a framework for improving 'sales and operations planning', kumar & srivastava, metamorphosis-a...

A Framework for Improving Sales and Operations Planning

Rakesh Kumar1 and Samir K. Srivastava2*

1. IntroductionFirms are often faced with mismatch between demand for products and services in the marketplace and the ability to supply those products and services. In fact, those two num-bers (demand for a product and ability to supply the product) almost never match. Sales and Operations Planning (S&OP) is a process that helps the firms to keep demand and sup-ply aligned. It is a firm-wide demand and supply plan that provides the next level of detail in fulfilling the business plan objectives by describing family-level sales, production and inventory targets. The renewed focus on organization wide optimization calls for cross functional collaboration to moni-tor the efficacy of individual plans against overall business goals. This is where S&OP fits into the overall planning process,

reconciling demand and supply plans within the resource boundaries. It is emerging as a business process adopted to manage the balance and trade-offs between the conflicting preferences of various stakeholders across the supply and demand sides of the supply chain. It has experienced rapid development from Aggregate Production Planning (APP) in the 1980s to a coordinated sales-production planning based S&OP, and more recently to the supply chain based S&OP1. It has become one of the most critical business processes used to achieve best-in-class performance to consistently outperform competitors. It is through S&OP that many firms are able to achieve sustainable growth without significant investment in new capacity and equipment. The main aim of S&OP there-fore is to generate realistic, feasible plans. Good S&OP gives a complete picture of forecasted demand, supply capacity and

*Author for Correspondence

ISSN (Print): 0972-6225Metamorphosis, Vol 13(1), 1625, JanuaryJune 2014 ISSN (Online): 2348-9324

Keywords: Forecast Ownership, Framework, Key Objectives of S&OP, People and Technology, Role of Process, Sales and Operations Planning, Supply Chain Efficiency

1Supply Chain, Philips Electronics India Ltd., 9th Floor, DLF 9-B, DLF Cyber City, Gurgaon, 122002, India; [email protected] Management Group, Indian Institute of Management, Lucknow 226013, India; [email protected]

AbstractSales and Operations Planning (S&OP) initially came to existence in manufacturing in the late 1980s and has been around for about three decades now. It is the long-term collaborative planning process of production levels relative to sales within the realm of a manufacturing planning and control system at the Stock Keeping Unit (SKU) level. S&OP has evolved into a major business process adopted to manage the balance and trade-off between the conflicting preferences of the supply and demand side of the supply chain and offers many value creation opportunities. It is one of the most critical business processes used to achieve best in class performance to consistently outperform competitors. It is increasingly being viewed as essential to synchronise the entire supply chain in order to improve its efficiency, as once the S&OP process is institutionalised, it will enhance supply chain efficiency in the long run. It will also help the supply chain partners to understand and overcome supply chain risks resulting from market volatility. For this, firms must develop and deploy excellent leadership capabilities so that S&OP processes are in place and supported well within and across the supply chain.

Although easy to understand, S&OP can be difficult to implement. Explaining the importance and working of S&OP, defin-ing the key S&OP objectives and the role of people, process and technology, this article tries to address many evolving S&OP related operational issues from the people, process and supply chain perspective. It also prescribes practical ways to improve and institutionalise a strong S&OP process within a firm and consequently across the supply chain. Thereafter, it provides a useful framework to forecast ownership and suggests as to what should be discussed in S&OP meetings. Finally, it highlights the need to align the plans on a continuous basis and suggests a framework for the same.

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Rakesh Kumar and Samir K. Srivastava

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corresponding financial information and provides the base data for budgeting and strategic planning.

In a practical sense, S&OP focuses on ensuring that demand and supply are kept in balance and customer ser-vice targets are maintained as demand, capacity and resource availability fluctuate. Firms that use S&OP are enhancing their visibility and agility to improve product management and promotional planning; minimizing unnecessary build-ups of inventory; and better prediction of financial flows. In exemplary firms, the periodic S&OP meetings are immutable points in the calendar. Philips Electronics follows a collab-orative-planning process that operates at the stock keeping unit (SKU) level. Exxon Mobil Chemical leverages S&OP to improve customer service while controlling costs. Procter and Gamble thrives on its own version of S&OP with creating a single set of sales and supply plans to optimise resources to support the firms business objectivesassessing the financial implications of the plan as well as its impact on both supply and demand. Rollout of a new S&OP process at Whirlpool was the key driver of its successful supply chain turnaround.

