Anticipate, plan, sustain and prosper with S&OP

Sales and Operations Planning (S&OP) is a continuous process that ensures sustainable profitability. This is high time to roll out S&OP across all public and private firms if we want to survive, sustain and grow, writes Mohammad Mamun Chowdhury

Supply chains today are experiencing more disruptions than ever. From Uncertainty in Stability to Certainty in Instability is the new landscape of "Supply Chain" thought process. According to a study by Accenture, 94 per cent of supply chain executives experienced supply chain disruptions due to the Covid-19 pandemic. And another survey by Gartner found that 61 per cent of supply chain professionals cited demand variability as their biggest challenge. Earlier, we were more than happy to plan for a quarter or six months and execute accordingly. Now the situation is so volatile that no plan can stand for even a week.

To overcome this phenomenon and to sustain the business, Sales and Operations Planning (S&OP) is the right platform to adhere to. The term S&OP was first coined by Richard Ling who used to work for a reputed US firm named Oliver Wight during 1980s. S&OP helps the functional teams to sit together and hammer out a consensus plan for the business. S&OP is an integrated business process used to develop fact-based decisions on what the demand is going to be and how it can be best met with a minimum level of resources.

Business is all about demand generation and demand fulfilment. In a firm there are several functions like: Marketing, Sales, Supply Chain, Production, Finance, Human Resources, etc. Success or failure of such business venture depends on how integrated the functions are. If we observe closely, we will find out that on the demand generation side, a marketing team is the most optimistic function who look to create demand and present a quick growth scenario of business. Being the CEO of the firm, you might be easily convinced by the potential business trend displayed by marketing team. The sales team is steady and looks for secured scenarios. Usually, they do not jump in for the demand forecast generated by the marketing team, rather they try to check the responses and increase their activities gradually. On the demand fulfilment side, SCM and production team work as per their machine or logistics capacity with an intention in mind that they must optimize the use of the fixed assets of the firm. Such dis-integrated and silo thinking process often fails to generate sufficient revenue for the firm. Eventually the business struggles.

Implementation of S&OP eases the process and brings optimum result for the firm. It helps to debottleneck the system and make all stakeholders accountable. Along with the balancing of demand and supply, the process improves the customer service and optimise the working capital for the firm.

The firm has better accuracy in forecasting and become more agile while operating. The firm makes similar or better revenues with less requirement of working capital which results in better profitability and sustainable business growth.

The benefits of effective S&OP are compelling. According to the study conducted by Oliver Wight, the practising firm requires 25-30 per cent less working capital by reducing inventory and WIP, increases forecasting accuracy by 18-43 per cent and generates more revenue by 10-31 per cent. The same study has also revealed that customer satisfaction is increased by 29-39 per cent. Overall your firm will feel Lean and Light, and focus on more strategic decisions. Worldwide leading companies are Procter & Gamble, Unilever, Nestle, Coca-Cola, Pepsico, Pfizer, Intel, etc.

Following the global leaders, Bangladeshi firms can also implement S&OP. MNCs like Unilever, Nestle, Bata, Marico, Syngenta, LafargeHolcim, etc. are practising a global standard and enjoying the benefits. The local firms have also come forward to implement S&OP. However, the number of real practitioners are not remarkable. Local leaders are Rahimafrooz, Apex Footwear, Grameen Danone Foods Ltd, Meghna Group, United Group, etc.

According to the survey that this scribe conducted during June 2021, around 80 per cent of companies are practising S&OP to some extent, although the maturity of S&OP is still questionable. The survey was conducted among 70 companies in Bangladesh. The main challenges that we face while implementing S&OP are as below:

a) Lack of growth mindset: It is still a long way to go to make the authority understand the benefits of S&OP. Top teams of most firms are very much engaged in micro managing and short-sightedness. They like to focus on immediate issues while S&OP covers both short term and long term issues.
b) Lack of cross-functional collaboration: People love to work only for his/her individual or departmental KPIs rather than looking at the big picture. Sometimes, we need to make trade-off between individual KPI and firm KPI.
c) Infrastructure: Lack of robust IT infrastructure hinders the data collection and eventually prevents effective decision.

S&OP is a continuous process that ensures sustainable profitability. This is high time to roll out S&OP across all public and private firms if we want to survive, sustain and grow.

The writer is Head of Supply Chain at Rahimafrooz and S&OP trainer