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Sales and Operations

Planning

Measuring Maturity and Opportunity for

Operational Performance Management

White Paper

Aligning Business and IT to Improve Performance

Ventana Research Europe 2nd floor, Berkeley Square House Berkeley Square, W1J 6BD London europe@ventanaresearch.com 44 (0) 20 7887 6012 Ventana Research Headquarters

1900 South Norfolk Street, Suite 280 San Mateo, CA 94403

info@ventanaresearch.com (650) 931-0880

Aligning Business and IT to Improve Performance

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VENDOR SPONSOR

MEDIA SPONSORS

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San Mateo, California September 2006

Ventana Research performed this research for a fee to determine the needs and practices of organizations that perform sales and operations planning (S&OP). This document is based on our research and analysis of a quantitative survey administered via the Internet to qualified respondents. Qualification was based upon involvement with the sales and operations planning process.

This research was designed to investigate the practices and needs of individuals and organizations that use or are considering using dedicated S&OP software. This research is not intended for use outside of this context and does not imply that organizations are guaranteed success by using only these results to improve organizational productivity. Moreover, gaining the most benefit from your operational S&OP applications, either custom-built or vendor-developed, requires an assessment of your organization’s unique needs.

We certify that Ventana Research wrote and edited this report independently, that the analysis contained herein is a faithful representation of our evaluation based on our

experience with and knowledge of sales and operations planning, and that the analysis and conclusions are entirely our own.

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Table of Contents

Executive Summary... 5

About This Study ... 7

Methodology... 7

Demographics... 8

Key Insights... 12

Competitive pressures are driving S&OP improvements... 12

Globalization adds complexity. ... 12

Most companies are new to S&OP and so lack a rigorous process. ... 12

There is confusion about the goal of S&OP. ... 13

Benefits are not being measured. ... 13

Most companies plan in isolated units... 13

Only a few companies innovate in S&OP. ... 13

Executive sponsorship and Finance involvement are important... 13

When S&OP is the plan of record, performance improves... 13

Improving the process a little brings big gains. ... 14

Dedicated software is the right tool for the job... 14

Users are technologically savvy. ... 15

Maturity Model Analysis ... 15

What To Do Next ... 16 People ... 16 Process... 16 Technology... 17 Performance Management ... 18 Achieving Success ... 18

About Ventana Research ... 19

List of Figures

Qualified Respondents by Global Region ... 8

Qualified Respondents by Function ... 9

Qualified Respondents by Industry ... 9

Qualified Respondents by Organization’s Revenue... 10

Qualified Respondents by Number of Employees... 11

S&OP Maturity: Overall ... 15

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Executive Summary

This research study explores the deployment and business use of sales and operations planning (S&OP) processes. Ventana Research undertook this study to evaluate the market, to determine organizations’ maturity and to identify trends and priorities in their adoption. We promoted the study through our media partners in North America and around the world. It elicited a high level of response, allowing us to base our findings on analysis of 470

validated responses. The qualified respondents represent companies whose annual revenues span from US$100 million to more than US$1 billion. Every significant industry is

represented. In terms of people, the size of the companies represented spans from 100 to more than 10,000 employees. The respondents themselves came from various parts of their companies, including executive management, operations and information technology.

Our survey defined S&OP as a set of planning and decision-making processes that not only balance product supply and demand but also link day-to-day operations with business goals, operational planning and financial planning. The purpose of S&OP is to enable decision-makers to reach consensus on a single operating plan that allocates critical resources purposefully to reach corporate performance targets.

We divided our survey questions into four categories, focusing on the people, process, technology and performance management aspects of S&OP, and we evaluated the maturity of organizational deployment and use of S&OP from each of those perspectives. The

Ventana Research Maturity ModelTM categorizes and evaluates maturity using four levels: Tactical, Advanced, Strategic and Innovative. Overall, we found that most companies are new to S&OP; the bulk of those surveyed practice S&OP at either the Tactical or Advanced level. Only 16 percent of companies could be considered innovative, by which we mean that they run S&OP with performance management techniques. As a whole – across all the elements of S&OP – most companies have substantial room for improvement.