Although easy to understand, S&OP can be very difficult to implement. Implementing an S&OP process is an ongo-ing journey. Firms continuously focus on how to improve execution to improve revenue, decrease costs and improve customer satisfaction. They also define criteria and rules for managing and measuring the assumptions that go into developing each plan and identify key performance met-rics to ensure better business performance. However, most firms struggle with even the basics of balancing supply and demand in their supply chains. S&OP efforts often fail as firms and their executives are unsure about the key objec-tives and the roles of people, process and technology. They find defining the role and responsibilities of key stakehold-ers difficult. Oliva and Watson2 highlight the fact that lit-tle research has been done on managing the organizational and political dimensions of generating and improving fore-casts in corporate settings in supply chain context. Further, the authors own field experience in the area shows that the role and responsibilities of different stakeholders need to be defined clearly to reap the maximum benefits. Many firms have tried using enabling technologies to address some of these concerns, but not with much success. So, while S&OP has been widely adopted, there is significant room for improvement in terms of institutionalizing it within a firm and consequently across the supply chain. All this motivated our present work wherein we try to address many of the practical issues for improving S&OP.

1.1 Literature ReviewS&OP came into existence in manufacturing in the late 1980s and has been around for a while now3. Olhager etal.4 define it as the long-term planning of production lev-els relative to sales within the realm of a manufacturing

planning and control system. De Kok et al.5 describe a collaborative-planning process at Philips Electronics that operates at the SKU level. Grimson and Pyke6 find that there is no apparent link between S&OP maturity and either firm size or its location on the product-process matrix. Although S&OP as an organizational process has been around for more than two decades, only a few aca-demic papers1, 414 have been published about S&OP so far.

Singhal and Singhal15 opine that S&OP has evolved into a major business process adopted to manage the balance and trade-off between the conflicting preferences of the supply and demand side of the supply chain and offers many value creation opportunities. Oliva and Watson14 while study-ing cross-functional alignment in supply chain planning identify S&OP process as a mediator that can affect organi-zational outcomes. Bower16 describes five typical value cre-ation opportunities enabled by S&OP. Wallace17 finds it as one of the most critical business processes used to achieve best in class performance to consistently outperform com-petitors. Oliva and Watson14 find that an S&OP-based process can do more than simply coordinate information flows. Slone7 while describing the supply chain turnaround of Whirlpool states that the rollout of a new S&OP process has been one of the early successes. Wallace17 suggests that S&OP will increasingly be viewed as essential to harmonise the entire supply chain in order to improve its efficiency.

1.1.1 How S&OP Process WorksAlthough, S&OP supports the traditional planning pro-cess, it differs from it in two ways. First, it reviews planning activities at a higher level, on a periodic basis, rather than the daily or weekly activity as in the traditional planning process. This is critical as it allows a firm to proactively identify and manage upcoming issues like overstock and out-of-stock situations, fixed capacity constraints, regional velocity of demand and financial outflows and inflows. Process-wise, S&OP is a cross-functional, multi-dimen-sional process that includes all elements of demand, supply and financial analysis in relation to the business goals and strategy and brings together the team of individuals on a routine basis to plan for where the businesses are going on a tactical basis18. Senior management is involved here with the goal of getting consensus on a single operating plan across business functions and supply chains.

Feng etal.13 use real industrial data of a Canada based Oriented Strand Board (OSB) manufacturing company in a simulation study. They demonstrate that while deterministic models are important for theoretical studies, they are insuf-ficient for decision support and performance evaluations in a real business environment. A rolling horizon model is required to provide more realistic solutions. In rolling horizon planning, a multi-period model is solved while the plan is implemented only for the immediate decision period.

A Framework for Improving

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As the horizon rolls forward to the next decision period, information regarding the latest demand is updated and the model is re-solved again. This ongoing planning pro-cess allows future demand to be anticipated in the current period decisions, while postponing future decisions to as late as possible19. This helps to effectively cope with demand uncertainty and forecast inaccuracy. Our interactions with relevant business managers validate the above. The process typically starts with the construction of the annual sales and operations plans for the next 1236 months. This involves budget driven top-down planning (usually by month or any other period at category or group level in financial and volume terms), together with detailed bottom-up Demand Planning (DP; often at customer or SKU level in volume terms). These plans are then compared and reviewed and the implications on production capacity and supply are examined until the final annual sales and operating plans are agreed upon and frozen. Table1 shows part of a sample data sheet of a simple annual sales and operations plan for a single product category in volume terms. Last year sales figures and annual operating plan are included for compari-son and analysis. The sales/forecast indicate the actual sales (shaded) and the forecast figures. These are updated on monthly basis after deliberations in S&OP meetings. The forecast accuracy can be easily calculated as percentage of sales over last forecast. The deployment planner estimates the capacity requirement from the supplier(s). These could be compared with capacity reservations in supply chain contracts to find out shortcomings or scope for improve-ments. Further, actual sales can be compared with the annual operating plan figures. The closing stock at the end of the month is generally used to estimate the number of days of stock on-hand. Most firms in FMCG sector in India prefer to have this stock for 1015 days.

