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By John R. Dougherty

 

When we were little kids, we always looked up to the big kids (our siblings, the neighborhood kids) as guides to what was fun and cool.  As we grew and changed, so did our guides – school chums, cousins, and kids from other neighborhoods.  As adults we learned that it wasn’t always the older, bigger, flashier people who made the best role models.  We saw the need for substance as well as style.  These life lessons are true in the business world as well.

 

“Best Practice” model companies aren’t just the biggest, oldest, most famous organizations.  They are companies with valuable, proven experiences in particular processes or behaviors.  These organizations have figured out how to get the most out of the latest “hot” management approaches.  And they’ve done it in an institutionalized, sustainable manner that produces real business results.

 

In this article, we’ll look at the Sales and Operations Planning (S&OP) experiences of several “Best Practice” companies, with particular emphasis on how S&OP works with other business processes and approaches.

 

But first......

 

 

S&OP – What’s In a Name?

 

As in any field, over time, the use of terms and acronyms gets sloppy.  Some people will expand a term to include new meanings beyond the scope of the original concept.  Others may narrow a term to focus on one particular aspect of its original meaning.

 

For example, today some see S&OP as primarily focused on maintaining and improving forecast accuracy – this narrows the meaning.  Others are beginning to use it in an expanded sense to include the functions of tactical market planning, customer order management, master scheduling and detailed weekly planning.

 

Because this is confusing, still others have tried to coin new terms to try to clarify communication.  Some of these new terms include “Enterprise S&OP”, “Executive S&OP”, “Integrated Business Management” and “Sales, Inventory and Operations Planning (SIOP)”. 

 

There are several very good reasons for sticking with the original term “sales and operations planning (S&OP)”: 

 

1)   All of the new terms have essentially the same meaning as the original, traditional term.  Using a new term to describe the process simply encourages others to use the old term incorrectly.

2)    Most “Best Practice” companies in our experience use the traditional terminology and haven’t found a need to redefine (narrow or expand) the term, or invent a new one.

3)   The simplest way to communicate (and the one consistent with the body of knowledge of this over twenty year old process) is to continue to use the term that has been used for most of those twenty years. 

 

In this article, as in my other writing, I continue to use the original term, whose scope and meaning (as defined below) has remained relatively unchanged over the years.

 

 

S&OP – A Refresher

 

S&OP is a business process that gives management control based on a current knowledge of the market and the company’s internal capabilities, while fostering effective and timely cross-functional communication and decision-making.

 

This is done by monitoring and managing demand and supply at a family, volume level.  S&OP acts as the linchpin to pull together and reconcile other separate, distinct but connected business processes including strategic planning, sales and marketing planning, financial planning, detailed sales forecasting, customer order management, master production scheduling, distribution resource planning, and rough cut capacity planning.

 

There is typically a five-step monthly process comprised of Data Gathering and Review, Demand Planning, Supply Planning, Partnership Meeting(s) and Executive Meeting(s). 

 

The end result, when done properly, is excellent customer service, well managed inventories and properly utilized resources.  And it ensures institutionalized communications so that the entire organization is informed of the latest business decisions related to supply, demand, inventory and customer backlogs.

 

Let’s now take a look at how some “Best Practice” companies use S&OP in different business environments.

 

 

Coca-Cola Midi (CCM)

 

This is a regional manufacturing division of Coca-Cola located in France, producing soft drink concentrates and juice beverage bases for Europe, Asia andAfrica.  CCM manufactures over 700 SKU’s, encompassing 79,000 tons of product, representing hundreds of millions of sales dollars.  They have 220 direct employees.

 

72% of their product volume is completely produced and handled by third party fruit juice processors. Here juices are delivered from the processors directly to Coca-Cola bottling operations, third-party packers and other customer locations.   For these products, CCM provides sourcing, specialized analytical testing of juice samples prior to shipment, and logistics coordination services.

 

Supply Chain Management

 

ERP and S&OP were implemented at CCM when the plant was started in 1991.  Coca-Cola Midi sees S&OP as the backbone for all planning, manufacturing and supply-chain activities.  This is especially true of their extensive supply chain coordination efforts to synchronize the flow of product from all their suppliers and manufacturing partners to all the canning and bottling locations that use their product.

 

In fact, there are monthly “Operational Meetings with Suppliers”

which occur after the final executive S&OP meeting.  Face-to-face meetings cover four suppliers representing 71% of total juice volume.  Volume changes are implemented based upon agreed-upon time limits within select time frames.  These meetings also address:

o       Inventory and demand management issues

o       Product in QA quarantine

o       Service defect rates and corrective actions

o       Improvements planned and requested

 

An Early Start (And Finish) To S&OP

 

CCM’s monthly S&OP process actually begins ten days before the month end, when preliminary demand data is updated based on the requirements from sister Coca-Cola divisions.  This data is updated over the next two weeks as actual results occur.  This allows the whole S&OP process to be completed four days into the new month!

 

S&OP enables disciplined and formalized communications across the company, and between all their suppliers, partners and customers.  It also has facilitated a transition from a low mix/high volume environment to a high mix/medium volume environment.  Continuous improvements in customer service, inventory management, obsolete products, and freight costs have been the result of S&OP coordinating all their improvement efforts.

 

 

A Major Medical Company

 

This company generates over three quarters of a billion dollars in sales of medical devices and consumable products annually. 

 

Their headquarters and four plants are in the US, with one plant in Europe, and extensive sales and distribution organizations in North America, Europe, Japanand other areas of the world.  They have over 4000 employees, and represent a merger of five divisions of other large companies into one new integrated business.  Each of these five divisions came with pre-existing ERP and S&OP processes. 

