The passion to unlock potential. Sales and Operations Planning: Where Does Your Finance Team Sit at the Table?

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1 The passion to unlock potential Sales and Operations Planning: Where Does Your Finance Team Sit at the Table?

2 INTRODUCTION Sales and Operations Planning (S&OP) has the capability to be one of the most effective and influential business activities that a company performs. In order to evaluate the effectiveness of the S&OP process, we need to first establish a baseline S&OP definition because many companies will differ on what S&OP means inside the walls of their organization. The Association for Operations Management (APICS) partially defines S&OP in the 13th edition of their dictionary as: A process to develop tactical plans that provides management the ability to strategically direct its businesses to achieve competitive advantage on a continuous basis by integrating customer-focused marketing plans for new and existing products with the management of the supply chain. The process brings together all the plans for the business (sales, marketing, development, manufacturing, sourcing, and financial) into one integrated set of plans. Perhaps the most critical aspect of S&OP, and often somewhat neglected, is the integration of plans from all functional departments, including finance. With that said, does your finance team sit next to operations colleagues at the table or at the other end during the planning process? The focus of this whitepaper is to provide insight on the importance of integrating the office of finance throughout the S&OP cycle.

3 2 Sales and Operations Planning Collaboration Challenges Organizations are faced with a number of challenges that preclude them from executing effective collaboration during S&OP. APICS and the Institute of Business Forecasting & Planning (IBF) surveyed approximately 15,000 professionals asking for some of the more common challenges they face during S&OP, as illustrated in Figure 1 below: Almost 60% of the respondents indicated that lack of strategic coordination among departments and insufficient interaction and involvement (silos) among groups were two of the most common challenges in their companies. These top two responses shouldn t come as much of a surprise because the different functional departments involved in S&OP are often operating under conflicting deadlines with different goals and priorities. Although all of these challenges are worth mentioning, the fact that 42% of the respondents indicated that their organizations do not have the technology and/or belief in existing software or systems to support S&OP is shocking given the advancement of Enterprise Resource Planning (ERP) and S&OP best-of-breed software solutions in today s marketplace.

4 3 Sales and Operations Planning Build a Unified Plan One of the most effective ways to bring finance and operations together in the S&OP process is to ensure that they are working collaboratively in the same plan and not incorporating their plans after they complete their mutually exclusive planning practices. Traditionally, operations and finance have worked in separate plans with different units of measure, volume and dollars, respectively. Finance has to expend an immense amount of effort under this scenario monetizing or reconciling the operations plan into dollars to support the financial planning process of the company. Figure 2 below outlines some of the basic measurement criteria in the S&OP and the benefits of bringing the data together in one unified plan. Figure 2 Unified S&OP Plans Should be Expressed in Volume and Dollars

5 4 Sales and Operations Planning Build a Unified Plan (cont.) The availability of consistent data in a unified plan allows operations and finance to work with a one version of the truth plan that will increase efficiencies during the S&OP process. The time-consuming process of data reconciliation all but goes away in a unified plan and allows stakeholders to spend more time analyzing the business to make sure operational planning is aligned with the financial goals of the organization. The finance office can benefit from a unified plan by producing their full P&L, Cash Flow and other financial statement forecasts directly from the unified plan. It will utilize the operational data drivers (sales, raw materials, direct labor, etc.) in the plan to forecast gross profit while still having control to input/plan period expenses (compensation, advertising, professional services, etc.) to forecast down to a net income level. Once the organization has adopted a unified approach to S&OP, the capability to improve the speed and intelligence of scenario management improves exponentially. Dynamic Scenario Management Once the organization has adopted a unified approach to S&OP, the capability to improve the speed and intelligence of scenario management improves exponentially. The unified plan provides a foundation to do what-if analysis on-the-fly during both preliminary and executive S&OP meetings and minimizes the amount of questions that have to be answered after the meeting if they get answered at all! (Ex.) Maintain Customer Service Level Goals Sales wants to adjust the deficient supply plan quickly by incurring premium freight, overtime expenses, etc. while operations wants to gradually phase in capacity increase by using safety stock up first. What is the impact to the financials? In the example above, having a unified S&OP would allow the company to quickly analyze the financial impact of several different operational strategies to maintain their customer service level commitments while still achieving their profitability goals.

6 5 Sales and Operations Planning Techology Enablers Having the appropriate technology enablers can make the migration to unified S&OP more efficient. Numerous companies still rely on building their S&OP in Microsoft Excel; however, this becomes more challenging for larger enterprises that elect to deploy a unified S&OP process. In these companies, S&OP data is often sourced from multiple ERP systems residing in different business units, and consolidating the results at an enterprise level can be challenging. Some organizations have elected to use Corporate Performance Management (CPM) software solutions as the unified S&OP technology layer above the ERP and other transactional data systems. CPM software typically supports business processes such as strategic and operational planning, budgeting, forecasting and financial consolidations. A few of the advantages of using a CPM or similar solution to support a unified S&OP cycle are: Ability to manage complex organizational models in a unified, controlled, structured environment Capability to support an enterprise-wide approach to planning for the office of finance and operations Business workflow functionality to control the submission and approval of data Ability to manage multiple scenarios The most important thing to consider when selecting the right technology enabler is to consider the impact of the technology within your culture; it is certainly not a one size fits all decision. In fact, one would argue that a successful software implementation has more dependencies on effective change management practices than technical skills.

7 6 Sales and Operations Planning Performance Measures Implementing a unified S&OP model requires a significant time commitment, and it is important to continuously measure the effectiveness of the methodology. Companies will often use KPIs and scorecards to facilitate the measurement process. The table below provides some common measurement examples: S&OP performance measurement is a very important component of the overall measurement system of the organization. Well-designed measurement systems can provide supporting mechanisms that will help organizations attain their operational and financial strategic goals. SUMMARY Finance and operations teams can improve the overall health of the organization by moving their chairs closer together at the planning table and collaborating throughout the S&OP process in a unified environment. There is no magic wand that will break down cultural barriers overnight; however, with focus and commitment to the process, organizations can achieve success by proactively integrating the finance team in the S&OP process.

8 R. Bradley Slisz, CPA, CPIM, PMP As a manager in BlumShapiro's consulting group, Brad has more than 13 years of experience in business process consulting, Enterprise Resource Planning (ERP) and Corporate Performance Management (CPM) software selections and implementations, finance and accounting operations improvement, project management, SEC financial reporting, internal audit and public accounting. His expertise includes streamlining finance and operational processes and recommending/implementing best practice technology enablers to support the new process framework. Contact Us to Learn More For more information on how BlumShapiro s Consulting Group can unlock the potential of your business, please call Brian Renstrom at consulting.blumshapiro.com