Sales and Operations Planning Maturity: What

Does It Take to Get and Stay There?

Gartner RAS Core Research Note G00207249, Jane Barrett, Michael Uskert, 1 November 2010, R3535 12162011

Companies with mature S&OP processes testify to the

predictability and transparency it brings to a business. While
neither the process nor this revelation is new, the fact is that
two-thirds of businesses do not progress beyond the first two
stages of Gartner’s 4-stage maturity model. It’s in the mature
Stage 3 and 4 where S&OP derives real business value. This
report highlights findings that Stage 3 or Stage 4 companies go
well beyond traditional S&OP methodologies that define supply
chain process used to balance demand and supply (Stage 2). To
achieve Gartner’s definition of Stage 3 or Stage 4 S&OP, these
companies change not only the process and technology, but
more importantly address ownership, culture, core beliefs and
even the name of the process itself.

Key Findings
• Beyond Stage 2, traditional S&OP methodology is no longer sufficient and the process
must be tailored to the specific needs of an organization.

• In most organizations there was a compelling business event that precipitated the change
from the top, and gave clarity to the S&OP journey and vision.

• Once the S&OP process matures, it is no longer owned by supply chain but by business
leaders.

• Momentum builds as business leaders derive value from the process and it becomes the
primary forum for decision making.

• Where the term S&OP was tainted, organizations renamed and rebranded the process.

Recommendations
• Assess your level of S&OP maturity in order to build a road map to evolve through the
stages.

• Have a clear, executive-led business motive and common business metrics that
transcends functional area to break down silos, and that drives active participation and
investment in the process.
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Figure 1. S&OP Maturity Model

Stage 1: Stage 2: Stage 3: Stage 4:

Strategy Reacting Anticipating Collaborating Orchestrating

Balance:
S&OP
Demand sensing, and
Section 1: Development of an Demand and supply Profitability
conscious trade-offs for
Goals operational plan matching demand shaping to drive an
optimized demand response

Supply Chain driven Supply Chain driven Supply Chain becomes the Business ownership at multiple
Section 2: process with a strong process for purposes of S&OP orchestrator and levels with strong participation from
sales or operational bias achieving optimum forecast business functions take executives and finance. Collaboration
Cross- leading to imbalance. and supply response to ownership of input, output extends beyond the enterprise to
Functional Lack of clarity as to the demand and results, looking at achieve end-to-end value.
goal of S&OP. financial impact of decisions
Alignment
Emerging process, Formal, structured process. Process tailored to business Process becomes balanced, dynamic
Section 3: inconsistent and One size fits all approach. model and needs. Dialogue, and event-driven. Strong connection
marginally effective. Tools extend to include and start of use of tools, to strategic planning and execution.
Process and Often more of a sales forecasting, SC planning around what-if analysis for Tools also support risk-value
Technology review meeting. Tools and inventory optimization demand shaping, financial trade-offs, price optimization and
are mainly Excel and reconciliation and cost to complex simulation.
ERP. serve.

Increase in Organizational Balance

Source: Gartner (October 2010)

• Identify coaches and provide tools to help sustain the process planning (S&OP) maturity model (see Figure 1). This inability to
and manage change. mature occurs despite heavy investments made in continuous
improvement, consulting and technology. Gartner analysts
interaction with clients across manufacturing and retail industries
• Design the process to fit the nuances of the business. Consider
validated these survey results. Using this information, we published
a multitier approach to cater to different planning horizons and
“Conquering the Seven Deadly Challenges of Sales and Operations
business models.
Planning” where we focused on the need for change management
in order to move the process forward. But one specific question
• Determine the right balance between process improvement and kept coming up: “How exactly do companies move beyond Stage
enabling technologies. 2, and how do they sustain a mature process?”

ANALYSIS This question instigated the need for further research this year.
Eighteen companies that we believed had achieved S&OP Stage
Background to the Research 3 were identified and interviewed to help us answer this question.
In August 2009, we analyzed the results from a study of 182 These companies are large manufacturers, where either all the
manufacturers and retailers and found that 67% of companies organization or specific business units or regions had achieved
were still in Stage 1 or Stage 2 of our sales and operations Stage 3 or Stage 4 S&OP maturity. Their revenue ranged from