There is usually a joint review S&OP meeting on a regular, periodic basis (usually monthly but sometimes fortnightly depending on the business) to analyse current status against the previous plan in order to take corrective

Table1. Sample data sheet of a simple annual sales and operations plan

Product category X Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec TotalLast year sales 74 78 71 139 174 106 109 145 120 107 184 133 1440Annual operating plan 124 119 119 125 116 119 130 127 134 145 176 153 1587Actual sales/forecast 107 121 130 186 123 104 122 111 118 127 155 145 1549Last forecast 140 135 115 Forecast accuracy (%) 76.43 89.63 113.04 Capacity requirement estimates 140 110 114 174 90 99 126 120 120 119 135 124 1471Capacity reservations done 150 150 150 150 150 150 150 150 150 150 150 150 1800Actual sales versus operating plan (%) 86.29 101.68 109.24 Closing stock (end-of-the-month) 63 67 69 57 56 52 60 61 54 62 63 63

action. According to Grimson and Pyke6, the purpose of S&OP meeting is to develop and refine production and sales targets. The meeting typically reviews actual per-formance for the last quarteras well as reviews future plans across a rolling time frame. Russel etal.20 mention that managers continuously compare the most recent 18-period S&OP with performance against the budget. Deviation and cumulative deviation from plan are used as measures of performance and to identify trends. However, Slone et al.21 suggest that the top management in S&OP decisions should guard against allowing quarterly pres-sures to override long-term strategies.

Based on our interactions, a typical S&OP process flow-chart is presented in Figure1. It has some semblance to the five-stage process suggested by Grimson and Pyke6. At an operational level, the two key activities that support S&OP for firms are DP and supply/production planning. The demand planners create new scientific forecasts over a roll-ing 1236 period horizon to drive future production plans. The demand plans are passed on to supply planners to gen-erate the supply plans. They take into account inventory projections based on material and capacity constraints. The demand-supply balance is formally reviewed in the periodic pre-S&OP meeting between planners and cross-functional middle managers. The results and recommendations of these meetings are discussed and reviewed in the S&OP periodic meeting. Our interactions reveal that the S&OP categories that are reviewed in the S&OP meeting differ from business to business. These generally include the sales plan (based on the forecast), the operating plan (production or supply plan) and the inventory plan. Other categories that may be included are new product development, new facilities, pro-motions/events, orders, shipments, backlog and financials. The review is usually conducted at product group level and focuses generally on volumes (not values).

Effective S&OP processes facilitate decision-making at the tactical and strategic levels too. At the tactical level, decisions can be made about how to enhance demand when



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structure, meetings and collaboration across functional areas, and performance measurements. Russel etal.20 find that the two strategic inputs to the S&OP process at Luxfer Gas Cylinders are the theme teams and the budget. They opine that firms need to move from functionally managed organizations to cross-functionally managed ones.

While there are undoubtedly differences in the details of the way every firm views and implements its S&OP process, they all share a number of common factors. Most S&OP models focus mainly on sales, production and inventory. Feng etal.1 explore the fundamentals of the S&OP process and present a modelling approach to evaluate its impact before implementation. Three MIP-based models are formu-lated representing, respectively, a multi-site Supply-Chain-based S&OP (SC-S&OP), that integrates the cross functional planning of sales, production, distribution and procurement centrally; a multi-site Salesproduction Planning-based S&OP (SP-S&OP), in which the joint sales and produc-tion planning is carried out centrally while the distribution and procurement are planned separately in each site; and a decoupled planning, in which the sales planning is carried out centrally while the production, distribution and procure-ment planning are performed separately and locally. Affonso etal.10 propose a model built with the three levels of sales, operations and supply. It not only provides integration inside the firm, but also for integration of the firm in the supply chain. Chen-Ritzo etal.12 find that significant improvements in revenue and serviceability can be achieved by appropri-ately accounting for the uncertainty associated with order configurations in configure-to-order systems. Other mathe-matical tools and Taguchi methods are approaches to achieve a simple but robust compromise. Literature also discusses the role of technology as an enabler in achieving better S&OP performance. Fairchild8 suggests that integration of business processes, both within and between firms, will require both human and technology enablers for supply chain efficiencies. However, Grimson and Pyke6 find that although business processes are enablers of S&OP plan integration, technology may not be clearly so. Oliva and Watson14 too opine that it takes more than the implementation of an efficient informa-tion-sharing tool to achieve true benefits of integration.

