Kai Trepte, Jim Rice, and Walid Klibi discuss how sales and operations planning can be adapted to be more resilient in the face of disruption:
Most sales and operations planning (S&OP) processes do a good job of increasing supply chain efficiencies and reducing costs. But they often don't handle major disruptions well. Here's how to make the process more resilient.
The COVID-19 pandemic is an example—albeit an extreme one—of the supply and demand shocks that can convulse supply chains today. There are many ways that supply chains can gird themselves against these shocks, but one that we believe merits much more attention is to develop a resilient sales and operations planning (S&OP) process.
S&OP was developed over 20 years ago as a mechanism for synchronizing operations with changes in demand and supply. While S&OP processes vary between organizations, a consensus has formed that the S&OP process is comprised of five steps:
- Align the product portfolio with current strategy (product management review),
- Assess and shape demand (demand review),
- Assess and optimize supply (supply review),
- Reconcile gaps in supply/demand to form a rolling business plan (reconciliation review), and
- Present the plan and any unresolved issues to the leadership team (management business review) to ensure that it is aligned with current organizational objectives.
When these five steps are implemented, the process sometimes falls under the moniker of "integrated business planning" (IBP). But in our experience, most organizations continue to use the term "S&OP" rather than IBP when referring to the supply and demand balancing process even when implementing a five-step process.
An effective S&OP process has many benefits. When it culminates in a management business review, S&OP generates forward-looking operating plans that are aligned with organizational goals and objectives. The management business review works to create alignment among the sales, operations, marketing, and finance organizations. It typically reduces operational costs and working capital and has the potential for increasing sales through more efficient resource utilization. The process also ensures that stakeholders move from a static business plan to a rolling consensus-based business plan because the S&OP process is executed, most commonly, on a monthly cadence.
However, the typical S&OP process is not currently designed to cope effectively with the impacts of large-scale disruptions such as COVID-19. Its pursuit of alignment tends to focus on business-as-usual events, such as promotions or factory maintenance, while other processes, such as business continuity planning (BCP), concentrate on planning for unexpected events. Because the S&OP process, in general, does not incorporate the outputs from BCP processes and discards unforeseen events, it can work against an organization's efforts to achieve resilience.
Recent events—from the coronavirus's impact on the entire world economy to shortages of chicken at Popeyes and Kentucky Fried Chicken restaurants—suggest that organizations can pay a high price for deficits in resilience. Yet with some changes, the S&OP process could be a potent defense against the effects of extreme fluctuations in supply and demand. In order to extend S&OP's scope to cover supply chain resilience, it will need to integrate planning for unexpected events identified through other processes such as BCP. We call the enhanced S&OP process, "resilient S&OP."
To be sure, creating a resilient S&OP process will not be easy. It requires a comprehensive assessment of resilience, a challenge that is far from resolved in most organizations.