Even though best practices have been known for almost 20 years, our research reveals that only 35 percent of companies have had a formal S&OP process in place for more than five years. Thus, most companies lack the process rigor such as would be found in their financial accounting and reporting processes. Still, some companies are disciplined about the inputs, outputs and departmental involvement in S&OP.

This research reveals that organizations that do apply rigor and utilize dedicated software outperform those that do not. In particular, we found four significant insights:

First, improving the S&OP process even a little can bring significant gain. Our survey found that most firms (58 percent) do not have formal meetings to review demand and supply, do not address multiple lines of business or brands in those meetings and do not have strict agendas for their top-level S&OP meeting. Here again, we found that those that do these things outperform those that don’t. We also found that companies that take simple steps, such as having plan-vs.-actual reports as part of the top-level S&OP reporting package, report “overwhelming” gains in gross margin (the most strongly positive of the options our question offered). These top-performing companies also create plans monthly, and those plans span 18 months or longer.

Second, when the output of S&OP is used as the plan of record, company performance improves. Specifically, our research found that companies that use S&OP to adjust their finance, sales, marketing and executive management plans realize greater performance gains than those that don’t. We also found that companies that do a good job of aligning

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their financial plans and S&OP plans achieve better results: This alignment was the single most significant contributing factor to “overwhelming” financial gains.

Third, we found that executive sponsorship and involvement matter. Involving Finance and executive management in the S&OP process is the second-most significant factor in

achieving gains in forecast accuracy, customer satisfaction, revenue and profit. For example, overall 42 percent of companies reported they include Finance as part of their S&OP plan development. But 90 percent of companies that report overwhelming gains in revenue, 70 percent reporting gains in gross margin, 56 percent reporting gains in forecast accuracy and 76 percent reporting gains in customer satisfaction told us they include Finance as part of their S&OP process. We also found that companies with CEO or CFO sponsorship achieve greater gains.

Fourth, using dedicated software makes a difference. Most respondents told us that

software is an important element of S&OP (76%). Yet they expressed much dissatisfaction with current technologies. For example, respondents identified difficulty in doing what-if analysis as the number-one concern with their S&OP software. A weakness in the ability to integrate supporting applications is number two. Companies that achieve higher gains are well-satisfied with their current technology, because it includes key features that contribute to performance gains, among them workflow, action item assignment, automated financial plan reconciliation, business initiative and progress tracking and executive reporting and visibility.

We also found that users are technologically savvy. At the top of the wish list of software capabilities are scenario what-if analysis and a real-time S&OP dashboard. Respondents also told us they want collaborative demand planning, automated financial planning

reconciliation and profit-based S&OP. These are features that would solve the process shortcomings they reported.

The full text of our study contains many details about how companies do S&OP today, discusses people, process, technology and performance management issues and offers recommendations on how new technologies can help companies improve performance alignment.

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About This Study

This research study takes a comprehensive look at S&OP processes, assessing how executives in manufacturing, operations, sales, marketing, product development and finance departments view S&OP and the role it is playing or should play in their

organizations. Its results will help executives better understand where and how they can improve their S&OP efforts. The report will enable them to determine how to align their organization’s people, processes and technology for improvement.

S&OP is a set of planning and decision-making processes that not only balance product supply and demand but also link day-to-day operations with business goals, operational planning and financial planning. S&OP enables decision-makers to reach consensus on a single operating plan that allocates critical resources purposefully to reach corporate performance targets. Among other things, best practices for S&OP include consensus demand planning among multiple lines of business or brands, multiple factories or regional operational facilities and formal, executive-level S&OP review meetings. Those formal reviews assure that key decisions about demand, supply, capacity and products are visible to those at the top of the organization.

The study examines how companies actually perform S&OP and what systems and processes they use to support them. It illuminates S&OP practices and shows how those practices support new product and development activities, demand planning and shaping, supply planning and procurement, financial appraisal and reconciliation, and reviews by operations managers and executive management.

We examine S&OP from the perspectives of several corporate constituencies: executives, Operations, Finance and IT. By comparing their responses, we highlight important

differences of perception and attitudes that may prevent companies from moving ahead on S&OP initiatives. The results provide thought leadership and practical advice on the types of S&OP initiatives most likely to provide advantage to companies that embrace them.

