COMMENT: Sales and operation planning is key to success
27 August 2009 | Features & Interviews | Source: just-style.com
The old adage “fail to plan, plan to fail” is more true today than ever before. And in tight times, accurate planning is the single biggest factor that will influence an apparel company’s success or failure, writes Clyde Lennon.
Imagine not knowing what products need to be made; what the real demand for your products will be; whether your outsourced manufacturers can make the products; and, finally, if you have the future cash flow to commit to the production and distribution of the products.
Only a fool would do business like this, wouldn’t they?
Yet, for many companies this is an all too familiar scenario, as they have not invested in sales and operational planning processes.
The talk today is about Collaborative S&OP processes. But what does this new buzz phrase mean?
Put simply, effective Sales and Operational Planning (S&OP) is how an organisation applies its experience and knowledge to assess the plausibility and probability of meeting a plan.
It is a methodology and process by which these conundrums are addressed:
- To minimise risk;
- To increase customer satisfaction;
- To reduce costs;
- To optimise stock holding;
- To make more margin/profit.
Teamwork is the hallmark of good S&OP and, by making it collaborative, you have the active participation of everyone involved in the supply chain to create, produce, deliver and pay for the goods.
There are some key questions that need consideration when developing an approach to the completion of a viable collaborative S&OP. These are:
- What products will we make to meet our business plan?
- What financial resources do we have to create and produce the products?
- What capacity do we have to manufacture the products?
- What duration do we need to meet the full plan?
- What is the earliest and latest delivery off the production line to the warehouse or client?
Because the apparel industry deals with so many variables (such as multi-channel demand, seasonal collections, different sizes, colours and styles) ranges can be hugely variable and complex.
The result is a complicated mathematical mix that requires collaboration amongst experienced staff. Good statistical tools for reviewing histories and forecasts are also essential.
Different views of the same information should be supported so that all inputs can be assessed and validated for example, by client/range, or by range/style, or by style/colour.
Finance departments must be involved to ensure cash flow can support the plan to avoid potential disasters. Finance can also compare product plans and assess profitability of products, contributing to the risk assessment process.
Most apparel companies are using several, if not dozens, of outsourced suppliers.
But, how many of them know how to manage their suppliers, can accurately monitor capacity, or know when and how much capacity they need?
How many have a contingency for problems or disasters, such as an alternative supplier, or can accurately forecast the best cost or quality compromise in order to meet customer expectations and margins?
The answer to these questions is, very few. Yet, effective S&OP has all or most of these issues resolved and provides confidence that products will be delivered with expected quality, on time and to budget.
One of the main reasons effective S&OP is not in place is because time-poor staff has not prioritised it and, therefore, run out of time to implement the processes.
Regular (monthly or better) reviews until the plan is completed will ensure changes in resources and scheduling are made to meet the plan.
Two interlinked tools
Successful S&OP should have two interlinked tools supporting its success.
The first is a first-rate forecasting and planning tool. They are provided by various software suppliers and known as demand forecasting and range planning tools and should be integrated with your sales and stock history - this will be your ERP system.
The second is a good PLM (product life cycle management) solution, often including PDM (product data management).
PDM is used to manage the data related to styles from designs to specifications, bills of material, quotations, grading, colour approvals and potentially much more.
Everything is stored electronically, available to all valid participants from clients to suppliers if required, and removes the chaos of mountains of paper in massive ring folders.
PLM is used by design/technologists and merchandising to track the progress of the styles through the critical path.
PLM allows better management of resources, scheduling and above all exception management of process activities at the earliest possible juncture, whilst reducing the length and complexity of meetings.
The integration of all these systems is an essential factor for successful S&OP operational processes and a long way from awkward, time consuming, inflexible, home-grown Excel spreadsheet and ring binder solutions.
If you do not have a structured PLM solution, merchandisers are frequently dealing with scores (even hundreds) of emails every day and there is often a state of constant chaos that is riddled with risk and a propensity for errors leading to added costs, frustration, diminished service levels and reduced competitiveness.
On the other hand, clearly defined processes, process automation and collaboration enables management by exception, something email and manual based Excel spreadsheet methods simply cannot offer.
S&OP needs collaboration for both planning and day-to-day process management to achieve optimal results.
Best in class companies
In June 2007, The Aberdeen Group, a highly regarded US based technology consultancy, published a report on the impact of S&OP processes and strategies across more than 380 companies in the USA.
The key statistics show that best in class companies (top 20%) who implemented comprehensive S&OP strategies and processes improved gross margin, reduced logistical costs, improved service levels (order fill rate) and improved forecast accuracy.
They had gross margins 7% higher, logistical costs 6% lower and order fill rates 6% higher than middle ranking companies who had little or modest S&OP.
The differences were almost double again over the bottom 30% of companies researched.
The net effect on your bottom line is obvious. S&OP with full process management can add value to your profits, your net value and improve your market position.
This research shows that old adage “fail to plan, plan to fail” is more true today than ever and, in tight times, accurate planning is the single biggest factor that will influence your company’s success or failure.
Great products are only any use if they are delivered on time, at the right price and in the right size, colour and style options.
It was important two years ago to have effective Collaborative S&OP, but in today’s climate it is vital. Can you afford not to rise to the challenge?
About the author: Clyde Lennon is a founder of GreyStuff Limited, an Oxford, UK based consultancy that supports process and systems improvements for retail and apparel companies.