What do Commercial Leaders Really Want from S&OP?
My experiences as a commercial leader deploying S&OP/IBP have illustrated very clearly the critical need for cross-functional engagement and collaboration, especially between the supply chain, commercial and finance functions. However, it is also clear to me from speaking to supply chain professionals across industry sectors that S&OP is often still deployed and promoted internally as a supply chain process which other functions are asked to support and participate in.
My view is that this greatly undersells the potential and purpose of S&OP and also risks losing the vital support and drive of the commercial function to make it work. So what does create the engagement and commitment from the commercial function to not only participate in S&OP, but actively advocate and drive it? Or in other words, what do commercial leaders really want from S&OP?
Below, I outline 5 areas with practical suggestions in each case on how to build an S&OP process that commercial leaders will really value;
1. A Focus on Business Outcomes – with Early Insight on Gaps vs. Plan
A key role of the commercial leader is to manage the delivery of the committed revenue and profit goals over the short- and long-term horizon. In order to manage delivery, it is essential to have the earliest possible insight on any developing risks or opportunities so that there is time to understand the potential gaps vs plan, their root causes and the strategic options to address them. A well-designed S&OP process is always created on the platform of a sound understanding of business performance (not only supply chain performance).
This means that when S&OP provides a comprehensive view of performance including risks and opportunities, whatever their origin, it meets a key primary need of the commercial leader. The value of this insight is increased further when the maturity of the S&OP process allows the commercial leader to understand different scenarios and ranges of possible outcomes and explore ‘what-if’ proposals.
In many organisations, the routine focus for the commercial leader is the current quarter or financial year even though there is, of course, an understanding that a longer-term view is also important. The S&OP process which provides the discipline to review the medium-term (eg 24-36 months) is therefore valuable in providing the challenge and pulling leadership focus to a more a balanced view of both short and medium term.
With these factors in mind, the S&OP process can create strong engagement in the commercial function when it;
is clearly focused on commercial performance not just on the supply chain
provides a clear view on gaps vs plan, risks and opportunities
informs decision-making through scenarios and what-if analysis
challenges the commercial organisation to focus beyond the current quarter or financial year
2. Achieving Organisational Alignment
A further key role for the commercial leader beyond understanding business performance is the development and alignment of tactical or strategic responses, which are frequently cross-functional in nature. It is not unusual for a commercial leader to be forced to use several different forums or meeting structures to gather insight, discuss possible solutions across functions and then align and gain approval for the preferred solution. This network of meetings often consumes excessive time and leads to duplicated discussions and a lack of clarity on approval.
A key benefit offered by a well-designed S&OP process is the establishment of appropriate cross-functional groups to participate in regular and routine discussions on performance and, in particular, gaps vs plan. This creates a way of working where the relevant functions are constantly updated on key issues for business performance, their role in them and required actions. This means that the single framework of meetings provided by S&OP offers a consistent and disciplined approach to creating alignment across a business.
A typical example of this might be where capacity needs to be temporarily increased to meet a commercial opportunity – having regular participation of commercial, finance and supply chain managers in the S&OP process means that the supply chain team can offer options to increase capacity, the commercial team can provide assurance on the nature of the opportunity and the finance team can confirm the effect of the proposed options on revenue, margin and working capital. A decision can then be taken in one forum with clearly defined decision rights/accountabilities rather than being drawn through multiple forums.
The S&OP process can therefore create strong engagement in the commercial function when it;
has defined participation from across the relevant functions
has clear decision right and accountabilities which allow decisions to be delegated to the commercial leader of the S&OP process
demands rigour and preparation for the various S&OP meetings which allow fully-formed proposals to be tested and discussed to achieve a decision
3. Focus on the Issues not Debating the Numbers
Engaging commercial leaders through the value added by the two areas outlined above needs to be underpinned by strong practical execution.A key example of this is the need to provide actionable insights and proposals for discussion at S&OP meetings.
There are two key enablers for this – Firstly, ensuring that the information provided for review and discussion at the various S&OP meetings is accurate and its source clear (and agreed by the various cross-functional participants).This may sound obvious, but significant time can be wasted in S&OP meetings discussing the origin of the data presented and with one or more parties disputing its validity.For this reason, investing time with the relevant participants to ensure understanding of KPIs, metrics and calculations is often worthwhile.It is important to get this right first time when deploying a new S&OP process as the negative effect of a protracted discussion on the numbers themselves (rather than their business implications) can mean that advocacy and even attendance is adversely affected and may never recover from a poor start.
Secondly, S&OP meetings can often be swamped with so much data that it could not all be reviewed and it is almost impossible to identify the key data and information that must be understood to drive business decision-making. This can be addressed partly by commercial, finance and supply chain representatives working together to educate each other on their respective information needs. However, undoubtedly a critical step is to run the S&OP meetings and their review of data/analysis by exception. Teams should define exactly what that means for their situation but examples of this could be that KPIs in target range (ie “green”) are not reviewed whilst those out of range or beyond a certain tolerance (ie “red” or “amber”) are reviewed. A further layer of exception may be applied where business impacts or decisions below a certain threshold are not actively reviewed in the meeting but are delegated to lower management levels and these decisions are simply listed for information if necessary.
