Why is Sales and Operations Planning So Hard?

S&OP: Why Is It So Hard?
Supply Chain Insights LLC Copyright © 2021
LORA CECERE, FOUNDER | lora.cecere@supplychaininsights.com

Why Is
S&OP So
Hard?
Supply Chain Insights LLC. Copyright © 2021
01 Lack of Definition of Supply
Chain Excellence.
02 Analytics Adoption Struggle.
03 Process Definition. Driving
Value.
04 Governance.
05 Wrap-up.

What Is Supply Chain
Excellence?
S E C T I O N 1
3

4
What Is Supply
Chain
Excellence?
Resilience
Ability to drive consistent results year-
over-year and weather market factors.
Balance
Organizational alignment on a
balanced scorecard.
Performance
Outperforming industry peer group on
the key metrics.
Improvement
Driving year-over-year improvement.
Delivering Value
A shift from cost to value.

Efficient
Functional Silos
Do Not Create
Effective Supply
Chains

A Balanced
Scorecard
Focused on Value
6

7
The Definition of Supply Chain
Excellence Requires Selecting
the Right Balance Between
Performance and Improvement
Improvement is fast when you have a lot to lose. However,
high-performing companies reach a level of performance
and then struggle to drive improvement. While low-
performing companies take four-to-five years to reach peer-
group performance. It is a balance requiring a clear strategy.

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Inventory
Turns
Operating Margin
Ecolab Chemical Industry
Best Scenario
Average (Operating Margin, Inventory Turns)
Source: Supply Chain Insights LLC, Corporate Annual Reports 2011-2020 from YCharts
Ecolab
0.14, 5.26
Chemical Industry
0.11, 5.06
Example: Ecolab Operating Margin vs. Inventory Turns (2011 -
2020)

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Inventory
Turns
Operating Margin
AkzoNobel Chemical Industry
Best Scenario
Chemical
0.11, 5.06
AKZOY
0.08 5.23
AkzoNobel versus the Chemical Industry
Operating Margin vs. Inventory Turns (2011 - 2020)

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0.05 0.06 0.07 0.08 0.09 0.10 0.11 0.12 0.13 0.14 0.15 0.16
Inventory
Turns
Operating Margin
AkzoNobel PPG Industries
Best Scenario
PPG
0.13, 4.76
AKZOY
0.08 5.23
AkzoNobel versus PPG
Operating Margin vs. Inventory Turns (2011 - 2020)

INDUSTRY: Limited Chemical
COMPANY INFORMATION
Improvement PERFORMANCE VALUE
NAME 2020 REVENUE
SUPPY CHAIN
INDEX
GROWTH (Year Over
Year Revenue)
INVENTORY
TURNS
OPERATING
MARGIN
RETURN ON
INVESTED
CAPITAL
PRICE TO BOOK
MARKET
CAPITALIZATION
2011 - 2020
Akzo Nobel 9,741 3 -6%
5.06 0.08 10% 2.26 17,883
Axalta Coating Systems Ltd 3,738 1 -1%
4.53 0.09 1% 3.76 4,611
Eastman Chemical 8,473 4 4%
5.03 0.15 10% 2.63 10,838
Nippon Paint Holding 7,318 2 6%
5.35 0.12 12% 0.44 1,816
PPG Industries 9,257 5 2%
4.58 0.12 16% 4.98 25,788
MEAN WITH OUTLIERS 1% 4.91 0.11 10% 2.81 12,187
MEAN WITHOUT OUTLIERS 1% 4.91 0.11 12% 2.81 12,187
Comparison to Peer Group

Industries
Struggle with
Inventory
12

A Balanced
Scorecard
Focused on Value
13

Growth Customer
Service
Plan Make Source Deliver
Good
Complexity
On-time Forecast
Value Add
Schedule
Adherence
First Pass
Quality
Form &
Function of
Inventory
Demand
Shaping
versus
Shifting
In Full Coefficient
of Variation
First Pass
Yield
On-time Inbound
Materials
First-Pass
Tender
Hands Free
Orders
Hands free
Procurement
Functions
Focused on Reliability

Connect Business Strategy to Operational
Outcomes
Commercial Strategy
Operational Strategy

Analytics Adoption
S E C T I O N 2
16

The Need for Market-
Driven Processes
17

Challenges
____________________________________________________________________
Source: Supply Chain Insights LLC, Sales & Operations Study (Mar-May, 2019)
Base: HAVE A S&OP PROCESS -- Total (n=107)
Q28. Thinking about when your [former] S&OP process was first implemented, what were the challenges that your company encountered with the
implementation? Please select all that apply.
58%
54%
51%
43%
42%
42%
37%
36%
33%
28%
6%
6%
Difficulty getting to the right data in a timely fashion
Lack of support from other functions
Not having technologies that support the process
Lack of understanding and support from the executive…
Lack of clarity on how to make a decision
Lack of skilled resources
Issues with the role of finance and the budget
Poor execution of the S&OP plan
Lack of clarity of supply chain strategy and supply…
Lack of time to execute the process
Other
Don't know
Challenges with Initial S&OP Process Implementation
36% challenges on average
Most Common

Companies
Struggle
with
Analytics

Only 9% of companies
designed supply chain flows.

