common version of the truth—to simulate each input and choose outcomes that match overall business targets. “This is when the business and the functional leaders begin to see the business like the chief executive,” Spooner says.

“S&OP enables my staff to see the business through my glasses.”

- CEO of a global pharmaceutical company

A single, integrated model of the business is the most effective way to enable this collaboration. It effectively ties the S&OP planning process to execution, something Supply Chain Insights CEO Lora Cecere says only 11% of companies feel they nearly always achieve. An integrated model not only supports S&OP—it maps to supply chain execution down to the daily distribution center, ship-to location, and individual item level. Modeling the entire process ensures coherence from top to bottom, so the financial and operational models can be continuously synchronized.

This link between tactical planning and granular execution lets companies compare actual demand to forecast so production can deliver via operational pivots to things like inventory buffers, lead times, and asset utilization. Optimization and algorithms based on that unified view can simulate courses of action, and examine consequences and impacts. These near-term, detailed actions provide “a checkpoint for the supply chain and business leaders to ensure that the reality and plans remain aligned,” Spooner says.

Editor's note: There will be no blog post next week due to the US holiday.


Click below for an Advanced S&OP planning brief:

Sales and Operations Planning: Getting the Job Done Right

 

Topics: Supply and Operations Planning (S&OP)