The real business case for S&OP?
The military use the same approach in a much more life-threatening environment. By going through different simulations of potential events and related responses, commanders test and evaluate approaches before any operation starts. By doing this, they win time during the operation, avoiding to have to think through the impact of each single action before putting it into action.
Only in the business world, we still assume that one group in the enterprise can predict the future so well that we can base all other decisions based on that single prediction. We do not spend time thinking together about what could happen, how the market could evolve and how that would impact our operations, when a competitor could launch a new product that would disturb demand for ours, what would happen if a key customer changes his consumption behavior and how we will respond to that. Nothing of that. Or maybe once, from time to time, in a very improvised manner.
Sales & Operations Planning can be just the process we need to think several moves ahead. A structured process involving all key players in the value chain, sufficiently aggregated to allow for quick understanding and definition of scenarios, with a horizon that is long enough to see the impact of potential decisions and plan for a sequence of events and decisions. We know the process for years already but few companies use it at its full potential. Instead of focusing on obtaining the best possible forecast, shouldn’t we be focusing on quickly creating a number of potential estimates of market behavior? Instead of trying to get the most reliable capacity data, shouldn’t we be more concerned about what could happen to scarce resources and test the impact of potential disruptions?
Instead of trying to agree on one single plan, shouldn’t we spend more effort documenting the scenarios and the actions to take in each of them? With the scenarios spelled out and discussed, wouldn’t we be able to run operations with more peace of mind, knowing that whatever happens, we all know how to respond?
Sometimes people ask me what the Business Case is for S&OP. And then they mean numbers. Monetary values preferably. To calculate the return on investment of implementing S&OP. Maybe I should start my answer by what I wrote here? Would you ask a chess player what his business case was for thinking ahead? Or the military for running its simulations? The real business case is “Taking better decisions”. Avoid taking decisions only to discover that they have some serious unexpected side effects. Avoid losing precious days or weeks before we react on an event because we have to improvise a response together.
In each company, you can probably illustrate the cost of wrong decisions by listing numbers of extreme crisis situations and the fortunes that it took to limit their impact. But that is only the top of the iceberg. Wrong decisions, or good decisions taken too late, create unnecessary pressure on an organization. Instead of focusing on growth, or profitability, or on strengthening the company’s competitive position, employees and management will spend their time in defense mode. They will forget to work for the success of the enterprise and start working for its survival.
Can a company in such a situation still be agile? Yes it can. By running from crisis to crisis. By creating more and more pressure. By spending more and more money to avoid the worst. But efficient agility, requires that a company thinks like a chess player, thinking 8 moves ahead. If it is used well, Sales & Operations Planning is the perfect process to do so.