Declining Satisfaction
____________________________________________________________________
Q11. When compared to your peer companies, how would you rate the effectiveness of your [primary]
S&OP process? SCALE: 1=Not at all effective, 5=Extremely effective
Q13: When you compare your current state of S&OP, how does it compare to the process three years
ago? SCALE: 1=Not at all effective, 5=Much more effective
*NOTE: Respondents answered for the S&OP process with which they are personally most familiar
Extremely effective, 5%
Effective
30%
Neutral
44%
Not
effective
22%
Effectiveness of Primary S&OP Process*
35%
rate their
primary
S&OP
process as
Extremely effective,
34%
Effective
31%
Neutral
28%
Not effective, 8%
Comparison of current State of S&OP three
years ago
65%
rate their
current
state of
S&OP

Building Process
Capabilities
S E C T I O N 3
22

Driving Value
4 Factors Correlate to Tangible Book Value
Center of
Excellence
Effectiveness
S&OP
Effectiveness
2nd – 3rd Tier
Supplier Visibility
Pain with
Supplier Reliability

24
Best S&OP
Fit for Function
Clear Goals
- Clear KPIs: Balanced Scorecard
- Balance in S&OP
- Clarity of the Budget
Outcome-Focused
- Planning Tied to Execution
- Balance and Alignment
- Governance

23%
43%
60%
15%
17%
43%
Effective
S&OP
Other
Ability to Balance Their Primary S&OP Process
Drive Balance
____________________________________________________________________
Source: Supply Chain Insights LLC, Sales & Operations Study
Base: Manufacturers and distributors who sell items they manufacturer, have $250M+ in revenue, have a S&OP process and know answer –
Effective S&OP (rated 5-7 on 7-pt scale) (n=30), Other (rated 1-4 on 7-pt scale) (n=41)
Q15. How would you rate your company’s ability to balance the “S” and the “OP” in the evolution of your [primary] S&OP process (even if you
call it something else)?
NOTE: Respondents answered for the S&OP process with which they are personally most familiar
 Higher than other group at 90% or higher level of confidence
MORE FOCUSED ON “S”
The process is out of
balance with an emphasis
on sales and marketing
processes
BALANCED
Easily balancing plans horizontally
between the sales/marketing teams
and the operations teams
MORE FOCUSED ON “O”
The process is out of
balance with an emphasis
on operations (logistics,
manufacturing, and
procurement)

Drive Organizational Alignment
78%
96% 94%
74%
88% 87%
79%
94%
48% 53% 48%
54%
39%
60%
70%
50%
64% 65%
59%
77%
30%
39% 35%
48%
-38% -36%
-24% -23% -23% -21% -21% -18% -18% -14% -13%
-7%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
New Product
Dev't &
Distrib'n
Sales and
Operations
Manufact'g
&
Procuremt
Operations
& IT
Finance &
Operations
Sales &
Finance
Marketing &
Finance
Sales &
Marketing
Marketing &
IT
Finance & IT Sales and IT CSR
&
Operations
Team Alignment: Importance vs. Performance*
Importance Performance
Greatest Gaps Between
Importance and Performance
____________________________________________________________________
Q34. In your opinion, how important is it for each of the following pairs of teams to be aligned? SCALE: 1=Not at all important, 7=Extremely important
Q35. How aligned do you believe that these same pairs of teams actually are at your company? SCALE: 1=Not at all aligned, 7=Extremely aligned
*Showing those rating elements 5-7 on 7-point scale; CSR = Corporate social responsibility

____________________________________________________________________
Source: Supply Chain Insights LLC, Sales & Operations Study Base: Manufacturers and distributors who sell items they manufacturer, have $250M+ in
revenue, have a S&OP process –
Effective S&OP (rated 5-7 on 7-pt scale) (n=31), Other (rated 1-4 on 7-pt scale) (n=42)
Q24. Which of the following describe the role of your company’s financial budget in your [primary] S&OP process? Please select all that apply.
NOTE: Respondents answered for the S&OP process with which they are personally most familiar
AB Higher than other group at 90% or higher level of confidence
Role of Financial Budget in Primary S&OP Process
Effective S&OP Other
A B
The budget is an input to the S&OP process,
but does not constrain it
61% 50%
The S&OP process is an input to the budget,
but is not constrained by it
42% 26%
Budget goals drive and constrain the S&OP
process for inventory
19% 29%
Revenue goal alignment is determined by the
data output of S&OP
39%B 12%
We do not use financial data in our S&OP
process
16% 17%
Cost goals in the budget are updated based
on the output of S&OP
13% 12%
Top Two
Align: Role of the Budget

Focus on Form & Function of Inventory
28

Define Governance
29

30
Reflection
Align and drive
balance at the “&”.
Clearly define
supply chain
excellence.
Build a Cross-
Functional Scorecard.
Focus the functional
response on reliability.

31
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31

Founded in February 2012 by Lora Cecere, Supply Chain
Insights LLC is in its eighth year of operation. The
Company's mission is to deliver independent, actionable,
and objective advice for supply chain leaders. Our goal is to
help leaders understand supply chain trends, evolving
technologies, and which metrics matter.
32

33
2 years Partner at Altimeter
Group (leader in open
research)
8 years Gartner and AMR
Research
8 years Experience in
Marketing and Selling
Supply Chain Software at
Descartes Systems Group
and Manugistics (now
JDA/Blue Yonder)
Who Is Lora?
Founder of Supply Chain
Insights
“LinkedIn Influencer”, Guest
blogger for Forbes, Author:
Bricks Matter (2012), Supply
Chain Metrics That Matter
(2014), and Shaman’s
Journal (2014-21)
15 Years Leading Teams in
Manufacturing and
Distribution for Clorox,
Kraft/General Foods,
Nestle/Dreyers Grand Ice
Cream and Procter &
Gamble.

Thank You…
LORA CECERE, FOUNDER | lora.cecere@supplychaininsights.com

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