As its forefathers including Oliver Wight would remind us, S&OP is a very mature process. The objective of S&OP: to align demand and supply in a financially sound manner. Sounds simple, yes? Yet after more than 30 years of practice, most companies still struggle to achieve success with S&OP. AMR Research’s current survey (as presented by Jane Barrett) found that 67% of companies are stuck at Stage Two of what AMR describes are the four stages of S&OP maturity. Let’s look at the state of S&OP practices today and some key implications of recent S&OP and Integrated Business Planning (IBP) research from AMR and Gartner, Inc.
We all know the importance of effective sales and marketing organizations. Especially in a fast-changing economy, sales and marketing effectiveness drives profitability disproportionately. When sales, marketing and channel partners (the “front office”) are effectively engaged with finance, demand planning and supply chain (the “back office”), the company fires on all cylinders. Case in point, Bob Johnson of Gartner Inc. recently presented research demonstrating it was excellence in the front-office side of S&OP that had the greatest impact on allowing many semiconductor companies to stay profitable during the last downturn. The ideal process starts with the front office accurately sizing up the total future demand, or shall we say, revenue potential. The inputs to S&OP from the front office are bottom-up forecasts of both units (volume) and ASP (price) from sales reps, marketing/product managers and their executives. This rich forecast becomes the baseline for finance, demand planning and supply chain to engage. Strategic S&OP issues and scenarios can then be escalated to executives for evaluation, while past performance and forward-looking metrics are assessed. The end result? The products customers want are built, and available for delivery, to their delight!
Guess what’s the #1 gap in S&OP today? AMR’s 2010 survey ranked sales and marketing input as the most important aspect of S&OP, yet one of worst performing areas. S&OP leaders assume the demand planning process can adequately incorporate sales and marketing forecasting, including new product forecasts. However, the tools they use to manage the process—demand planning applications—were not built for the sales and marketing people managing sales pipelines, new product launches and marketing campaigns. Even S&OP solutions like Demantra and SAP APO (demand planning applications with S&OP lipstick) lack the basic capabilities needed by sales and marketing—such as an intuitive user-interface and real-time data integration with CRM systems like Oracle CRM On Demand and salesforce.com’s Sales Cloud. It’s no surprise that 51% of companies still use Excel spreadsheets and the like for S&OP (per AMR’s 2010 S&OP survey). But when go-to-market strategies, or detailed sales forecast inputs are incorporated from Excel spreadsheets, accuracy and credibility are lost with operations, and therefore the possibility of reaching reaching a high level of S&OP maturity. Note that on the “OP” side in contrast, supply chain applications (often well-entrenched from over the past decade) can provide a reasonable means to gauge the capability to meet demand (AKA supply planning) and even quickly gauge the impact of S&OP scenarios.
So what lies ahead? S&OP has a bright future. Notably Tim Payne, Research Director, Gartner, Inc., predicts the market for S&OP solutions will grow at around 15% to 20% per year for the next few years1. The challenge for companies wanting to evolve from a reactive S&OP process to one that is collaborating and orchestrating is to get effective S&OP engagement from sales and marketing, including their executives. In my next post, we’ll take a look at how Right90 customers are reaching greater S&OP maturity with a purpose-built forecasting solution for sales and marketing that effectively engages sales and marketing. Even the executives.
1MarketScope for Sales and Operations Planning, 20 October 2009
For example, the chart to the right shows that the 2010 forecast for Apple has increased by $26M in the last 6 months — with most of that contribution coming in Services forecast as detailed in the Change Summary to the right of the graph.
