Nine Naive Notions About S&OP

The following is a list of “deal breakers” – things that can get in the way of successful implementation of Sales & Operations Planning (S&OP). To ensure success, you’ll need to eliminate these myths in order to get all of the key people on the same page.

Myth #1: “We don’t need S&OP in our department; that’s a ‘supply chain thing.’ ”

Reality:Yes, it is a supply chain thing – and a sales and marketing thing – and a manufacturing thing – and a finance thing – and an R&D thing – and, last but not least, it’s a top management thing. S&OP is a company-wide, collaborative decision-making process, reaching up to the top levels in the business.

Myth #2: “We’ll never get S&OP to work – we don’t have enough teamwork.”

Reality:You’ve got it backwards. S&OP doesn’t require teamwork before you get started; S&OP engenders teamwork once it’s operating properly. It enables people to view the business holistically and thus see the other guys’ problems. A company implementing S&OP and not getting improved teamwork means just one thing: they didn’t do it right.

Myth #3: “We don’t need S&OP; we’re doing Lean Manufacturing.”

Reality:S&OP and Lean are two very different things. S&OP is a medium-to-long term planning tool that provides visibility into the future, thereby avoiding surprises when demand shifts – up or down. People who know both S&OP and Lean say that they work best when they work together.

Myth #4: “S&OP is too rigid. It won’t work for us because our business changes too quickly.”

Reality:S&OP is all about change. It provides a window into the future so that companies can 1) see potential problems ahead of time, 2) take corrective action and 3) thus prevent potential problems from becoming real ones.

Myth #5: “We can’t use S&OP because we don’t have any manufacturing. We use contract manufacturers solely.”

Reality: S&OP doesn’t care who owns the factory. Actually, companies that outsource heavily probably need it more, because they generally have less control over the supply side of the business. Microsoft is a very successful user of S&OP in its Entertainment and Devices Division, and all their manufacturing is done via contract manufacturers. We also see S&OP being used in banks, retail companies, engineering organizations and IT.

Myth #6: We’re a large company. I think we’re too big for S&OP.

Reality:Are you bigger than Procter & Gamble, for example? Or bigger than Dow Chemical? Or the one just mentioned above, Microsoft? We see these companies, and a growing number of others, using S&OP very successfully in their operating businesses. Further, in these companies, the results from the operating unit’s S&OP processes are rolled up, communicated to the corporate CEO and used to form a key component of the corporation’s earnings calls to Wall Street. It also works in small companies. I’ve seen it used successfully in business units with as small as $10 million in annual sales.

Myth #7: “We have to get our forecasts a lot better before we think about S&OP.”

Reality:Here again, you’ve got it backwards. Almost always, implementing S&OP helps to improve the forecasts. One reason for that is, for the first time, people start to view forecasting as a process rather than a pain in the neck. They see that it plays a vital role in the overall S&OP process and hence, they see it as much more important than before. Getting an effective forecasting process is one of the more difficult parts of implementing S&OP; it’s also one of the most rewarding.

Myth #8: “We just dumped X million bucks into ERP software. We can’t afford to buy any more software.”

Reality:Who said anything about new software? Most of the successful users of S&OP do it with Excel or a similar package. They already own this and their people already know it. After a year or two, some companies will see the need to do things that Excel won’t support, and they’ll then start to look at S&OP-specific software. Further, deferring the software purchase until after the process is working well usually enables a better software decision, because the people then know what they really need.

Myth #9: “S&OP is really simple. We’re just going to get the spreadsheets working and then we’ll have S&OP.”

Reality:The spreadsheets, graphs and the data they contain are necessary, but not the most important elements. Of greater significance are the mindsets of the people who will be using it – all the way up to the president. Implementing S&OP successfully is largely a matter of change management.


It is people intensive, and that’s where the emphasis needs to be during implementation. So, during an implementation, figure on spending more time on change management than on software and data issues; you need those things, but the game will be won or lost based on how well you do in helping the people – including executive management – make the necessary changes in how they do their jobs.

Tom Wallace is a teacher and writer who specializes in Sales & Operations Planning. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. and 513-281-0500. His books and videos can be purchased from www.tfwallace.com.

T.F. Wallace & Co.
513-2818-0500 (phone)
www.tfwallace.com

OMTEC 2010 Speaker

Tom Wallace presented a workshop on Sales & Operations Planning on Wednesday, June 16 at OMTEC 2010 in Chicago. The S&OP process helps companies balance demand and supply; integrate financial planning with operational planning; meet monthly, quarterly and annual financial targets more effectively; launch new products more quickly and more.

Attendees received these tools to put to immediate use:

  • An understanding of how the process works: its internal logic and structure.
  • A framework to evaluate their own S&OP-type processes in terms of effectiveness.
  • An understanding of the right way to implement the process – or to re-implement it if necessary.
  • Knowledge of their likely role in Executive S&OP


Mr. Wallace's abstract and presentation are available online.