Strategy-Driven S&OP: have the key figures at your fingertips

Bram Desmet
Jun 21, 2018 12:00:00 PM

Sales & Operations Planning (S&OP) meetings have absolutely proven their worth since it’s the ideal occasion to balance service, cost and cash (or inventory). By doing so, companies can maximize their shareholder value. However, in a lot of organizations the S&OP meetings are reduced to an executive process and are no longer attended by the C-level management. That’s regrettable, because the ultimate goal is to maximize the Return On Capital Employed (ROCE) and that’s a financial metric of importance for the entire organization.

Strategy-Driven S&OP meetings

To succeed in keeping the attention of the CEO and other C-suite members for S&OP, you should build a business story with a fraction of your Key Performance Indicators (KPIs). Choose the ones that lead to an integrated set of key financial metrics and that are showing the path where the business is heading to. and which actions to take depending on the course. If you want to have a steering role, with the S&OP meetings as your satellite navigation, you need to go beyond ‛On Time and In Full’ (OTIF) delivery performance and inventory turns as a discussion. You should also definitely avoid losing half of the time in discussions about the numbers. Having a real-time, strategy-driven KPI dashboard that gives an overview in one glance and shows which actions to take depending on the chosen course, can really make the difference.

A best practice example

Many S&OP meetings get killed by PowerPoints showing graph after graph. When reviewing your business, do it on a high and aggregated level, as shown in the figure below.

Strategy-Driven S&OP KPI Dashboard

Example of a strategy-driven KPI dashboard for a product leader

The iPad KPI dashboard shows the key financial metrics for a product-leader company. Thereby, the actual performance, the delta with the budget and the delta with the previous year is displayed. As you can deduct from this dashboard, the product-leader company had a huge success with a major new product. The new product is propelling sales ahead of the targets and significantly beyond last years’ performance. That’s all very well, but there’s also a downside of the success: the suppliers are unable to follow the growth rate. The OTIF metrics are decreasing and the lead time is significantly increasing. All the expedited shipments and last-minute production changeovers are weighing on our direct material costs and our Cost Of Goods Sold (COGS), which weighs, in turn, on the EBIT (below budget). However, from a ROCE perspective, the company is still on schedule, as the lower than planned EBIT is offset by a lower working capital.

Having this state-of-the-business in a one-slide overview makes it possible to focus on the essentials and the business issues. In the above case, amongst other things, the exploration of alternative suppliers or alternatives to speed up the supply of key components and their impact on the top-line, the bottom-line and the ROCE could be discussed during the S&OP meeting. This kind of discussions will keep your CEO in the meeting instead of out.

Well prepared is half won

If the S&OP meeting is not pitched at the right level, the C-level management will eventually disengage, which is detrimental to the overall process. If the final decisions have to be made outside the meeting room, it will increase the frustration of the S&OP members who are present and ultimately hollow out the process. However, if you steer the S&OP meetings based on strategy-driven metrics, you’ll end up with strategy-driven discussions and those should be well prepared to bear fruit. That is why some companies will hold a pre-S&OP meeting, preferably with the CEO or divisional president.

During the pre-S&OP process you can ensure that the relevant questions get listed, so that the different alternatives can be explored. Think of questions such as ‘when do we expect supply to start matching demand?’, ‘what kind of commitments are we making to suppliers for them to expand their capacities?’, ‘what is the potential impact on inventory build-ups, free cash flow and write-offs?’ and ‘which customers are first served?’.

If you know the questions, and can propose alternative answers, you will be assured of the top executive buy-in at the time you organize the broader S&OP meeting. Ultimately, this way, you will have a true Executive S&OP meeting, with important decisions made during the meeting.

Interested in more? You should definitely read our complete vision on "Strategy Driven S&OP"

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