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between $2 billion and $60 billion and came from the chemical, The Stage 3 process is specifically designed and personalized to
consumer products/food and beverage (CP/F&B), apparel, high map to the specific business or regional needs, planning horizons
tech, industrial and A&D industry sectors. It was obvious in and, in some cases, even different value chains. The traditional
speaking with these companies that they were able to clearly approach is adapted where needed, sometimes resulting in multiple
identify the maturity level of the various divisions or regions, and levels of processes. It’s apparent that the one-size-fits-all process
they could recite the associated benefits they achieved from S&OP, does not promote companies to Stage 3. The process needs to be
as well as tell us the characteristics and reasons why some parts global — where there are shared or overlapping resources — but
of the business were ahead of others. The findings from these 18 local where agility of the process needs to be maintained. In some
interviews were fascinating, and together with insights gleaned from cases, the operational process focused on the short term remained
the August 2009 survey, form the basis of this report. at the local level, while the global process was aggregated and
addressed a midterm planning horizon. No commonality of S&OP
Stuck in Neutral in Stage 2 design stood out in the companies we interviewed, other than
layering the process to fit the matrix structure and the scope
As the saying goes, “in order to understand where we are going, businesses need to deal with. The process was clearly designed
we must first understand where we are.” To address this issue, around the level at which good business decisions needed to be
we use Gartner’s 4-stage S&OP maturity model to describe made. This is key, because once the process moves to Stage 3 it
characteristics of a Stage 2 process. is no longer a supply chain process, but rather an aligned business
planning process.
A good Stage 2 process typically follows the traditional S&OP
demand/supply balancing methodology based on volume. It is a It became clear from our discussions that in Stage 3, S&OP is
strong foundation to support supply chain decisions. At this level of the forum for decision making, and business leaders embrace
maturity, the organization has already addressed the need to have the meetings and actively participate. The process grows beyond
accurate, credible data in volume/units. In most cases, because the supply chain and encompasses alignment of the functions and
dialogue centers on volume, SKU capacity and lead times, S&OP line-of-business ownership. It is used to translate opportunities in
ownership remains stuck in supply chain. the form of go-to-market strategies and solutions into actionable
and profitable responses. Even without “what-if” technology
Demand planners have progressed beyond just statistical enablement, meetings have active dialogue on closing demand
forecasting, and elicit sales and marketing involvement to provide gaps, “what-if” scenarios, risks and ranges. The key point is that
their customer and market intelligence as input to the demand this activity and decision making occurs at a senior level. This
plan. Commercial teams and planners in late Stage 2 have figured happens because stakeholders participate and the focus has
out the right approach to statistical forecasting techniques, what shifted from units to revenue, profit and the customer — what the
manual touches add value and how to measure the impact of these business cares about. As one European S&OP team explained
changes as the forecast is reviewed through multiple stages. Some “we realized our S&OP process was good when people defer
have even started measuring forecast value add (FVA) percentage to it as the forum for decision making. Business folks now value
to monitor the additional value of these touches. the process, the dialogue and opportunity to interact with peers
and make good decisions.” Governance and disciplined process
Translation of demand into supply plans tends to be a bit clunky at ensures accountability and decision rights are clear.
this stage, but pre-S&OP meetings involving the right people and a
lot of manual effort manage to get this task completed. Constraints Being a core decision-making forum, the process must also be
such as assets, materials and resources are taken into consideration balanced and efficient. Exception-based analysis and dialogue
and discussed as they relate to meeting the volume plan. A strong speeds up the cycles and solves the scope/speed paradox,
Stage 2 process has formal governance and good discipline. reducing the need for lengthy and laborious meetings.