The study answers these, among other, questions:

• How and in what areas do S&OP practices influence business performance? • Who has responsibility for the implementation and outcome of S&OP? • To what extent is executive management involved?

• What are the key performance measures (shared metrics) to evaluate the outcomes and the process itself?

• Are there chronic disconnects between strategic objectives and performance metrics? If so, how can they be repaired?

• What is the extent of departmental participation in this process? • What is the role of software in the S&OP process?

Simply put, this study details the existing state of S&OP, identifies people, process and systems issues and assesses their importance for improving corporate performance.

Methodology

Data collected for this study comes from a survey Ventana Research conducted over the Web in July 2006. Survey participation was solicited via e-mail blasts and Web-site invitations. Both Ventana Research and this program’s media sponsors (identified above) originated the e-mail blasts.

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We presented this definition of S&OP to respondents prior to their entry into the survey: Sales and Operations Planning (S&OP) is a set of planning and

decision-making processes that not only balance product supply and demand but also link day-to-day operations with business goals, operational planning and financial planning.

The objective of S&OP is to enable decision-makers to reach consensus on a single operating plan that allocates critical resources to reach corporate performance targets.

The following promotion incented respondents to complete the survey:

As a token of thanks for your time, the first 50 qualified participants will receive a $5.00 Starbucks gift certificate. All qualified participants will receive a $125.00 membership in the Ventana Research Performance Management Community and a research report on the findings.

Demographics

The following charts depict demographic and qualifying data for the respondents who

completed the survey. A total of 952 Web users clicked through to the survey. Of those, 490 answered the first five qualifying questions. Of that group, 470 qualified and completed the survey questions on S&OP.

The most important survey qualification was how long the respondent’s company has had a formal S&OP process in place. Respondents who answered that they have no current

process and no future plans for S&OP did not qualify for the survey. The large majority of qualifiers (85%) was from the United States.

Figure 1

Qualified Respondents by Global Region

Rest of the World 15% United States of

America 85%

Source: Ventana Research

We also identified participants’ functional titles. More than half (56%) of the respondents were from the lines of business, followed by people whose titles identified them as

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performing an IT function (19%). Finance accounted for 13 percent of respondents, and the remaining 12 percent identified themselves as executive management.

Figure 2

Qualified Respondents by Function

Other 9% IT Development 19% Finance 13% Executive Management 12% Supply Planning 8% Sales Management 7% Manufacturing 6% Demand Planning 6% Distribution 6% Marketing 5% Product Development 4% Procurement 3% Order Management 3%

Source: Ventana Research

The survey participants were from a variety of industries. The largest segment (34%) was from manufacturing. This was followed by service industries (18%). About one-tenth (11%) of participants were from the banking and financial industry.

Figure 3

Qualified Respondents by Industry

Manufacturing 34% Services 18% Banking/Financial 11% Computer Software 9% Government-Federal/State/Local 5% Retail 5% Apparel 2% Chemicals/Energy/ Utilities 2% All others 14%

Source: Ventana Research

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The second major survey qualifier was the organization’s revenue. We allowed respondents who said that their organizations earn less than US$100 million in annual revenue to participate in the survey but eliminated their responses from detailed question totals. Almost one-half (49%) of qualifiers reported that they work for organizations that have revenue of less than US$1 billion dollars. More than two-fifths (42%) reported that their organization’s revenue exceeds US$1 billion dollars and 9 percent were not sure what the revenue is.

Figure 4

Qualified Respondents by Organization’s Revenue

Not Sure 9% US$100 million to US$500 million 30% US$500 million to US$1 billion 19% US$1 billion to US$2 billion 16% US$2 billion or more 26%

Source: Ventana Research

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More than three-fourths of the total respondents (76%) were from large organizations (those with more than 1,000 employees). At the other end of the spectrum, midsize and small organizations (both having less than 1,000 employees) comprised only 24 percent of qualifiers.

Figure 5

Qualified Respondents by Number of Employees

5,000 to 9,999 20% Fewer than 100 5% More than 10,000 28% 1,000 to 4,999 28% 100 to 999 19% `

Source: Ventana Research

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Key Insights

Our research yielded the following general findings. We analyze responses to each of the individual questions in the Detailed Findings, which are contained in the full Research Report.

Competitive pressures are driving S&OP improvements.