1.1.3 Gaps in the Current S&OPMost research and practices in the area of S&OP focus on methods for synchronizing supply and demand by design-ing processes and procedures for communicating and understanding the business environment and developing response plans to opportunities and challenges. However, Muzumdar and Fontanella9 find that most firms struggle with even the basics of balancing supply and demand in their supply chains. They find bringing together the key personnel as a Critical Success Factor (CSF) and a key challenge for improving a firms S&OP process. As there

supply exceeds demand (e.g. increased advertising expen-ditures, pricing adjustments, new promotional activity), or how to dampen demand when demand exceeds supply capacity (e.g. reducing advertising, raising prices, discon-tinuing promotional activity and offering incentives to cus-tomers). At the strategic level, decisions can be made about opening new markets or expanding distribution outlets when capacity exceeds demand, or about expanding supply capacity when demand exceeds supply. It should be empha-sised that these types of decisions, both tactical and strategic, cannot effectively be made without the shared interpreta-tion of knowledge that occurs in the S&OP process.22

Lapide27 observes that the S&OP process is always a work-in-process since the personalities of the participants frequently get in the way of developing consensus-based plans. We also found that although there is a singular data in the final S&OP plan, different stakeholders see the same data from their own perspectives. The supply planners look from the perspective of product, sources and budgetary allocations; the manufacturing and logistics personnel look in context of product families, capacity and destinations; the finance personnel look from the perspective of revenue, margins and working capital; sales and marketing person-nel look from the perspective of market share, channels and brands; and the demand planner looks from the per-spective of forecasts, new products and promotion plans.

1.1.2 Role of People and TechnologyPeople have a crucial role to play in S&OP success. Although S&OP is owned by executives and senior management, the process itself involves contributions from staff at operational, middle management and senior/executive levels. Grimson and Pyke6 suggest that managers should focus on leader-ship of business processes that can enable effective S&OP plan integration. These processes include organizational

Figure 1. S&OP process flowchart.



1.2.1 Key Objectives and Success CriteriaThe key objectives and success criteria of the S&OP planning process are directly correlated with supply chain performance metrics. The supply chain performance can be improved by focussing on increasing customer service, decreasing inven-tory levels and optimizing supply chain costs. The roles of peo-ple, process and technology need to be taken into account to achieve this. This can be done by creating a common operating plan across the organization and supply chain partners. The supply chain partners need to build a collaborative environ-ment with a globally consistent process with common reports and performance metrics. At the firm level, one common operating plan (sales/marketing, operational, financial) that synchronises product supply and demand by product family by business unit monthly needs to be developed and put in place. The partnership among supply chain, commercial and finance functions should be fostered to ensure that the new/promotional/older product demand is optimally planned. In addition, the supply chain partners should successfully man-age product allocations to optimise global capacity.

1.2.2 The Role of People, Process and TechnologyA successful S&OP strategy includes the five components of people, process, technology, strategy and performance. The firms should develop a formal structure to support S&OP. They should a priori identify Key Performance Indicators (KPIs) and CSFs across business units and monitor them periodically to identify areas for improvement. The KPIs will invariably include customer service, forecast accuracy, inventory (days/turns/$), delivery schedule adherence and resource deployment adherence. Table2 shows a supplier delivery schedule adherence chart for an FMCG firm. This helps in better supplier management. For example, sup-pliersB and G are highly reliable suppliers and should be preferred/incentivised. On the other hand, the supplier Y is very poor in delivery schedule adherence and should be avoided. Supplier A is consistently poor and needs to be replaced sooner or later. Supplier Z is showing consistent improvement and so may be developed/nurtured.