One of the issues in Stage 2 is the planning horizon around At this level, leaders have institutionalized rapid and effective
which dialogue and decisions should be centered. Too often the communication between stakeholders. For example, in a Stage 3
discussion does not progress beyond the short-term planning CP company, demand planners receive timely information on trade
horizon (0 to 3 months). Another issue companies face is linking promotions and adjustments, and account teams understand the
S&OP to execution. Decisions and assumptions made in the S&OP need for supply chain planners to have advanced notice about
meetings do not make their way down to the lower level processes. changes within their accounts to increase on-shelf availability.
In the case of a manufacturer of complex high-mix equipment,
What Does a Collaborative Stage 3 S&OP Process it was about the sales teams realizing that simply sharing
Look Like? quarterly revenue numbers was of little help to supply chain and
manufacturing’s effort to deliver a profitable response. The key
In Stage 3, the S&OP process focuses on a midterm planning
learning was that advanced notice to the mix was just as important
horizon, typically 3 to 24 months (this can differ by industry). The
as closing the aggregate deal. Planners collaborating more closely
goal is to maximize market opportunity, profitability and customer
with account teams and key customers helped close this gap.
satisfaction while minimizing risk. But this is a fairly typical S&OP
definition, and it does not really describe the characteristics of a
Stage 3 requires more frequent collaboration, both internally and
mature process. While most organizations use a textbook style
with major trading partners, than in earlier stages to improve
S&OP process to get to Stage 2, Stage 3 organizations found that
long-term demand insights and short-term demand sensing
the traditional process only served to form the foundation of a more
capabilities. This gives the source, make and deliver components
tailored process to come.
of the business time to move from reacting to customer orders
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to determining the best and most profitable way of filling orders. Initially, translation capability is heavily dependent upon building the
The use of technologies supporting trade promotion management right market-driven hierarchies to manage demand, and then being
(TPM), vendor-managed inventory (VMI), collaborative planning able to adaptively translate this into supply planning models based
forecasting and replenishment (CPFR), supplier portals and other on supply-side hierarchies (see Figure 3). Companies that have
visibility tools help to support this collaboration effort. achieved Stage 3 are able to do this translation, easily, but volume
translation is only the start.
Achieving S&OP Stage 3 Maturity
Our research has determined a set of quantitative and qualitative Financial Integration and Reconciliation
changes that enable the movement from Stage 2 into Stages 3 Absolutely critical to moving beyond Stage 2 demand and supply
and 4 of S&OP maturity. The quantitative changes revolve around matching is the active participation of finance in the S&OP process.
process or system-driven initiatives that need to be in place as Here we see extensive use of translation to turn unit/volume
enablers of maturity. The qualitative changes address the critical projections into revenue plans. For some in Stage 3, this forms the
aspects of change management, culture, outlook and fundamental basis of the annual operating plans, with continued use on a monthly
beliefs that are needed to create a “pull” force of change within the or quarterly basis to ensure the plan is maintained. This integration
organization, facilitating faster S&OP maturity. and reconciliation gives a revenue view versus the traditional volume/
unit plans. This view effectively captures the attention of commercial,
Quantitative Changes finance and leadership teams, as the financial impact of the plans
and subsequent decisions become clear.
Translating the Numbers
One of the most challenging aspects of S&OP is the ability to In Stage 3, due to profit implications, the capability to predict mix,
satisfy the informational needs of different business functions whether it be SKU, product line or configuration mix, becomes
(finance, sales, marketing, supply chain) based on input from more important than just total volume. Sales participation is
multiple sets of numbers and forecasts. At Gartner, we refer to this essential in this process for the planning horizon where they can
ability as Translation. Building capabilities to translate numbers is a add value. In environments where the sales-force forecasts based
core requirement to move from Stage 2 to Stage 3. Translation can on deals in currency values, companies continually wrestle with the
be complex and is required in multiple areas (see Figure 2).

Figure 2. S&OP Governance in Stage 3 and 4

Definition
Sponsor Senior business leaders, in some companies the CEO

Coordinator Most commonly Supply Chain, occasionally Customer Service

Owner Line-of-business functions, sometimes joint ownership of key S&OP components

KPI focus Demand risk, customer service, profit, cash, market share

Performance Ability to translate opportunities and demand into actionable and profitable response
from make, source and deliver functions, understanding the trade-offs and financial
focus impact, conscious choice on decisions
Output focus •3-18/24 month planning horizon
•Consensus plans (demand, supply, inventory, product portfolio, mix, revenue)
•Demand shaping to close gaps to budget and profit targets
•Scenario analysis to understand financial impact of forecast risk, demand shaping,
supply constraints, other risks
•Investment decisions – inventory, assets, other resources
•S&OP demand plan becomes the AOP, and starting point for strategic planning
•Plan and related assumptions communicated to relevant stakeholders
•Connection to execution through aligned planning processes and shared output

Source: Gartner (October 2010)

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problem of the sales force hitting revenue targets, but the company Figure 3. Demand Translation Requirements
missing other financial metrics, like profit, due to unpredicted
changes in mix. Global
In one company, the S&OP process has become so tightly
integrated in the financial planning process that they are almost Countries Currency
indistinguishable. Here’s what the process looks like: Regions Profit

• Development of the financial plan (steps a to f have roles in the

S&OP process). Customer Product
Demand Plan
Category
• (a) Demand plan is created and agreed upon during the
normal monthly demand- consensus process (along with
trade promotion, pricing, etc.). This becomes the basis
for annual operating plan (AOP)/financial budgeting and Units Plant
strategic planning.
SKU
• (b) Supply plan is calculated, including finished goods (FG) Source: Gartner (October 2010)
inventory levels, production plans and raw/work-in-progress
(WIP) inventory levels.
about gross profit. Even in markets where driving revenue growth
• (c) Constraints are worked through the S&OP process. and market share were of utmost importance, keeping continuous
attention on delivering a profitable response was still highly valued.
The main point and greatest value of discussing profit within S&OP
• (d) Resulting volume is run through manufacturing plants/
is to guide management in making trade-offs and directional
supply channels to develop costing.
decisions.

