No doubt, sales and operations planning (S&OP) processes continued as a mainstream activity for many manufacturing and service-oriented companies in 2010.  Many firms continued to find benefits from the process, and based on the overall attendance at conferences, social media or educational tracks related to S&OP, the interest level has definitely increased.

When considering how to both implement and increase adoption of any S&OP process, it is very important for teams to focus on the end-goal of the process.  When speaking with companies or listening to S&OP presentations, we often hear goals of S&OP articulated as either facilitating increased sales, enhancing the overall agility of the business to respond faster to changing business conditions, or in insuring strategic business and operational performance goals are accomplished.  S&OP can be many things for many different functional teams, and having a keen eye on the ultimate goals of the process is very important.

It is within this context that discussions can get underway regarding what is the next step for S&OP maturity.  For instance, is it really sales and operations, or a sales, operations and inventory planning process?  Is the end goal operations excellence, or is it integrated financial planning and performance?  Many S&OP or other consultants will not shy from offering an opinion as to the end goal, and you can include ourselves in that mix.

We believe that the end goal is the latter, but firms need to be very diligent in understanding all the elements required to move the planning process to a state of integrated business and financial planning.   In fact, we would venture to state that few firms can really claim fully integrated business and financial planning that are directly tied to operations planning.

Manufacturing value chains are driven by economic factors, for instance, the variable cost of labor and materials, or the cost of transportation.  Fixed costs of facilities or costs to restructure are certainly important. Access to markets, the cost to serve certain customers, or the specific profitability of customers can also be elements.  What product and gross margin goals is the business currently tracking to achieve, and what incremental business or customer orders can impact these goals to the positive?  Any of these issues adds the element of financial parameters to the planning and optimization challenge.

The table stakes for achieving an integrated business and financial planning obviously include a fully functioning and integrated S&OP process where all participants, including executive management, have comfort in the team collaboration, process, and supporting technology tools involved in the process.  Moving toward integrated financial planning involves adding important analytical and what-if analysis capabilities to S&OP, and probably cannot be achieved without some forms of advanced information technology.  More importantly, the process has to have a direct link to current cost and financial data related to products or business, data that can sometimes be difficult to garner in traditional supply chain planning software, or some S&OP focused planning applications.

We recently had the opportunity to view a product briefing from River Logic, Inc., a provider of integrated business planning technology support.  This ten year old technology vendor views integrated business and financial planning as an extension of S&OP and articulates a process for building a consensus driven IBP plan.   The River Logic software was designed to quantify the impact of planning decisions from both operational and financial perspectives, and the management team has an acute sense of the fact that financial optimization cannot just be at the highest levels, but must include the ability to support detailed financial planning and analysis at the individual product level.

The important takeaway for readers is to continually focus on the end goal of an S&OP process, and if it includes elements of integrated business and financial planning, than application of some advanced technology, technology that can adequately tie-in timely and key financial data, should be a consideration.

Bob Ferrari