Bringing together the key personnel is another CSF. The firms should hold regular meetings with their sup-ply chain partners to discuss process improvements and future direction. Developing a globally consistent process with common reports and performance metrics is use-ful. By bringing sales, marketing, operations and finance together, it is possible to develop an effective and com-prehensive execution plan overcoming organizational silos. A rigorous program of documented plan/execute/monitor to continuously challenge base assumptions, pro-cesses and technologies needs to be implemented; it should also include benchmarking performance against the best. Culture of continuous improvement and top management commitment are pre-requisites for progress and success.

are many stakeholders in the S&OP meetings, process ownership is a big challenge. Hammer and Stanton24 find that the most visible difference between a process enter-prise and a traditional one is the existence of a process owner. Senior Managers with end-to-end process owner-ship may make the enterprises really work. Bower25 too identifies ownership as one of the 12 most common threats to the S&OP process.

Todays dynamic, competitive marketplace requires firms to be much faster in their ability to react to change and more flexible in their internal processes. Time-phased requirements planning, has never worked well due to the overwhelming amount of exceedingly detailed data, rigid inventory safety-stock floors and frequent change orders26. Using enabling technologies may address some of these concerns23. Although ERP packages are being increas-ingly used, they are not equipped to cope with changing market dynamics. Further, they are highly insensitive to capacity constraints. New generation S&OP address some of these but perhaps require analytics and alerts besides data capture and monitoring. In this context, Slone etal.21 opine that one should not expect technology to solve a process challenge.

Overall, firms and supply chains move through four integration steps with S&OP. In first stage, S&OP is com-municated to the stakeholders as a key component of suc-cess. In the next stage, cross-functional teams responsible for linking end-customer demand to global capacity are formed. Process-based systems are combined with deci-sion tools such as scenario modelling to determine differ-ent supply and demand levels at firm level next and finally S&OP may be used as a vehicle for joint capacity and logis-tics planning for supply chain integration. As per extant literature and our interactions with business managers, most firms and businesses are presently either in the sec-ond or the third stage. Aclearly felt need for improving and institutionalizing a strong S&OP process within a firm and consequently across the supply chain emerges.

1.2 Improving the S&OP ProcessThe foregoing arguments/discussions suggest that institu-tionalizing a strong S&OP process that defines the role and ownership of different stakeholders and the decision mak-ing process itself is a primary requirement. Agood S&OP will lead to greater visibility of demand and supply across the firm as well as the supply chain. Improved S&OP will also lead to more predictable revenue management, bet-ter promotion planning and consequently more accurate budget allocation and strategic planning at firm level. It will help in understanding and overcoming supply chain risks due to market volatility and will also facilitate improved product lifecycle management. This requires explicit defi-nition of key objectives and success criteria.



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and shared dynamic ownership as per changing roles of dif-ferent stakeholders over the planning horizon. Their KPIs need to be designed accordingly. The framework divides the ownership of business forecasts into three stages during the whole planning horizon. These correspond to periods 12, 36 and 718, respectively, for an 18 month planning hori-zon where each period is of one month duration. There will be a transition in terms of ownership and accountability at the ends of period 2 and period 6. The number of periods as well as transition-periods is only suggestive and may be suit-ably modified by different firms to suit their specific needs.

The framework suggests that the ownership of numbers should be pre-dominantly with the supply chain or value chain function for the third stage (period 718 months). We suggest 50% ownership of business forecasts for this function. The firm may plan new introductions as well as forecast data for existing products. These forecasts should be based on statistics and hard data and should be purely scientific. Emotions should not have any role in these fore-casts. As many inputs come from sales and business man-agement function, they are each assigned 25% ownership. The business management function has a major role in the second stage (period 36 months). Here, it needs to take into account the trend and take corrective actions. As it may influence the statistical demand by utilising business

1.2.3 Role of a Demand PlannerThere are many players and stakeholders in the entire S&OP process. The role of each of these players and stakeholders need to be examined and defined in detail. One such key player is the demand planner. Since, experience shows that firms should deploy and stabilise the DP process first, let us for illustrative purpose, examine the role of the demand planner in a bit more detail. Ademand planner comes up with statistics based numbers, popularly called DP num-bers for the overall planning horizon (generally 18 time-periods as is the current practice in most firms) taking into consideration various inputs from other stakeholders.

Normally a single full-time specialist carries out this task. The demand planner is involved in collaborative working with business management function for product introductions/deletions over the next 18 time-periods. He needs to understand the market research data (obtained generally from external market research firms), competi-tor influence and other market conditions He needs to be aware of trade incentive plans as well as promotion alloca-tion planning and has to work in collaboration with sales/Customer Development Organization (CDO) for knowl-edge of sales force working strategies and changes, if any. She is the custodian of forecast accuracy and plays a key participative and facilitative role in primary target setting. Our interactions reveal that her involvement and consent is a pre-requisite for promotion timings and quantities. The demand planner keeps track of various numbers and publishes must sell list. She keeps tab on regional Root Cause Analyses (RCA) as well and recommends corrective actions and in many firms implements these actions.