• (e) Inventory plans are finalized for use in cash flow Stage 2 S&OP typically does not venture into the profit discussion,
calculations. but rather concentrates on getting demand and supply volume
right first. Once the process matures and profitability becomes
• (f) Inventory volume is planned through the distribution the focal point in the meetings, the profit discussion must be
channels to develop costing. at the level in the business where decisions need to be made.
Using time horizon as an example, in the short-term plan, they
are discussing the profitability of filling specific customer orders.
• (g) Selling, general and administrative (SG&A) budgets are In the long-term horizon, the discussion moves to the profitability
finalized. of a region or business unit. Another major factor is the availability
of data. To calculate beyond gross profit requires a large amount
• (h) Finance rolls up the numbers to calculate a profit number of cost data that would need to be dynamically adjusted through
(if it is undesirable, changes are made in steps a to g). the S&OP process. Few companies have managed to efficiently
collect and manage the data required to calculate cost-to-serve or
This integration not only enables the organization to have a do dynamic profit calculations beyond gross profit, without making
discussion on a monthly basis around the risk-reward trade-offs of major assumptions for cost categories beyond cost of goods
supply and demand, but also enables discussion of profit impact sold (COGS), and using traditional cost accounting methods for
and visibility into whether the company is tracking to its financial allocations and absorption of costs.
plan. Steps d and f were typically performed on a quarterly basis
instead of monthly due to the amount of time it took to complete Emerging capabilities and those necessary to move beyond Stage
the process. 3 are “total cost to serve,” or as one company calls it “profitable
to serve.” In these organizations, they are shifting their discussion
The goal of a Stage 3/4 S&OP process is to achieve company of “profit” to mean operating profit or earnings before interest
goals. This is typically “profitability,” but in some cases market and taxes (EBIT). For example, in a CP company, customer-level
share may dominate, e.g., where a business is pushing to grow in planning takes into account pricing tiers and trade promotions.
a particular market or region. The term “profitability” is widely used, Going to this level, however, requires the inclusion of all selling,
but with unclear definition, hence it deserves further analysis. Our general and administrative (SG&A) and customer-specific costs,
research highlighted that in Stage 3 where “profit” is introduced into which are more difficult to determine than an appropriate item-level
the S&OP discussion, it is generally calculated at a gross-profit level allocation.
(the difference between sales price and the cost of goods sold).
This is because of the ease at which costs can be tied directly Exactly what can be measured when talking about profitability truly
to product categories and items. Therefore, the vast majority of depends on the level of decision making required, available data
companies that include profit in their S&OP discussion are talking and maturity level of the organization.
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Proper Alignment of Planning Horizons and Decision- than revenue/profit. Heads of business attended the midterm
Making Responsibility monthly meeting. We also found different planning horizons and
stakeholders for different parts of the business. There needs to
To enable the correct level of discussion, planning horizons are be absolute clarity of the horizon and assurance that they do not
clearly defined and adhered to within Stage 3 meetings. To avoid overlap, thus introducing undue “noise” at multiple levels (see
the temptation of slipping into discussion of short-term execution Figure 4).
issues (0 to 3 months), many of the companies interviewed
implement a layered S&OP process for different planning horizons.
Not only were companies creating process layers around the
In one meeting, the planning horizon catered to the short-term
time horizon, but also around decision-making responsibility. We
execution and operational issues occurring within the next three
saw companies redesign the planning organization to recognize
months, while a second process was implemented that covered
the need to manage global orchestration while promoting local
mid- to long-term planning issues (3 to 24 months). They consider
execution. This meant creating and managing alignment between
both to be part of “S&OP,” highlighting the need for a cross-
the role of the global and local planners.
functional process at the operational level, as well as more forward
looking that focuses on alignment, profitability and making the right
An example of a truly collaborative and layered S&OP process is
trade-offs.
how Lowe’s Home Improvement and Whirlpool Corporation work
together. Because Whirlpool appliances make up such a high
Structurally, these meetings look very similar and follow the
percentage of Lowe’s sales, they have a series of joint meetings
traditional format of S&OP. In many cases, they were orchestrated
in their monthly cycle, specifically for the Lowe’s/Whirlpool
by the same individual — the S&OP leader. The main difference
partnership. These meetings are layered to cater for the various
was the frequency, level of discussion and the decision makers.
planning horizons, with an intense focus on cadence and discipline:
The short-term meetings often occurred more frequently, weekly
versus monthly, and discussions tended to be around units rather