The top business driver for S&OP improvement projects is competitive pressure to retain customers. Approximately one-third of respondents identified this as the most significant reason for their initiative. Following closely were two other drivers: complexity caused by growth in the number of new products or services and rising customer expectations

concerning order fulfillment. This response pattern shows that many companies are feeling the pressures of increased global competition and rising customer expectations.

Globalization adds complexity.

Our research indicates that the biggest problems created by global sourcing are data collection and data reconciliation. The good news is that only 10 percent of companies reported that these problems cause them to miss their performance targets. The bad news is that these problems create more work for planners. Planning takes more time for global companies since not all the data needed for S&OP in these companies resides within the four walls of the organization. Some of it from comes from trading partners, and the processes of data collection and reconciliation are not automated.

Most companies are new to S&OP and so lack a rigorous process.

Though best practices for S&OP have existed for almost 20 years, most companies are new to it. Nearly two-thirds (65%) of respondents’ companies with a formal S&OP process in place have had it for less than five years; two-thirds of those – 66 percent of those under five years – have had it for less than two years. In contrast, only 35 percent have had S&OP deployed for more than five years.

Nearly one-third (32%) of organizations practice S&OP as tactical, using it for short-term planning for single entities or a single line of business only that focuses on demand (not supply). Many companies (42%) that have multiple factories or regional operating facilities do not include them in S&OP. Most do not include new product introduction plans (57%), do not reconcile financial plans (60%) or account for strategic initiatives and projects (59%). Even fewer (37%) have formal executive S&OP review meetings.

To put this into perspective, companies have been doing rigorous financial accounting in the U.S. for nearly a century. Every day they record millions of business transactions using generally accepted accounting principles (GAAP). These principles – or more precisely, objectives and conventions – have evolved over time to govern how financial statements are prepared and presented. In general, these financial transactions and statements record past events and actions.

In contrast, formal S&OP – the major set of operational processes that link strategy to execution – has been around for only a quarter of a century. But S&OP is about determining future actions, more particularly what will happen in both sales and company operations. It impacts not only demand and supply volumes but also revenue attainment, mix

requirements, inventory levels, asset utilization, profit and ultimately customer satisfaction. Yet our research makes clear that few companies apply the same kind of thoroughness to S&OP as they do to their financial accounting. Ventana Research recommends that

companies seeking true performance management put in place the same kind of rigorous process for their S&OP as they use for their financial accounting and reporting.

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There is confusion about the goal of S&OP.

Survey results show a significant diversity of understanding about the goal of S&OP and its relationship to achieving organizational goals. Only 26 percent of respondents echoed our belief that the goal of S&OP is to align operations with corporate strategy and goals. All other aims, such as making better decisions, are only tactical goals that support strategic goal attainment.

Benefits are not being measured.

The survey sought to identify the benefits users associate with S&OP. We also asked whether companies do in fact measure these benefits. We found the top four benefits to be better customer service, better inventory utilization, better asset utilization and better budgeting. Yet only 18 percent of companies actually measure customer service. Worse still, only 11 percent of companies measure inventory (turns) and only 8 percent measure asset utilization as part of their S&OP. While it is likely that these are measured in some other process, they are largely absent from S&OP, and thus not part of the key set of processes that could promote goal attainment for those measures.

Most companies plan in isolated units.

Respondents told us that the number-one reason their S&OP is not as successful as it could be is that there is not a single forecast across both operations and finance. They also cited as the area of S&OP that needs the most improvement supply and capacity planning, followed by consensus demand planning.

The significance of this finding cannot be overstated. The problem is not IT resources but “silo planning” – business functions planning in isolation from others. Ventana Research maintains that Finance and Operations need to collaborate on forecasts to assure that company financial goals are met; otherwise, Finance likely is projecting one goal and Operations another.

Only a few companies innovate in S&OP.

As part of this study Ventana Research evaluated the maturity of organizational S&OP. Our evaluation found that only 16 percent of companies could be considered innovative (the most mature). On the whole, most companies have a lot of room for improvement in S&OP deployment and utilization.

Executive sponsorship and Finance involvement are important.