1.2.4 Ownership of Business ForecastsOne of the major reasons for less than expected success of S&OP has been the lack of clarity about responsibility and accountability for different stakeholders. To address this, we provide a framework for ownership of business fore-casts over an 18-period time horizon. The same is shown in Figure2. An earlier version of the same was suggested by Kumar and Srivastava11. This framework provides clear

Table2. Supplier delivery schedule adherence chart for an FMCG firm

Suppliername

Week 1 Week 2 Week 3 Week 4% Hit % Miss % Hit % Miss % Hit % Miss % Hit % Miss

A 44 56 60 40 58 42 56 44B 100 0 100 0 100 0 100 0Y 0 100 17 83 8 92 6 94Z 67 33 83 17 91 9 94 6G 100 0 100 0 99 1 100 0

Figure 2. Suggested ownership of business forecast over an 18-period time horizon.



management and sales functions. Action and results have to be owned by new owner at each transition point.

In line with our framework, the final DP numbers for period 12 would primarily depend on sales assessment and judgment, regional numbers and various incentive plans. For period 36, they would primarily depend on market research data, recent competitive moves, projected targets, modified trade investments and modified advertisement plans. Statistical trends and marketing inputs will primarily determine the DP numbers for period beyond 6 months. DP numbers beyond period of 6 months should be firm once debated in the meeting. It should be clearly understood by all the stakeholders that the meeting is only to arrive at demand numbers; it is not a budget versus achievement review exer-cise. So, S&OP should not attempt to match demand plan valuation to budget valuation. The ownership of statistics is of the demand planner whereas the ownership of display, consumer promotions, trade promotions, competition and media is that of business management. Similarly, the owner-ship of display and in-market activities is that of the sales function. To remain focussed S&OP should not discuss promotion execution strategies, nor should it generate new promotion options. These must be done Pre-S&OP between sales and business management functions.

We further suggest that the focus should be on align-ing S&OP to financials at all times. Further, as there are too many uncertainties at both the demand and the sup-ply side, it would be prudent to align the plans on a con-tinuous basis to avoid surprises. S&OP should strive to structure process to encourage full enclosure of sales and marketing opportunities into the financial plan. However, it should still allow for some margin or buffer between demand plan and financial plan to allow for uncertainty/risk. It should put in place a process to escalate consist-ent failure to align the demand plan with the financial plans within the defined tolerance. So, one option could be to reduce the number of days held in Days Inventory On Hand (DIOH) to account for judgment/uncertainty in the demand plan. In fact, S&OP should set linked goals between various functions for achieving the budget, fore-cast accuracy and DIOH. The financial plan should reflect the real valuation of DP. If DP is less than the financial plan, various gap-fill options described subsequently may be worked with to align financial plan to DP.

Mostly, the financial plan and DP may not be in total alignment. There may be planned or sporadic instances of new facilities, capacity enhancements, trade promotions or price drops due to unforeseen and uncontrollable external influences. In these, the business management function should evaluate gap-fill options and develop execution plans to address the same. Figure 3 shows a platform to achieve the same. For instance, it may commit to a higher investment in buffer inventory covering an upside poten-tial (due to a new product or promotion) but maintain a

intelligence for promotions, new product introductions etc., we suggest a 50% ownership of business forecasts for this function during this stage. Similarly, as forecasts reach nearer to the actual execution, the role of business man-agement function decreases and sales function takes over. Therefore, we suggest a 50% ownership of business fore-casts to sales function during the first stage (period 12). Again, the percentage ownership is only suggestive and may be suitably modified by different firms to suit their specific needs. Application of this framework has been found quite effective in a few select firms in the fast moving consumer goods sector and may be suitably adapted to other sectors.

1.2.5 What Should be Discussed in S&OP Meetings?Effective S&OP involves more than just holding formal reg-ular meetings. Akey aspect here is related to what should be discussed in S&OP meetings and how to go about it. The demand and supply plans, financial plans, strategic business goals and unresolved issues from previous meet-ings should be reviewed and resolved. All efforts should be concentrated on making these meetings focussed, rel-evant and productive. In general, the following informa-tion should be examined in an S&OP Meeting {most firms use Excel based extensions of Tables 1 and 3 (described subsequently) to examine these}:

Forecast demand and corresponding revenue. Production plan and cost of sale projections. Inventory positions/levels. Financial budget versus actual comparison (profit and

loss, balance sheet and cash flow). Raw material purchase projections. Forecast capacity utilization compared to past performance. Forecast labour utilization compared to past performance.