Figure 4. Demand-Supply Translation Hierarchies

Source: Gartner (October 2010)

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• Operational planning using CPFR in the 0-to 3-month horizon, What are the benefits, and how do they know the process is
through weekly meetings. For Lowe’s this is about store successful? People show up and sales managers start to take
execution and logistics planning. For Whirlpool, it is about control of the meetings. Market share is improving, and product is
manufacturing and logistics synchronization. Metrics include available in the stores. Both sides are aligned around promotional
on-time fill rate and mean absolute percentage error (MAPE), activities. Simply put, “Whirlpool is building what Lowe’s is selling.”
and the people involved are forecasting teams.
Many companies that remain trapped in Stages 1 and 2 have
• Merchandise and operations planning monthly meeting, looking underestimated the need to have layered and tailored S&OP
at the 3-to 6-month time period. This is at the midmanagement processes and how this impacts the need to redesign their
level. Sales owns the forecast and the discussion centers on planning organization.
sell through, pricing and promotions and root cause drivers.
This is similar to the Whirlpool category review meeting, but Simplified Metrics — Measuring Success
specifically tailored to the Lowe’s account. How do you measure the success of S&OP? How do you know
the process is effective and improving? Ultimately, it is the
• Strategic account planning focused on the 6-to 12-month business results that prove the value, but along the way there are
horizon between senior business partners from both sides. Here indicators to help you gauge progress. A strong trend we saw in
joint-business objectives drive joint-strategic planning. organizations that achieved Stage 3 maturity was that they were
data driven, held people accountable for decisions and results and
took the emotion and politics out of the discussions by alignment
• C-level discussions twice a year, looking out two years around a common goal.

Figure 5. Processes Aligned to Planning Horizons

Sell Deliver Make Source

Strategic/Long-Term Strategic Planning and Forecasting

Planning Network Optimization, Strategic Risk Evaluation

(2 to 5 years)

Tactical/Midterm Sales and Operations Planning

Planning
(3 to 24 months) Demand Supply Planning Supplier Mgt.
Planning Inventory Configuration Contract Mgt.

Operational/Short- Operational Planning/Order Fulfillment

Term Planning
(1 week to 12 weeks) Vendor Distribution Req. Factory Material Req. Planning
Managed Planning (DRP) Scheduling (MRP)
Inventory (VMI) Inventory Policy Sourcing
Transportation Mgt

Execution Order to Cash Logistics Manufacturing Procure to Pay

(order duration to shipment) Execution Execution
Systems (MES)
Note: planning horizons differ by industry depending on product lifecycle and asset investments

Source: Gartner (October 2010)

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These companies focused on a simplified, reduced set of metrics. business, not supply chain, owns the S&OP decisions and results.
They took a step back, found those “true north” metrics which
are measured at the C-level and define the overall business goals, While we would like to say that this change of ownership occurred
then cascaded them down through the organization to drive because of a sense of enlightenment, the unfortunate reality is that
alignment of functions around a common goal. There is visibility it is most often a compelling event or financial crisis that caused
and transparency of KPIs, targets and results across the company, senior leadership to recognize the need for a better cross-functional
based on a core set of standard metrics, typically including planning process, owned by the business leaders and not just
revenue, profit, forecast accuracy, customer service, working supply chain. For a pharmaceutical company, a blockbuster drug
capital and costs and, more recently, a forecast value-add metric. was soon to be threatened by a generic equivalent. For a consumer
At this level of maturity, the discussion has moved from what electronics leader, revenue for a major product line almost halved
supply chain cares about to what business owners care about. This year-over-year.
means you have or are building the capabilities to measure detailed
return on assets (ROA) or economic value added (EVA), cost to In some cases it was pure frustration on the part of business
serve, cash and forecast accuracy and value add. leaders that the current planning process was “out of whack” —
there was poor internal collaboration and communication, and
An electronic equipment company established four “true north” they were unable to move the needle on critical KPIs. Despite all
metrics at the company level. These were then translated into a this chaos, they already had a S&OP process in place, and had
hierarchy of end-to-end metrics, with cross-functional ownership invested heavily in forecasting technology, BI tools, data integration,
at the global operations (supply chain with a broad span of education and more. One VP of supply chain stated “I just could
control) level. This cascaded further into hierarchies for the various not continue to sit in front of the CFO each month and admit I did
functions, such as planning, manufacturing and procurement, etc. not know what was going on in my business.”
This helped drive the right decisions at the operational level and
ensure alignment to company goals. Whichever it was that instigated change, a renewed focus on
a newly designed S&OP process was frequently a leadership
Traditionally, looked at as an evil (necessary or not), the role of “mandate,” definitely more than just the commonly-used phrase
inventory changes in Stage 3 S&OP companies. It tends to become “executive sponsorship,” which is necessary even in Stage 2. This
a strategic tool to buffer demand volatility or supply risk. There top-down approach automatically creates the common goal and
is joint ownership of inventory decisions, often through a cross- vision around which S&OP stakeholders rally. Lack of this common
functional inventory council or steering committee. goal is one of the key barriers.