Our research found that involving Finance and executive management in the S&OP process is the second-most significant factor in achieving gains in revenue, profit, customer

satisfaction and forecast accuracy. For example, in general 42 percent of companies include Finance as part of their S&OP plan development. But 90 percent of companies that reported overwhelming gains in revenue, 70 percent that reported gains in gross margin, 56 percent that reported gains in forecast accuracy and 76 percent that reported gains in customer satisfaction include Finance as part of their S&OP process.

We also found that companies with CEO or CFO sponsorship achieve the most performance gains. In companies reporting overwhelmingly strong gains in customer satisfaction, either the CEO or the CFO is the sponsor 100 percent of the time, while in all companies, one of these two is the sponsor only about one-third of the time.

When S&OP is the plan of record, performance improves.

Our survey found that companies that use S&OP to adjust their finance, sales, marketing and executive management plans have significantly greater performance gains than those that don’t. We also found that companies that do a good job of aligning their financial plans

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and S&OP plans hit their targets more often. In fact, this was the single most significant factor contributing to overwhelming gain. Most companies reporting overwhelming

improvement in revenue, gross margins, customer satisfaction and forecast accuracy said they align these two plans very well.

Improving the process a little brings big gains.

Even simple improvements, such as having plan-vs.-actual reports as part of the top-level S&OP reporting package, can bring about considerable performance increases. Only about half of companies (53%) currently have plan-vs.-actual reports. But 90 percent of those that reported overwhelming gains in gross margins use them.

We also found that companies that create plans on a monthly basis achieve better

performance than those that create plans once a quarter or once a year. Those that create plans that set horizons of 18 months or longer achieve larger gains than those with shorter horizons such as 12 months or six months.

Also, those organizations that hold formal demand and supply review meetings outperform those that don’t, and companies that include multiple lines of business or brands in their S&OP do better than those that don’t. The third-largest contributing factor to S&OP success is the inclusion of an agenda and key decisions in the top-level S&OP meeting. Again, those that add them outperform those that don’t.

We also found that something as simple as creating an action plan and following up on it contributes to performance improvement. We therefore advise that once you have made decisions in S&OP, make sure that the plan (or plan change) is executed. Tracking this action provides the feedback loop to verify that people comply with decisions.

Dedicated software is the right tool for the job.

More than three out of four respondents (76%) told us that software is an important element of S&OP. More than half of the companies surveyed use software dedicated to S&OP (59%). About one-quarter use nondedicated software (24%), and only 14 percent said their S&OP work is done primarily in spreadsheets (although most augment their systems with spreadsheets).

Vendor-provided S&OP software is the largest category of software used. Almost a third of the companies we surveyed use either a dedicated, stand-alone application (16%) or on-demand software as a service (14%). Yet the largest single category of dedicated software is developed in-house (20%).

Only 20 percent expressed dissatisfaction with their current software. About 25 percent of users were neither satisfied nor dissatisfied. The results show those having no dedicated system or primarily using spreadsheets are the least satisfied. The most fully satisfied are those that have a dedicated, stand-alone software package provided by a vendor (71%). Respondents identified difficulty in doing what-if analysis as their number-one concern with their S&OP software (37%). Lack of integration with supporting applications ranks number two (31%). Respondents confirmed this when they characterized the features they have now vs. the features they want to have.

In contrast, we found that companies that achieve higher gains are well-satisfied with their current technology because it includes key features that contribute to performance gains, among them workflow, action item assignment, automated financial plan reconciliation, business initiative and progress tracking and executive reporting and visibility.

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Users are technologically savvy.

Organization executives that use S&OP know what they want. At the top of respondents’ software wish list are scenario what-if analysis (62%) and real-time S&OP dashboards (60%). Not far behind are collaborative demand planning (53%), automated financial planning reconciliation (53%) and profit-based S&OP (51%) features. These features would solve the process shortcomings reported in our survey.

Maturity Model Analysis

Ventana Research has developed an approach and methodology that we use to assess organizations’ maturity in various business processes, including sales and operations planning. The model applied here to the consolidated results from this survey can be used equally well by individual organizations to evaluate and compare their maturity with others in the survey.

The Ventana Research Maturity Model™ ranks maturity in four levels: Tactical, Advanced, Strategic and Innovative. In applying these categories to S&OP, we define them as follows:

Tactical – The company does only the basics of S&OP, such as demand and supply balancing.

