Intersection of the Forecasting & the S&OP Processes: The Place Your Organization Should Be!
This is the process where future supply and demand requirements are collaboratively compiled and readied for review to ensure the organization's prepared for what's to come. Most organizations are effective at this as a stand alone activity. The problem is the missed advantages that can be gained by fully aligning the S&OP with the financial plan. Doing this results in greater corporate alignment, improved information transparency, and more timely and effective organizational execution.
How does this work and who's responsible for making this alignment happen?
The finance function needs to lead this effort though they’re already lord-and-master over what seems like too many critical business processes, including financial planning & analysis, treasury, finance transactional processes, compliance, cash management, tax management, and in most companies today, risk management.
Adding this integration role to Finance's agenda seems like it will only exacerbate an already overburdened department but a financial plan (and forecast), for which finance is responsible, isn’t worth the paper it’s printed on if it doesn’t align with the S&OP process so finance needs to take it on.
Operations teams with Finance involved in the S&OP process are able to develop a more robust supply plan and a single consensus demand plan than without finance involved. Yes, with finance actively engaged in the S&OP process, better performance can be attributable to finance, operations, and the executive team’s improved understanding of the dependencies and business context of the S&OP process given finance’s involvement in financial reconciliation to identify errors, inconsistencies and out-of- balance elements of the plan while even reducing forecast bias given finance’s role as an objective participant in the S&OP process.
The key in all of this is that each plan needs to be on a common, integrated platform, with the same level of financial and operational data detail available to both.
This way the impact of changing an assumption or parameter on either end can be seen from a financial and operational perspective. Sure, planning parameters are still unique to each, but the impact of a parameter or assumption change in one domain is directly reflected in the other. Imagine the benefits resulting from this alignment??? Indeed, the insights developed through this integrated process enable the allocation of resources and alignment of commercial and operational activities to support the real revenue and profit drivers of the business: your customers, products and services!
Other outcomes are that the quality of the sales and operation plans themselves improve. In addition, there becomes a corporate cultural shift to a more long-term, strategic focus. Everybody’s able to see the financial implications from their operational decisions. It puts everything in greater context for both sales and operations, which in turn helps the executive team make smarter strategic decisions given the greater insight they'll now have into the financial and operational plans.
The focus is on strategic, or actionable, decision making based on what the data presents, not on the questionable veracity of the numbers. Improved buy-in and commitment to plans from the business occurs because there's a more engaged operations team in the process with newly found control over the performance outcomes. Increased cross-functional collaboration, financial modeling and planning assumptions will materialize too.
Tim O'Bryan, AnalyticsZone at IBM
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