Make S&OP a regular process

To achieve a high-quality decision-making process, it is important to fix the decision-making structure and incorporate it into a routine, periodic, cross-functional process that clearly indicates WHO does WHAT WHEN. To break through the buffers (silo effect) between operations and sales, best-in-class companies set up multi-disciplinary teams to manage the cross-functional processes that they have created, says academic director Freek Aertsen.

A  clear  guideline  is  required  on  who  will  be  responsible  for what. Which products to forecast statistically and which to forecast judgmentally should also be clearly defined. This leads to increased involvement and increases the quality of the demand forecast.

Participants in S&OP meetings from the various different functional areas must have decision-making authority. A clear insight into the boundary conditions must be prepared in advance to avoid situations where decisions made at the meeting are merely reversed by senior management after the meeting.

An important success factor for this meeting is the participation - preferably in chairman’s role – of a business manager who can enforce decisions in the event of a dispute. He/she should be able to bring a balance when discussing business and interpreting figures and trends during the meeting. Another suggestion is for the sales director to chair a formal ‘forecast sign-off meeting’.

A major challenge experienced by many companies is how to engage sales & marketing in the forecasting process and make them  take  ownership  of  the  forecast  (Aertsen  and  Wouters, 2008). Involving them in the forecasting process is often regarded as challenging, but it is a prerequisite to generating high-quality forecasts. Frequent statements, such as, “My job is selling, not forecasting,” clearly show that many sales & marketing people feel  that forecasting  is  simply  not  part  of  their  job.  Unlike supply chain management people, their lack of familiarity with Enterprise Resource Planning (ERP) or advanced forecasting systems makes it even less likely that sales & marketing could produce a good forecast. Requesting an SKU forecast six months ahead would already be difficult. Locating a dedicated demand/supply coordinator in the marketing & sales office is a proven critical success factor.

As a general rule, it is most important that participants use the language of business and reach value-based instead of volume- based decisions. Sales & marketing should only be encouraged only to provide input when and where it really adds value. Moreover, the focus should be maintained on exceptions, issues and risks.

One way of encouraging the participation of sales in   forecasting is to prioritize orders for which a forecast is available. Another method that has produced positive results in some companies is to tie sales bonuses to forecast accuracy. This has proven especially effective when used to stress the importance of demand planning during the start-up phase of the process. However, linking performance to the attainment of forecasts does run the risk of tempting the phenomenon known as ‘gaming’ or   ‘sandbagging’ to the process. This is when executives deliberately understate forecasts to increase the probability they will match or exceed targets.