The Need Driving S&OP Software

The concept of S&OP was born as a manufacturing and supply chain process that focused only on balancing supply with demand. It has evolved since then, as companies have begun to see how it can help them address the complexities of globalization and the uncertainties created by changing customer orders, supply disruptions, product revisions, and new sales opportunities. Customer demand for quicker response, the ever-increasing variety of products on the market, and a need to deliver the hottest new items faster and faster all add to the allure of improving sales and operations planning processes.

Having a flexible method for allocating resources in today's constantly changing external environment is crucial, yet many executives find that their BPM processes and systems do not adequately support comprehensive operational planning. One common stopgap is to augment BPM systems with spreadsheets. But spreadsheets are notoriously problematic; because they are disconnected from the underlying data, users make assumptions based on data that may be out of date.

Moreover, a spreadsheet cannot provide a comprehensive view of the business-impact trade-offs of a supply decision on the company's procurement, manufacturing, operations, sales and marketing, and finance functions. When a company uses spreadsheets for sales and operations planning, individual departments base plans on their own set of business assumptions and their own market perspective. Sales may develop its revenue forecast based on the current pipeline, while finance creates an operating plan based on current-year budgets, marketing creates product forecasts based on its demand-shaping activities, and manufacturing plans based on its supply outlook. Additionally, each group will frame its forecast differently: Sales revenue forecasts will break down by region and customer, the marketing team will forecast in unit sales by product line, financial forecasts will be measured in currency by internal organizational unit, and manufacturing forecasts will be delineated in units by SKU and part number. It will hardly be surprising, then, when corporate executives have trouble reconciling these different plans, assumptions, and perspectives to produce a single plan for the organization.

In such a situation, the planning processes, metrics, and reporting for individual departments will likely not link clearly and consistently to an overall organizational strategy and set of objectives. In fact, different functional groups may turn out to have incompatible goals, which creates conflict that strains relationships and hampers the company's ability to meet customer expectations. The results are operational ineffectiveness and a high incidence of problems such as mistrust of other departments' plans; unmanaged plan changes (i.e., a lack of transparency about who made what changes, when); flawed communication; and a lack of consensus across functions about how to respond to problems.

This scenario is all too common among businesses that give spreadsheets an integral role in their planning processes. In contrast, recent benchmark research by Ventana Research indicates that high-performing companies are re-examining the important role of integrated business planning in achieving better performance. In particular, they are focusing on sales and operations planning to ensure that their financial plans are built on a solid foundation.