Advanced – The company has progressed in knowledge and skill of S&OP beyond the basics, for example, to formal planning and review meetings.

Strategic – The company uses S&OP to align operational planning with corporate strategic objectives.

Innovative – The company runs S&OP using a variety of performance management techniques.

Figure 6

S&OP Maturity: Overall

26% 23% 16% 35% 0% 5% 10% 15% 20% 25% 30% 35% 40%

Tactical Advanced Strategic Innovative

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Source: Ventana Research

Our research reveals that only 16 percent of companies can be categorized as Innovative. A clear majority of companies (61%) are immature with respect to S&OP – that is, they fall into the Tactical or Advanced category. Some companies exhibit Strategic or Innovative technology characteristics, but as a whole – across all the elements of S&OP – most companies have a great deal of room for improvement.

What To Do Next

Our research confirms that many companies are looking to improve their sales and operations planning process to improve customer satisfaction and gain competitive advantage. Unfortunately, most are not taking advantage of all the benefits of S&OP. Typically that’s because there are some missing pieces – and they involve more than software. There are also people, process and performance management issues that companies must address.

People

Our research concludes that only 17 percent of companies can be considered innovative in the way they manage the people aspects of S&OP. Most do S&OP at a basic level that includes the sales and operations departments. This deployment is too narrow. We

recommend that companies increase the scope of their S&OP process to include members of executive management and finance, manufacturing, demand planning, supply planning, marketing, product engineering and design and IT functions. The best S&OP is done when a cross-functional team is responsible for plan development and reporting.

Not all departments need to attend the top-level review meeting, but all should provide inputs to the operational plan. We also recommend that these departments use the published S&OP plan as their plan of record. In other words, the volume, revenue, margin and mix outputs of S&OP should be the operational targets to which all individual

departments adjust their plans. We recommend that this be done monthly. Our study finds that companies that review this frequently achieve the highest levels of performance. Driving the cultural change that is necessary to support a formal, integrated business planning process requires a sponsor who has broad and deep influence across the

organization. Companies should engage the CEO, general manager or CFO as the primary sponsor of their S&OP initiative. Our research shows that the success rate of those that involve these executives is nearly double of those that do not.

Process

Our research shows that operating the S&OP process in a mature manner improves the likelihood of performance gains. At the Tactical level, only the basics of S&OP are done, such as demand and supply balancing. Plans that are created at the line-of-business level for single brands or entities and have horizons of only 13 weeks do not provide the broader plans that companies need.

Ventana Research recommends that companies raise the maturity level of their processes. Your company should use S&OP to align operations with corporate strategic objectives. You should have regular formal demand and supply review meetings and look at actual-vs.-forecast targets. Plans should cover 18 months. They should include multiple lines of

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business or brands and multiple factories or regional operational facilities across product lines.

S&OP itself should include these steps: 1. new product introduction planning 2. consensus demand planning

3. supply and manufacturing planning

4. formal demand, supply and capacity reviews 5. financial plan reconciliation

6. formal executive S&OP meetings that

a. review demand and supply trade-offs

b. track progress of strategic initiatives and projects c. include balanced scorecards or performance reviews d. assign action items and set follow-up assessments.

We also recommend that you evaluate the effectiveness of the overall S&OP process itself. Key measurements for this include meeting preparedness, attendance, action plan follow-up, efficiency of review meetings and S&OP process improvements.

Technology

Our study found that 41 percent of companies do not use software dedicated to S&OP. These users are less satisfied with their technology than those who use dedicated software. However, even users that have dedicated software are missing some critical capabilities. Among the software features our respondents said are most important and that they desire the most are integration with the supporting applications, what-if scenario planning analysis and real-time S&OP dashboards. We also find that most are missing collaborative demand planning, automated financial planning reconciliation and profit-based solving.