To measure success and improvements, business units and/or Although we refer to it as ownership in this section, the word
regions are benchmarked against each other. To do this, a set of “ownership” seems inadequate in Stage 3. It is more than just
metrics with common definition and accurate data are needed, owning the process. There are actually three levels to consider:
but also the understanding of how different supply chains behave
based on their channel, product and supply characteristics. We no
• Sponsorship — Top-down commitment and support for the
longer hear “we need to be efficient, agile and flexible” because
process, with the right executives actively participating.
Stage 3 companies realize you cannot be all three, at least not
in the same supply chain. They have done the segmentation
necessary to get to this level of differentiated supply response. • Ownership — Business functions own their parts. Depending
on the S&OP design, it may be sales and marketing, or the
Last, but most important, success can be measured by alignment GM of a division or VP of a region, that owns the demand plan,
of people and the shift from making decisions offline or outside the closely aligned with the planning team.
S&OP meeting, to recognition that S&OP is the critical decision-
making forum in the business. When this happens, you know you • Coordinator — The S&OP VP or director, who in Stage 2
have the cultural foundation for Stage 3 sustainability. owned S&OP, now owns nothing but has a critical role in
orchestrating, or coordinating the process. This role is still a
Qualitative Changes process coach and facilitator (sometimes called orchestrator),
The following represents the changes that lead to an effective but is not accountable for any decisions coming out of the
S&OP process, but are more subjective than the topics presented process.
up to this point.
Transparency
Transfer of Ownership — What Instigated the Change? While conducting this research, the word “transparency” was
Absolutely essential to getting to the next level in S&OP is the frequently used to describe a mature process. In Stage 1 and
transfer of ownership. Even in organizations where executive 2, differing degrees of gaming still occur within demand/supply
management participates, Stage 1 and 2 S&OP tends to be owned projections to make metrics “look good.” What came through
by supply chain, most often supply chain middle management. strongly in the research was the word transparency as a core
In Stages 3 and 4, our research highlighted not only active requirement. Stage 3 requires a culture, led by senior management,
participation, but actual ownership of the process by senior which embraces transparency of what is really going on in the
business leadership. Supply chain still facilitates the process and business, with the intent to collaborate and fix problems. Only
executes on many of the decisions, but senior leadership uses then can the organization get to the root cause to drive a culture
the process for decision making. At this level, clearly the lines of of prevention, rather than fire fighting. As one S&OP leader said
 9
“S&OP is a contact sport. Our executive meetings are not pretty. The Evolution of Managing Demand
We may all come out bruised and hurt, but we go after problems Within the first two stages of S&OP, demand is looked at as
and next month it is better. And we only get 12 shots at it a year, something that “happens to” the organization. In later stage S&OP,
so we have to confront the ugly truth at every opportunity.” The especially Stage 4, companies view demand as something they
company must have the culture from the top down to share the create and shape. However, excessive demand shaping can throw
numbers, the brutal, ugly facts and the financial impact of decisions a business out of balance. The more companies shape demand,
both vertically and horizontally through the organization. the more they need to build the capabilities to manage potentially
increased demand volatility (see Figure 6).
Because the financial impact of decisions and gaps is more clearly
understood, a comfort level should develop in meetings to enable Early stage S&OP focuses on sales forecast accuracy. In Stage 3
openness and sharing. People no longer game their metrics to S&OP, we identified the evolution to continuously improving the
look good, but bring forward the truth in a culture that rewards capabilities to predict demand, with clarity as to what demand
prevention and transparency, rather than fire fighting and fudging signals are of value in the various planning horizons. These were
the numbers. Transparency is directly related to an open and the common themes across industries and business models
honest company culture and aligned incentive programs. where there can be vast differences in demand management best
practices. In Stage 3, there is clear recognition from the commercial
There is transparency of the planning process and input and output teams of the importance of demand planning. They involve their
across the company. Alignment and process capabilities enable salespeople, being more disciplined in keeping the pipeline up to
fast communication, and the midterm S&OP planning process is date at the mix level. Marketing and product management also
aligned to the operational level through evolution of rapid planning becomes critical to predict midterm demand.
capabilities, sharing assumptions and decisions and supported
through event- and exception-based alerts. Managing demand takes on an outside-in approach. Some call it
market-based forecasting, with focus on what the customer cares
In an effort to increase transparency beyond the traditional about. Companies analyze sell-through data, identify market shifts
internal boundaries of S&OP, organizations are reaching out to and capture other indicators to predict buying patterns. Demand
key customers and suppliers. Procurement is being included in insights from multiple sources are critical, whether from trade
the process, especially in supply-constrained environments or promotion tools, customer input or government stimulus plans, etc.
where there is a complex supply network with high-risk potential. While Stage 3 companies have insight to these demand sources
Motorola calls it “Supplier S&OP.” Within this environment, demand and use the data in discussions about the future, the advanced
planners collaborate directly with procurement and key suppliers, capability to pull all this data into a common plan and model out
or third-party manufacturers. This enhances the company-to- scenarios is desired, but still a work in progress. This will get you to
company relationship, gives better demand visibility to the supplier Stage 4.
and supply visibility to the OEM and reduces the latency of getting
suppliers information.