The execution of the S&OP process can therefore also determine the degree of engagement from the commercial function and it should;
ensure that the focus in S&OP meetings is on discussing the business implications of the data and metrics provided, not debating the numbers themselves
invest time in the cross-functional teams involved in the process to agree key data and metrics required for the meetings
set clear threshold levels which mean that the meetings focus on significant deviations from expected values rather than a blanket review of all performance data
4. Involvement of the Right People at the Right Level
Another important aspect of practical execution is ensuring that the participation in S&OP and attendance at the various meetings is fit-for-purpose.This requires two important aspects;
ensuring that the relevant subject matter expertise/knowledge is represented at the various process steps
establishing decision rights and accountabilities so that decisions are taken at the lowest possible level in the S&OP and organisational structure
A critical feature of a strong S&OP process is that each cycle (normally monthly) can be run by a single execution of each of the defined process steps and meetings, with no rework or parallel meeting structures necessary to answer questions ‘left over’ from S&OP meetings where the relevant expertise was not present.This requires the relevant roles to be defined clearly both in terms of functional contribution but also in terms of responsibilities within the context of a decision-making meeting, for example using the Bain Consulting ‘RAPID’ meeting role definition
It is also essential that clear decision rights are established for each step and meeting in the S&OP process.As outlined above, appropriate empowerment greatly enhances speed and efficiency (in addition to the broader benefits of an empowered culture and way of working) and also ensures that the seniority and decision-making authority of key stakeholders aligns with their specific involvement in the process.This is a critical foundation for a sustainable process as senior leaders will assess very quickly if the process really requires their presence and delegate to junior staff if they feel that they are being exposed to either excessive detail or issues which do not require their seniority for resolution.
To create and sustain strong engagement in the commercial function the S&OP process set-up must;
have the relevant subject matter expertise represented at each process step and S&OP meeting
have clear decision right and accountabilities which allow decisions to be delegated to the lowest possible level in the organisation, with transparency and clear terms of reference. These terms may then be updated and refined once experience has been acquired which for example, gives the confidence to expand empowerment.
5. A Foundation for Medium-term Planning
Once an effective S&OP is established which provides a routine, disciplined and efficient mechanism to manage delivery of the business strategy, this builds the confidence of commercial leaders that the process can, and should, become the enterprise standard for short to medium-term planning.
Often, in the absence of an effective S&OP process, commercial teams develop their own business planning process in order to model market trends and opportunities and evaluate scenarios in order to create a range of achievable commercial outcomes. Some or all of the outputs of these planning processes (eg market share trends or promotional investments) are then applied in the formal company planning processes which have been created for the purposes of manufacturing and supply chain planning and financial planning. This duplication is, of course, very inefficient and increases the probability that the various functional plans are misaligned.
However, where strong S&OP processes are established the advantages of adopting S&OP as the single backbone of medium-term planning becomes clear. Rather than running a separate planning process in a major annual effort which distracts the business and risks misalignment and confusion, commercial leaders build their confidence in adopting S&OP as their key planning process. The rolling 24-36 month planning outlook in S&OP that is discussed and refined on a monthly basis becomes recognised as a very effective vehicle for aligning the wider organisation behind the company strategy and also for providing senior management with an ongoing view of company performance vs plan. It avoids surprises surfacing in a once-a-year standalone planning process and provides the transparency to ensure that the whole organisation is engaged in the key actions necessary to manage risks, maximise opportunities and above all, deliver the plan.
This is often a significant cultural change in an organisation, where annual planning traditionally provides the backdrop for game playing (both top-down and bottom-up) in budget setting. However, in a business context characterised by greater volatility, complexity and uncertainty the value of an ongoing, inclusive S&OP process to create robust and resilient business plans is increasingly recognised by senior commercial leaders.
From this perspective, an S&OP process can quickly become a preferred approach for commercial leaders and an organisational enabler for high-quality medium-term plans. In order to create this position the owners of the S&OP process should;
focus on the routine delivery of the rolling 24-36 month plan as part of the monthly cycle to build the confidence of commercial leaders in its ability to create insight on the market context and enable action-based decision-making
invest time to continuously improve the process, setting improvement goals based on KPIs but also on the commercial value delivered as perceived by commercial leaders
develop the S&OP process to align with financial planning processes as closely as possible (even if there is no ‘hard-wired’ connection with the financial plan)
seek early advocates in the commercial and finance functions and start to co-create a roadmap to evolve S&OP to the backbone for medium term planning across the organisation.
S&OP is often still deployed and promoted internally as a supply chain process which other functions are asked to support and participate in. There is however great value in a strong S&OP process for commercial leaders and there are 5 key areas that these stakeholders value highly.
Working to establish these themes not only meets the needs of the commercial function but also provides a very robust foundation for the sustainability and development of S&OP in organisations. These themes are;
A Focus on Business Outcomes – with Early Insight on Gaps vs. Plan
Achieving Organisational Alignment
Focus on the Issues not Debating the Numbers
Involvement of the Right People at the Right Level
A Foundation for Medium-term Planning