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EXECUTIVE SUMMARY | "How much does this S&OP stuff cost?" is heard more and more frequently these days. This article addresses that issue, first by discussing the benefits achieved by real-world companies and then by identifying the relevant costs involved in implementation. The basis for this analysis is 13 companies from all over the world, in a wide variety of industries, and all successful users of the S&OP process.
Often companies go through a Cost/Benefi t Analysis (CBA) before implementing any initiative. But to many people's surprise, there has often been no CBA for the implementation of the Executive Sales & Operations Planning (S&OP) process partly because the cost of doing it is extremely low. And because it is so low cost, many companies went ahead and implemented it without jumping through the CBA hoop. In the last few years, however, executives are asking questions: How much does it cost? What do we get back? What's the payback period? In this article I attempt to answer these questions.
The Best Practices Project
Some years ago, we initiated a project to study companies that are using Executive S&OP very well. We studied 13 companies, which is not really a true random sample but rather it included organizations that arewell known to my colleagues and me, and we were certain that they were operating the process eff ectively. This project resulted in a book: Sales & Operations Planning: Best Practices, by John Dougherty and Chris Gray. We personally approached each of these companies and obtained data on benefi ts the companies received. For some kinds of benefi ts, almost all 13 companies responded: customer service, inventory levels, and productivity. These are shown below. Other benefi ts - examples being improved new product launch, shorter lead times, reduced obsolescence - were cited by fewer companies and thus are not included here.
A LOOK AT THE COMPANIES
The companies participating in the study are shown in Table 1. There are two types of benefi ts-hard and soft. Hard benefi ts are the ones we can quantify and measure such as improvement in on-time delivery to customers, inventory levels, manufacturing downtime, plant effi ciency, and transportation cost. The soft benefi ts, on the other hand, cannot be quantifi...