Figure 6. Seven Levers of Agility

Source: Gartner (October 2010)

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Granularity of forecasting differed across companies we spoke to, focus on supply chain metrics toward shared business decisions of
mainly driven by industry nuances. In some cases, it was raised the board. This business-piloting scope engages and commits all
up a level to the product family and focused on market-based functions to GPS success. In Danone, GPS is valued by the general
macroeconomic indicators. In other cases, they built out very managers, owned by the board and lived by the organization.
detailed forecasts by SKU/customer. What was common is a focus Increase in profit and service levels has validated this success
on the right forecasting techniques, data integrity, the right planning story.
hierarchies, ongoing attention to improve the demand signals and
managing bias and FVA. This new process looked out further and involved higher level
business stakeholders and focused on higher level decisions, but
What we also noticed was that no matter the level of forecast was linked through metrics to the original process. This is how
detail, when looking out 12 to 24 months, the focus shifted to layered S&OP processes have evolved under the general S&OP
simplification, major trends and the importance of cross-functional banner in many companies. The name is irrelevant; it is about how
dialogue, and not to get caught up in becoming too over-analytical the processes are designed to meet the business needs.
with the numbers.
Sustaining Stage 3 Maturity
Change of Focus — What’s in a Name?
Building the Right Culture
Although the term sales and operations planning is used
A Stage 2 process needs constant support and focus on
generically, 40% of the companies interviewed no longer call their
continuous improvement, but this focus changes with maturity.
process S&OP. Why? Over time, the term S&OP had collected
In Stage 2, supply chain is constantly pushing and encouraging
poor connotations or was considered to be purely a supply chain
participation from sales, marketing and other business leaders. The
process. Many times, S&OP had been given the stigma of a
process can easily slip backward without this attention. Moving
process with too many meetings of little value and too focused on
into and then through Stage 3 is a huge shift in mind-set. But
current quarter. In Stage 3, S&OP must be considered a broad,
once it gets rolling and the right business leaders see the value, it
cross-functional, business- planning process looking out 12 to 24
creates its own momentum and is no longer a supply chain push,
months.
but a line-of-business owner pull. The attention a mature Stage
3 process then requires is to embrace this active participation
In the cases where the original S&OP process was too short term
from business owners and work to make their lives easier through
and operationally focused, a new process was implemented,
efficient workflow, fast and easy access to value-added information
often with a new name. We always get asked “What do they call
and automation where necessary.
it?” Some make a subtle shift from S&OP to sales and inventory
operations planning (SIOP) or executive sales and operations
Culturally, the move to openness, transparency and rewarding the
planning (eS&OP), while others embrace terms like integrated
right behavior requires ongoing change management. Identifying
business management (iBm), or <insert company name> business
and developing process coaches and planning power users
planning. Some have very specific names, with no apparent link to
helps sustain the process and knowledge level of individuals
the term S&OP or business planning, but it worked for them.
in the businesses. These individuals reduce the reliance on a
center of excellence (COE) or on consultants. Also, some have
As we conducted our research, one name stood out as the most
created a “steward” role to streamline the connection between
innovative and impactful. For years, Danone struggled to transform
local and global meetings. This person needs strong interpersonal
its operational S&OP process into a key business management
skills, business acumen and an in-depth understanding of the
process, valued by the general managers and commercial teams.
numbers and the various local businesses in order to facilitate any
In 2007, the CEO created the burning platform for change, stating
reconciliation and realignment required. Identifying the right people
that poor service levels were costing the business sales during
for these roles and developing their skills was a major factor in
tough economic times. The project team recognized a major