Each S&OP meeting should focus primarily on the next three to six months and less on both the longer term hori-zon as well as the near immediate period. There should also be sufficient debate on numbers undergoing transi-tions (change of ownership stakes). Apragmatic approach would be to focus on the important few rather than the trivial many; we suggest focusing on top 80% SKUs at brand pack level. The main items for discussions on cur-rent to six months out should focus on customer service improvement efforts, upcoming demand programs, current and next quarter supply issues and their impacts, and short term supply strategies. Similarly, for the period beyond six months, the meeting should primarily discuss and debate longer term demand trends, future new product intro-ductions and longer term supply issues and their possible impact. For the transition from period 7 to 6, the meetings should foster a debate between demand planners number and business management number. For transition from period 3 to 2, there should be a debate between business



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2. Managerial ImplicationsThe whole objective of S&OP is to improve collaboration between the firm and its external partners, create greater supplier effectiveness, reduce cycle time and procurement costs, lower operating costs and reduce order fulfilment times, increase inventory turns and reduce cash-to-cash cycle time, concentrate more thoroughly on building cus-tomer loyalty and enhancing their satisfaction, enhance sales organization effectiveness and finally improve return on net assets. The balance and trade-off between the supply and demand of a supply chain need to be managed taking into account what is best for total business, not just individ-ual targets. S&OP may be used as a lever for better collabo-ration with suppliers and customers. Further, firms should use it in buyer-supplier integration for joint capacity plan-ning. The supply side of S&OP process should emphasise out-of-the-box thinking, and the analysis should incorpo-rate the availability of finished product inventory.

Managers need to understand and appreciate that S&OP is simply not just an Information and Communications Technology (ICT) system. It cannot be bought as an off-the-shelf package. It is also not a well-administered suite of reports. At its heart is one number one plan, which requires a maturity and honesty from a business that cannot be gen-erated out of a box. To this end, S&OP is a culture, a phi-losophy, a firms way of working. Consequently, the process should account for internal and external factors. It should consider elements such as price changes, lead times, sales plans, product promotions and new product launches. Similarly, it should consider elements such as customer inputs, market trends, competitions activities, trajectory of the economy and regulatory considerations. Meetings should be held routinely to ensure continuous focus.

One CSF that may easily get overlooked is that the qual-ity of the whole S&OP process is only as good as the data and the detailed demand and supply plans that support it. Using integrated Supply Chain Planning software generally improves these plans. Improving the quality of the forecast using DP has a big positive impact as it is the input to all of

conservative financial projection for budgeting purposes, or it may reduce/increase the latest financial estimate to align with the anticipated demand due to new trend infor-mation or business intelligence, or it may modify the exist-ing promotional plans to support an additional market consumption driven program.

In real-life, the actual SKU availability generally dif-fers from the sales forecast. In case of shortage, a rev-enue shortfall arises. Agap fill exercise is simply creating a strategy to fill the revenue gap. Table 3 illustrates the manner in which a gap fill opportunity may arise. It shows that due to shortage of SKUs 4, 5 and 6, the firm is facing a revenue shortfall of $1600. However, there is a maximum gap fill opportunity of $4900 due to excess availability of SKUs 2 and 3. Now, this firm may exer-cise various gap-fill options. For instance, it may carry out a trade blitz on SKU2 in particular month(s) so as to generate additional $500 revenue due to additional sales; alternatively, it may release print advertisements of SKU2 which may generate additional $350. Similarly, it may offer a buy 5, get 1 free type offer on SKU 3 to improve offtake by $800. In practice, the firms use a judicious mix of these options.

Figure 3. Platform to align the plans on a continuous basis to avoid surprises.

Table3. Illustration for gap fill opportunity

SKUname

Unit price(in $)

Sales forecast(in units)

Forecast revenue(in $)

SKU availability(in units)

Shortage/Excess(in units)

Revenue shortfall(in $)

Gap-fill opportunity(in $)

SKU1 2 100 200 100 0 0 0SKU2 1 2500 2500 3000 500 0 500SKU3 4 900 3600 2000 1100 0 4400SKU4 2 1500 3000 1000 -500 1000 0SKU5 3 2000 6000 1900 -100 300 0SKU6 5 360 1800 300 -60 300 0Total 17100 1600 4900



satisfaction, performance and profitability. However, there are still many challenges. These range from the lack of a mature process, missing executive management commit-ment and/or the absence of an enabling ICT infrastructure.

