Executive Sales & Operations Planning: Cost and Benefit Analysis

By Wallace, Tom | The Journal of Business Forecasting, Fall 2010 | Go to article overview

Executive Sales & Operations Planning: Cost and Benefit Analysis


Wallace, Tom, The Journal of Business Forecasting


EXECUTIVE SUMMARY | "How much does this S&OP stuff cost?" is heard more and more frequently these days. This article addresses that issue, first by discussing the benefits achieved by real-world companies and then by identifying the relevant costs involved in implementation. The basis for this analysis is 13 companies from all over the world, in a wide variety of industries, and all successful users of the S&OP process.

Often companies go through a Cost/Benefi t Analysis (CBA) before implementing any initiative. But to many people's surprise, there has often been no CBA for the implementation of the Executive Sales & Operations Planning (S&OP) process partly because the cost of doing it is extremely low. And because it is so low cost, many companies went ahead and implemented it without jumping through the CBA hoop. In the last few years, however, executives are asking questions: How much does it cost? What do we get back? What's the payback period? In this article I attempt to answer these questions.

The Best Practices Project

Some years ago, we initiated a project to study companies that are using Executive S&OP very well. We studied 13 companies, which is not really a true random sample but rather it included organizations that arewell known to my colleagues and me, and we were certain that they were operating the process eff ectively. This project resulted in a book: Sales & Operations Planning: Best Practices, by John Dougherty and Chris Gray. We personally approached each of these companies and obtained data on benefi ts the companies received. For some kinds of benefi ts, almost all 13 companies responded: customer service, inventory levels, and productivity. These are shown below. Other benefi ts - examples being improved new product launch, shorter lead times, reduced obsolescence - were cited by fewer companies and thus are not included here.

A LOOK AT THE COMPANIES

The companies participating in the study are shown in Table 1. There are two types of benefi ts-hard and soft. Hard benefi ts are the ones we can quantify and measure such as improvement in on-time delivery to customers, inventory levels, manufacturing downtime, plant effi ciency, and transportation cost. The soft benefi ts, on the other hand, cannot be quantifi ed, but they are equally important.

HARD BENEFITS

Table 2 gives hard benefi ts that participating companies received by implementing the Executive S&OP process, and the benefi ts, as can be seen, are quite signifi cant. For example, on average, on-time delivery to customers improved by 25%, inventory levels went down by 41%, and manufacturing down time decreased by 35%.

SOFT BENEFITS

Soft benefi ts, as mentioned earlier, are diffi cult to quantity though they can be as important, if not more, than hard benefi ts. They include:

* Enhanced teamwork

* Embedded communications

* Better decisions and better fi nancial plans

* More focused accountability and greater control

* A window into the future

Let's take a look at each one of them.

Enhanced Teamwork: Executive S&OP (the process, not the term) was "invented" in the late 1970s at Abbott Laboratories, U.S. Pharmaceutical Division. At the time, they called it "Game Planning." The president of that division said that the process enabled his staff to "view the business through my glasses." In other words, the VP of Marketing could clearly see the situation from the Operations side of the business, and VP of Operations could see it from the side of Marketing and Sales. The same holds for the VPs of Finance and New Product Development.

Seeing from the other function's perspective and working together to solve problems build teamwork. This occurs at the top management level as well as middle management. I tell people if they've implemented Executive S&OP and teamwork hasn't visibly improved, then they haven't implemented it correctly. …

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