Putting "M"arketing Back in S&OP
EXECUTIVE SUMMARY | Smart organizations share common goals and performance metrics. They are also nimble and work collaboratively, focusing on sustainable strategic objectives. They take a more balanced approach that looks horizontally across the supply chain, virtually eliminating silos and optimizing the process from market-to-market and supplier-to-supplier's supplier. The new focus on the value supply chain is how companies can listen to their customers, assess the market, and then create a more accurate demand response.Given the current global economic situation, we'd all be shocked if cost savings and cost containment were not the top priorities for supply chain organizations; but smart organizations don't just strive to cut costs, they figure out how to make changes that are sustainable for strategic advantage.This requires a nimble and collaborative organization with similar objectives that include not only the operations and finance functions, but also sales and marketing, all of them share common goals and performance metrics. Our supply chain equation has been unbalanced from the conceptual point of view. It has always read this way:Supply Chain = S&OPIn the past, the'OP in S&OP created an unbalanced equation, where organizations unknowingly biased their supply chains by focusing on the supply side of the house, flushing out inefficiencies in operations (e.g., focusing on reducing inventory costs by improving inventory replenishment capabilities) with little emphasis on understanding how to integrate market opportunities and customer needs. Most people don't realize that the S in S&OP stands for sales and marketing, not just sales. We need to recalibrate our supply chain equation to read as:Supply Chain = SM&OPNow we have a more balanced approach that looks horizontally across the supply chain, rather than virtually eliminating silos and optimizing the process from market-to-market and supplier-to-supplier's supplier. In other words, SM&OP is the horizontal process that synchronizes supply to demand, not demand to supply. The new focus on the value supply chain is how companies can listen to their customers, assess the market, and then create a more accurate demand response. Companies that achieve market-driven maturity not only have better demand and supply synchronization but also have greater agility to match supply to demand. Companies that have implemented market-driven supply chains understand how to respond to customer demand and translate that demand into an optimized supply plan with a focus on balancing (or synchronizing) demand and supply. In fact, those same companies are more inclined to sense market changes five times faster and align their supply three times faster to fluctuations in demand. Rapid alignment enables better customer service with substantially less inventory, waste, and working capital. This article will outline the first steps that companies need to take to become market-driven.SYNCHRONIZING DEMAND PULL WITH SUPPLY PUSHToday's business challenges are numerous - globalization pressures, supply chain complexity, rising customer demands, and the need to increase revenues across global markets while continuing to cut costs. Adding to these challenges is the current economy in which the last several years of supply outstripped demand. In addition, the increasing pace of innovation and the need to appeal to broader ranges of consumers are making life cycles shorter and product mixes larger while global sourcing is making supply lead times longer. As companies increase their geographical reach and look to global sourcing, variable lead times are becoming common. All of these factors are impeding companies' ability to balance ever-increasing demand with supply. As a result, organizations must have a heightened awareness for better alignment and visibility, and improve their ability to sense and translate demand patterns into actionable profitable operations plans. …