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Blog post by Jim Scarlata
In the first post in the SMB Value Partners’ Series on S&OP, I described the “what” of Sales and Operations Planning (S&OP), what it means and how it can be successfully deployed in any type or size of organization. Here in our second post, I’ll describe the “why you should care” about this important business discipline.
For most organizations the benefits clearly align to the firm’s financial goals and plans. In one relevant example from my personal experience, a large manufacturer focused its scrutiny on trade working capital (TWC) against financial goals. (TWC can be simply defined as the difference between current assets and current liabilities directly associated with everyday business operations).
Of course the level of finished goods and raw inventories significantly impacts this metric. In companies focused too stringently on inventory cost, reductions in inventory can negatively impact customer satisfaction (stock-outs, late or partial shipments). Many times firms under strong financial pressures are willing to accept these impacts in order to meet short-term (e.g. end of quarter or year) financial objectives. We at SMB Value Partners do not subscribe to this as an effective long-term strategy; if practiced for any significant periods of time it will greatly impact customer satisfaction, and can also increase competition for your customers’ business.
The more important reasons for implementing a rigorous S&OP discipline is quite simply to ensure customer satisfaction and make responsible business investments.
While leading the demand planning / forecasting function for former employers, I always had the above two points in mind when the forecasts were challenged by senior management. Experience showed that the quality of the forecasts and the overall S&OP process, especially when involving the proper company functional disciplines, positively affected both product inventories and resultant customer satisfaction.
In today’s marketplace, customers have many more options than in the past, and a firm that maintains a healthy S&OP process ensures meeting financial AND customer satisfaction goals. One way to assure this is to include questions related to these metrics in customer/client satisfaction surveys; e.g. “Company X always has the products I want when I need them” or “Company Y’s products are at the locations I buy from.” Examining changes in customer responses over time can identify problem areas before they occur or cause measurable damage.
Let SMB Value Partners help you examine your existing S&OP process and results, or help you set up a S&OP discipline for your business.