What Makes a Winning S&OP Program?

This is an excerpt of the original article. It was written for the May-June 2010 edition of Supply Chain Management Review. The full article is available to current subscribers.

May-June 2010

Spring is a time for renewal. It's a time for re-assessing the way we've been doing things and making changes in a manner that ensures forward progress. That's a recurring theme of the articles in the May/June issue of Supply Chain Management Review. With the building blocks in place and the spirit of renewal in full bloom, who knows what level of supply chain excellence can be achieved?

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There is simply no other word for it. The success rate for Sales & Operations Planning (S&OP) programs has been dismal. A third of all S&OP programs fail or produce unclear results.

That is one of the most worrying findings for a survey SCMR ran last year to better understand the impact of the recession from the viewpoints of supply chain executives. The survey, conducted on behalf of IBM and Oracle, showed that about 40 percent of businesses don’t even have a formal S&OP program in place. And it revealed some staggering gaps in the participation of different stakeholders where S&OP processes do exist. Nearly half of the supply chain managers polled conceded that they run their S&OP meetings without regular participation form their companies’ manufacturing and finance departments. More than 50 percent do not involve anyone from marketing.

What’s going on? After all, the S&OP process was designed around close collaboration between such stakeholders. The concept is simple: By regularly getting those who have the most visibility of demand at the same table with those who have the best insights into constraints on the supply side, companies are supposed to be able to build better supply chain plans and to collaborate more effectively to implement those plans.

The idea is not new. It has been around since the 1980s. If done right, S&OP has the potential to significantly improve some key operational metrics. According to the research firm the Aberdeen Group, companies that demonstrate best-in-class S&OP have 91 percent complete order fill rates and logistics costs of as little as 6 percent of sales. And their gross margins average 43 percent.

So the basic question is this: Why don’t companies adopt this apparently simple concept?

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