some companies getting to Stage 3.
rebranding of S&OP was required. Previous efforts to call the
process iBm and advanced S&OP had limited success. Introducing
a four-stage framework aligned to “America’s Cup” sailing (from Use of a Center of Excellence (COE)
wreck, to amateur, to professional to champion), the process An S&OP COE is common, especially in larger organizations. The
was renamed global planning system (GPS) to mirror the global role of the COE is to help the businesses and regions continuously
positioning system used widely for satellite navigation. The name improve their S&OP process and, ultimately, business results.
GPS was an immediate hit. As explained to the business, your GPS
knows where you are, you tell it where you want to go and it plans Where COEs exist, we found they provide self-assessment tools,
the best route. But the real value of GPS is that it auto corrects scorecards and workbooks to support the process and identify
when you go off track. What more could general managers the need for improvement and assistance. But one thing was clear
want from a planning process to run the business? Quickly, from the research: the COE does not push itself on a business that
this rebranding became a major factor in getting the process may clearly need help. The business has to want help and pull the
transformation out of neutral. GPS targets the strategic ambition of COE resources in. COE resources are too scarce to put effort into
the business and pilots its key success factors, so moving from a a group that is culturally not ready to move forward.
 11
A leading chemical company has HR resources, known as “human The Role of Technology
performance specialists,” in the COE. Where there are significant While technology alone will not be the key to maturing the S&OP
cultural and people issues in a business, and if the business process, it plays a critical role. To get from Stage 2 to Stage 3
recognizes the need to address these issues, these specialists are requires good, clean, credible planning and metrics data and
pulled in to assist. a “single version of the truth.” So there is a need for underlying
technology and systems to support this. Typical Stage 2 tools
Talent Management are statistical forecasting, supply chain planning and inventory
The more strain companies put on their S&OP processes, the more optimization. Foundational elements are data quality, master data
they are realizing that they need to consider the human aspect of management (MDM) and the necessary integration.
the process. S&OP can be very emotional and requires a special
set of skills. Leaders in this area have discovered value in creating As the culture matures toward Stage 3 and there is more
an environment to recruit and develop strong leadership, planning transparency and business owner participation, the process must
and analytical skills, and give these individuals a career path to be supported by the ability to make decisions faster through timely
retain them. information, and more efficiently through exception and alert-based
workflows. Typically, technology is required for this. In Stage 3, the
Organizations need to take stock in the individuals currently in place dialogue shifts to what-if and scenario analysis, and to advance
to make sure of the following: these capabilities and get into Stage 4 requires analytics and
modeling tools. The term “rapid planning,” as well as the tools to
support it, is emerging as a requirement to get through Stage 3.
• Roles and responsibilities are clearly defined.
Two companies we spoke to said that they focused on the
• Skill sets match those roles and responsibilities. process, not the technology, and now the lack of technology is
holding them back from getting beyond early Stage 3. But what
got them into Stage 3 was all about change management and the
• The current organizational structure is aligned to support the
critical cultural shift.
individuals and expected change.

Conclusion
• Proper mentors and executive coaches are in place to facilitate
the S&OP journey. S&OP maturity is a journey, and, as one VP of S&OP described
it “a contact sport.” Done well, it becomes the primary decision-
making forum for the business. Research shows the primary benefit
• A realization exists that true change comes from the top. of S&OP is increased revenue. This is not surprising; if you plan the
right products and they are available, they will sell.
All too often, companies create a revolving door of talented
individuals by not understanding the amount of organizational
change required to establish and mature an S&OP process, and in
the end do not surround the individual(s) involved with the needed
support to facilitate that change.