S&OP Is the Most Impactful Thing You Can Do in Your Business

Noël Thomson is a global supply chain expert and Former NZTE Supply Chain Advisor. He is Co-founder of Synergic Technologies, a supply chain and technology consulting firm that provides supply chain technology solutions to ambitious New Zealand businesses. Noël has 30+ years’ experience in supply chains, manufacturing, and technology, and has helped many businesses implement supply chain planning, including Fonterra global operations.

Here, Noël shares his insights on how sales and operations planning will help you protect your business from risk and identify opportunities to increase your profits.

S&OP planning helps you cope with disruption. For around the last 20 years, things had been ticking along with relatively low major supply chain pressures. Because of the COVID-19 pandemic, supply chain disruptions escalated by 300–400% (Federal Reserve Bank of New York Global Supply Chain Pressure Index, September 2022). The pandemic changed the supply chain industry, particularly logistics.

International Data Corporation’s global data survey on supply chains revealed that:

You need to be able to look beyond your own business and plan for current and future disruptions.

Supply chain resilience involves three key factors:

You want to be able to collaborate with your customers, suppliers, manufacturers, third-party logistics, and more. Companies that achieve good S&OP processes have:

Aberdeen Group researched S&OP effectiveness and found that businesses more mature in S&OP consistently outperform those that don’t do S&OP planning:

Noël Thomson worked with a New Zealand sports company that now has an efficient S&OP process in place. The company initially felt that the long lead time for manufacturing and to source materials was disappointing its customers.

After going through S&OP planning, management realised they actually had a capacity constraint in production. This was the result of a decision made when operations were set up, and it was holding the business back.

S&OP is all about planning, visibility, and looking forward. This business didn’t change its systems. It just implemented some smart insights from the operations manager and analysts in its sales team, and built some tools using Excel.

The company started assessing its unconstrained demand. For the first time, it looked at its potential sales and was shocked at how much it was being held back by capacity. Management decided to invest in capacity increase, grow the company’s offshore manufacturing plant, and S&OP process, and look at its unconstrained demand. This is what they now call demand sensing — having advance notice of what customers will buy and feeding that into their capacity plan.

The goal of S&OP is to balance the demand for more inventory to generate sales, with less inventory to save costs and working capital. Balancing these creates improved profits. An imbalance will see your profits decline.

Good S&OP is achieved through the behaviour of your executive management and team leaders, and their familiarity with S&OP (sometimes called maturity). It’s also about time spent doing S&OP planning, using this framework and process.

When you meet, you make decisions. With S&OP planning, there are four key meetings, plus a product review. Between the meetings are planning and activities to set and review sales targets, and the impact of your discounts and promotional activities. You’ll also identify and analyse slow-moving stock, and other things. At your S&OP meetings you agree, align, and get consensus on decisions in a cross-functional team.

Data provides fact-based foundations for the insights needed in S&OP decision-making. S&OP sets working capital commitments, labour costs, production output, spend on materials, and more. These decisions are risky if they’re made on just opinions, without sound data.

At the executive S&OP meeting, use data to:

Noël Thomson worked with a New Zealand food and beverage company that created new KPIs and a deck of insights to take to its board, whose members are highly active in decision-making. The company’s management meet regularly and board meetings take place every second month. There is now a suite of insights to help management run the company and make decisions.

An advanced Excel tool was built for under $20,000 and provides the platform and systems for planning and decision-making at S&OP meetings.

Invest in what you can afford and what ensures ROI. Build systems that fit your enterprise architecture and that work for you.

There are some really sophisticated tier 1 S&OP systems like SAP, e2open, and D365. However, they can be very expensive.

What you measure depends on your business priorities. When you measure things, you want to be able to roll up to a level of categories, families, and channels, and drill down so you can understand the insight behind what’s being asked.