 

There were extensive efforts in the company to standardize and synchronize each S&OP process into one common company-wide process.  A team with representatives from all five businesses and all functions analyzed the best practices from each of the five pre-existing businesses.  They then reconciled and incorporated the “best of the best” into one company-wide process design, to ensure consistent practices and easily integrated data throughout the organization.

 

S&OP was seen as the “glue” to bring the five different businesses together.  It also is a vital management communication and decision-making process that supports their matrix management approach to managing multiple business lines in multiple regions across the globe.

 

Matrix Management

 

The company’s management processes have evolved and improved based on a very effective, cross-functional, team-based, global, “matrix management” approach. 

 

To keep the appropriate individuals focused on their respective product issues, there are ten S&OP Partnership meetings reviewing all the supply, demand and inventory data covering 27 product lines or categories.  Many of these meetings are held consecutively on the same day.  They last three to six hours and have director level participants.

 

Five Executive S&OP meetings (typically three hours long) are conducted by “Product Teams” for each of the five business lines, encompassing all products, including consumables, supplies and medical devices.  However, unlike many companies where the business leader responsible for the executive S&OP meeting has the title of general manager or CEO or COO, in this company there are no business unit or product team general managers or “executives in charge”. Instead each team is comprised of a cross-functional group of vice presidents, with a designated facilitator (sometimes a marketing person, sometimes an operations person) who guides the process. 

 

Generally all of these teams reach consensus on the decisions that need to be made.  In those rare cases where this doesn’t happen, the issues are forwarded to corporate headquarters for final resolution.

 

Though difficult, this management approach works because the participants are fully committed to team principles, values and standards of behavior, and because there is a well defined S&OP process to guide the teams’ communications and decision-making.

 

Lean Manufacturing

 

In this medical company vigorous efforts have been underway over the past years to implement lean manufacturing for shorter leadtimes, lower costs and improved flexibility.  Lean manufacturing has streamlined, simplified and shortened the S&OP process.  In turn, S&OP governs the lean manufacturing plant processes and provides the medium to long-term planning view that is missing in a lean execution system.  The S&OP process is used to target areas for lean manufacturing implementation and to monitor progress of those projects.

 

Lean and S&OP together have driven customer service levels above 98% and helped reduce inventory by over $100 million over the past years.  Supply chain and customer leadtimes have been drastically reduced, with an increase in flexibility throughout the supply chain.

 

 

Eli Lilly & Company

 

This global pharmaceutical company has over $14 billion in sales with 37,000 employees, and inventories of $1.7 billion.  Their 65 products are sold in 8000 different SKU’s, into markets in 146 countries, through 130 sales affiliate divisions.

 

Each of these sales affiliates maintains forecasts and inventory replenishment orders over a 24 month horizon.  This demand planning data is summarized into four regional areas on a monthly basis, and reviewed and approved by senior sales and marketing managers.

 

More Supply Chain Management

 

Lilly has 22 global manufacturing sites in 12 countries, grouped into four global “Networks”, each with different manufacturing technology and types of product. Many of their eighty 3rd party manufacturers in 33 different countries are managed as part of two “hubs” in North America and Europe, each of which have their own S&OP supply planning processes.  The other third-party manufacturers are incorporated into the supply planning processes of the local plant site that coordinates their activities.

 

A corporate Supply Chain organization guides the planning processes that include manufacturing resource planning (MRPII) or enterprise resource planning (ERP), distribution resource planning (DRP), and an advanced planning system (APS) used to schedule their manufacturing sites in a way that avoids overloads and minimizes inventories and leadtimes.

 

This complex supply chain requires extensive efforts in the area of global supply chain management, with S&OP guiding the demand and supply management efforts, and providing a forum to manage, improve and communicate change effectively.

 

            New Products

 

Much of Lilly’s business success can be attributed to the most productive new product development pipeline in the industry (10 new products in three years, five times the industry average).  As one Lilly manager said: “The value of S&OP at Lilly has been the ability to launch all of our new products in a very complex environment without adding significant cost, resources or inventories.  We have managed a strong customer service performance metric while controlling our growth in assets.”

 

S&OP has provided the vision, communication and decision-making mechanism to carefully plan and execute the launch of their new products across multiple markets in a time-phased fashion.  It also has been a major planning method for making decisions on products coming off patent, which are often outsourced to third party manufacturers, thus freeing capacity in Lilly plants to produce the new products being introduced.

 

Lilly has maintained customer service close to 98%, while reducing inventory $500 million, even though the product portfolio has grown rapidly. 

 

 

Summary

 

Ten other “Best Practice” companies in our study have realized benefits similar to these three companies.  Improvements in customer service, inventory management, and cost management, as well more effective implementation of other business process improvements can be directly tied to S&OP.  And customer relationships have been enhanced with better visibility and planning.

 

The lessons learned have been consistent as well.  The key is people: top management leadership, cross-functional participation and teamwork.  Accurate information in standard display formats is a key cornerstone, along with performance measurements or key process indicators (KPI’s), and education and training in a step-by-step implementation process.  This is enhanced based on a widespread attitude seeking continuous improvement, which often leads to a lowered level of decision-making, and streamlined processes.

 

The best practice companies all agree: S&OP means better control, through the power of knowledge, with a regularly updated vision, and an effective cross-functional communication and decision-making process.

 

 John Dougherty, is a founding senior partner of Partners for Excellence, specializing in hands-on consulting and tailored education in S&OP, and other demand and supply management processes.  With Christopher Gray, he authored the book, Sales & Operations Planning – Best Practices, Lessons Learned from Worldwide Companies.  Contact John @ This email address is being protected from spambots. You need JavaScript enabled to view it.