If you intend to invest in upgrading your technology to support S&OP, Ventana Research recommends that you look for software that includes enterprise-wide integration of systems and transformation of data, visibility across functions and tiers, and an accessible (that is, technically uncomplicated) interface for executives, managers, planners and line workers. We also recommend that you look for capabilities to create what-if planning scenarios and to score each scenario so people can anticipate the impacts of any potential action. Look for applications that store benchmarks and actual results so your managers can compare outcomes with their plans and thereby create a continuous learning environment. Since most organizations lack a central application or database that houses all the information they need for these applications, IT organizations’ main challenge is custom-coding data and integrating applications. In situations like this, companies should look for solutions that include and support data integration and enterprise application integration (EAI) tools and are built on or support business intelligence (BI) platforms, which have mature technologies that make integration easier.

Driving alignment to corporate strategy and goals requires balanced metrics and well-defined processes that map strategy to execution and assign accountability for tasks and measures to individuals. We advise companies to evaluate vendor-provided solutions that support established management methodologies such as the Balanced Scorecard along with supporting technology that can link the critical people and processes of S&OP.

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Performance Management

Our survey finds that the best-performing companies include performance management in their S&OP. Perhaps the most important element of this is creating performance alignment – that is, linking strategy with corporate goals and objectives in a way that makes best use of the company’s resources by coordinating the efforts of every member of the organization. Alignment links strategy and goals and objectives across the organization from the present to the future.

When S&OP is part of an overall performance management process, it aligns people, processes and technology and ties operations to objectives. To align people and processes, you must be able to coordinate decisions, at both individual and departmental levels, based on accurate information and clearly understood performance targets. That coordination should enable you to use historical internal and external benchmarks as references for driving organizational change.

While most companies can measure performance, few can apply their systems and processes to manage performance. Because they have not integrated performance

management across manufacturing, operations, sales, marketing and finance departments, they may fail to increase profitability and create sustainable competitive advantages. One of the first steps in achieving this integration is to include S&OP as part of your corporate assessments with balanced scorecard performance reviews. Supporting performance management requires having an ongoing program to define the activities and linkage to objectives. We also recommend that you track the progress of the process itself with a report card.

Achieving Success

In conclusion, we suggest that companies consider the following six-step program to improve their use of sales and operations planning.

1. Conduct an S&OP process and system assessment. The first step is a simple but thorough, independent and unbiased assessment of your financial and operational performance planning processes and systems. Establish a benchmark for current effectiveness and then identify areas for improvement. Evaluate the cross-functional and departmental requirements in this approach and be sure to include calculations for return on investment and total cost of ownership.

2. Identify user requirements and project scope. This step includes defining the business requirements and profiling the business user community. It also involves developing clear definitions of information needs and usage requirements for each person in the performance network.

3. Build a business case to improve value and results. The business case requires

definitions of the value as well as specification of the cost of your proposed program. 4. Assemble the program and plan. Once you have executive sponsorship, create a

well-defined program and a plan to communicate it to the various management entities of your organization. You will need to articulate the program at different levels and areas of the organization so the value is clear to all interests. Address the cultural, business and technology barriers to ensure executives will support and follow through on your S&OP initiative. The program also should address how to improve the effectiveness of the business by defining process improvements that will result from the use of technology that supports S&OP.

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5. Evaluate new technology with proper criteria. Next, evaluate product options. Establish specific evaluation criteria appropriate to your organization. Vendors’ product capabilities and consolidation in the scorecard and dashboard market have changed the landscape, so you should evaluate all options, from established to new suppliers.

6. Adopt an integrated S&OP program and process. The final step is to ensure widespread operational adoption to reach your objectives. This requires an understanding of how to minimize interruptions to the business, culture and

technology, including user resistance. These steps should lead to the ultimate goal of increased efficiency, effectiveness and alignment of your operations.

Through a planned out approach that spans all operations, you can transform the functioning of your people, processes and systems in an efficient manner.

About Ventana Research

Ventana Research is the leading Performance Management research and advisory services firm. By providing expert insight and detailed guidance, Ventana Research helps clients operate their companies more efficiently and effectively. Ventana Research delivers these business improvements through a top-down approach that connects people, processes, information and technology. What makes Ventana Research different from other analyst firms is a focus on Performance Management for finance, operations and IT. This focus, plus research as a foundation and reach into a community of more than 2 million corporate executives through extensive media partnerships, allows Ventana Research to deliver a high-value, low-risk method for achieving optimal business performance. To learn how Ventana Research’s Performance Management workshops, assessments and advisory services can affect your bottom line, visit www.ventanaresearch.com.

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