S&OP Maturity: Going Beyond the Demand-Supply Match

We’ve seen many companies reach plateaus in their S&OP maturity; for some organizations, the momentum slows shortly after they successfully balance demand and supply volumes. By Karin Bursa

In order to keep the S&OP benefits growing, ownership of the S&OP effort must expand beyond the primary jurisdiction of the supply chain team. It’s the point where executive sponsorship becomes crucial.

It’s also the point where a “one plan” predictive process model for enterprise-wide business improvement is closer than ever.

For some companies, their progress along the S&OP maturity curve as a gentle climb, while others may see it more as a cliff face. Once the demand-supply matching process is mastered within the supply chain organization, the question “what next?” is often answered with two words: “inventory optimization.”

Leading companies that have successfully forged ahead on the maturity journey also emphasize managing supply constraints and building customer collaboration initiatives for better forecasting.

A recent study conducted by Aberdeen Group reveals that Best-in-Class companies put a higher priority on these goals than do companies outside of the top 20%, which tend to focus on formalizing their S&OP and demand planning processes, as well as integrating financial planning into S&OP.

According to Aberdeen Group’s report, S&OP: Beyond the Demand/Supply Match – A Journey, Not a Destination, Best-in-Class companies have the following in common:

• 47% have established an inventory optimization initiative as a strategic action
• They are more than twice as likely to include marketing in the demand planning process
• 58% more likely to quickly respond to unplanned events in alignment with S&OP objectives
• 77% more likely to have the ability to evaluate unconstrained planning scenarios during the demand/supply balancing process

But what are the real keys to breaking out of the S&OP plateau and continuing your progression? We have found, and the Aberdeen research supports this, that the ability to segment demand based on characteristics of customers, channels, markets or products is key to launching the next round of S&OP maturity. Enhancing decision support processes by developing the ability to respond to unplanned events (minimize “firefighting”) is another important goal. Note, this capability can only be built on a solid foundation of scenario planning expertise.

As confidence builds in the organization’s scenario analysis prowess, departments start to become enthusiastic believers in—and adopters of—the S&OP plan. As Aberdeen puts it, at this point “getting buy-in to one plan is no longer a struggle, but a way of life.” Our experience with companies across a wide spectrum of industries confirms that view.

Forecasting and Demand Planning Process
As shown below, the ability to take in multiple inputs and distill them down to a single forecast is widely adopted by the Best-in-Class, and is a sign of a mature demand planning process.  A key point is the ability to work across the organization to capture the necessary inputs to improve visibility and modeling, which goes beyond the supply chain organization.  The Best-in-Class have a clear advantage in this adoption and have an effective demand planning process because of it.

The next process identifies the ability to segment the demand based on the characteristics of customers, channels or products, which really provides the insight necessary to increase service levels and identify problem areas without blindly increasing inventories across the board. 

Segmentation capabilities also require working with the sales and marketing teams to better understand the business priorities,  the market channels and their behaviors.  Companies involved in Omni-Channel businesses need to incorporate this capability to better align their inventories with the demand, as a refinement to their demand, as a refinement to their demand planning process.

Finally, tools and technology are a major determining factor in whether an organization is capable of moving their sales and operations planning forward to new levels of customer service and overall supply chain performance. It is vital that you adopt strong supply chain management solutions that enable activities such as demand shaping, trading partner collaboration, predictive analytics, inventory optimization, and more.

Bottom line: by adopting the right priorities and the best tools, your S&OP journey can push past the plateau and become a long and fruitful endeavor that drives continual business improvement and a tangible competitive advantage in both good and challenging economic environments.