Once the S&OP process is institutionalised, it will enhance supply chain efficiency in the long run. It will also help the supply chain partners to understand and overcome supply chain risks caused due to market volatility. For this, firms must develop and deploy excellent leadership capa-bilities so that S&OP processes are in place and supported well. Achieving optimised supply-demand decision mak-ing requires the successful implementation of bridging processes among customer-facing managers from sales, marketing and customer services; and supply-facing man-agers from manufacturing, operations, logistics, supply chain and procurement. So, the organization structures need to be in complete alignment with the supply chain efficiency objectives. The framework we have suggested in this paper may prove practical and useful for this.

While many organizations believe near real-time demand sensing and shaping would help them achieve bet-ter S&OP results, very few have been successful in imple-menting it as part of their S&OP practices. So, academics and software developers must pursue sophisticated and realistic models that can be deployed by firms as they strive for real plan integration and profit optimization. Address-ing demand predictability and variability in the tail and accommodating lumpy demands need to be taken care of. Similarly, novel methods for developing shelf level fore-casts may be developed. Advances in Operations Research (OR) and ICT are likely to make this possible cost-effec-tively. Firms should also try calibrating exceptions and spot trends with point-of-sales data. Another issue many firms face is whether to buy application software from their ERP vendors or from independent firms commonly known as best-of breed vendors. In many cases, firms find that the functionality they require is either insufficient or nonexist-ent within their ERP systems. The fallacy lies in expecting technology to solve a process challenge21.

We focus mainly on people and process perspective as these are the key drivers to improve S&OP and not much on technology as it is only an enabler. Although, the frame-work suggested by us has given reasonably good initial results in FMCG sector, detailed empirical studies need to be carried out to test and validate this framework in FMCG as well as other sectors. To make S&OP more effective, the role of other stakeholders need to be defined in a similar fashion as we have done for the demand planner. Another high potential area of research, especially in global corpo-rations, is deciding which S&OP processes are to be man-aged at category or regional level and which ones are to be managed at the global level and how to finally reconcile them effectively. Similarly, for addressing the standardiza-tion issue, a new demand based approach using advanced

the downstream planning processes. Supply Planning using Advanced Planning and Scheduling (APS) tools that con-sider realistic production and material constraints maxim-ise the benefits of a good forecast by improving inventory and production plans and customer service levels. Selecting a Supply Chain Planning suite where the DP, Supply Plan-ning and the S&OP modules are fully integrated signifi-cantly speeds up the mechanics of the S&OP process. S&OP software also can automatically highlight exceptions where there is an imbalance between demand and supply and allow the user to drill down and view the underlying data from multiple dimensions. This helps users not only find the source of the problems but suggest possible paths to res-olution. The Supply Chain and S&OP Planning software can enable workflow with good audit trails and save messages to make the planning processes more robust. This improves direct communication of the planning decisions for track-ing and monitoring compliance across the organization.

The S&OP process is a decision making toolmanag-ers should not confuse it with having meetings to moni-tor progress. They have to take decisions and drive them through. It is a formal business planning process owned by them. As suggested by Lapide27, each functional area needs to contribute its own expertise to make the S&OP process a success. Another area managers need to focus from S&OP perspective is to make budgeting less complex and more accurate. Firms need an enabling ICT infrastructure for supply-demand synchronization within themselves and across their supply chains. Present ERP systems are pre-dominantly supply driven. Perhaps, managers need to shift to demand based system from these for improving the S&OP effectiveness as suggested by Burrows26.

3. Conclusions and Future ResearchBasu28 discusses transition from enterprise to collaborative supply chain and tries to find new methods for better busi-ness performance management. S&OP is one such process to attain the same. As an organizational process, it has now been around for more than 20 years and aims to bring about better demand-supply synchronization in firms and supply chains. It has since evolved into a more mature process that focuses on profitability, customer centricity and business transformation. Increasingly, S&OP is gaining importance as a formal process that reconciles sales, demands, supply and financial plans into a one-number plan that enables management to make trade-offs, choose priorities and keep people working towards common goals. S&OP strategies help firms make right-timed planning decisions for the best combination of products, customers and markets to serve. S&OP process is very crucial for business and supply chain success and is at its best when truly used for decision making directly impacting the product portfolio, customer



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