Supply Chain Blog

S&OP: Cutting edge recovery for cash-poor businesses

Posted by Dave Jordan on Sun, Mar 31, 2013

Returning home from my Dubai holiday I spent some time in Duty Free electrical section looking at everything I do not need or in fact, do not know how to operate and never will. I was actually in the market for a new electric shaver as mine had bitten the dust.  Dubai Duty Free has an impressive range of shavers or all makes and designs - the place was bristling with shavers – sorry!

A sales assistant hooked onto my dithering and offered to help. This head-scarved Muslim lady then proceeded to tell me everything I might want to know about the different shavers on offer. I was impressed; she knew every function and gadget and how it makes for a more enjoyable shaving experience. I’m not sure about enjoyable. I don’t think I smile while shaving and I don’t recall shaving bringing on a giggling session.

Once I had a very short list of two, the sales assistant perhaps naturally guided me towards the more expensive shaver. My short intake of breath told her I was not convinced and then she said something which I have heard before and I know is true. “Do you have enough money to continue buying and replacing lower quality equipment?”

Not the smoothest segue but here we go. Why do companies tell me that they cannot afford to implement Sales & Operational Planning (S&OP)? Currently, many FMCG/Brewing/Pharma businesses are bleeding cash as they compete for a shrinking consumer purse. Sure, some will have rich parent companies to bail them out but if not you can soon find yourself on a very slippery slope.

S&OPSuppliers will not provide raw materials as you do not pay them on time. Customers are not paying you on time and you have a severe cash flow problem. You start to operate on a very short term horizon with expensive spot purchasing of raw materials and inefficient manufacturing runs. Eventually the company grinds to a standstill. So, how will S&OP help in such circumstances?

Amongst many other longer term benefits:

  1. Fosters team working under difficult business conditions.
  2. Provides a forum where decisions are taken for the benefit of the company rather than individual departments in isolation.
  3. Focuses attention on those SKUs that are important, e.g. fast movers – high margin, high volume.
  4. Provides total clarity on cash availability and allocation priority – no dissent or hidden agendas.
  5. One set of target numbers and KPIs, e.g. working capital, however poor they may be.

S&OP will help your company understand exactly where you are and provide a rigour and discipline for gradual improvement. This will not happen overnight but you will soon see the benefit of aligning the whole company behind the same recovery objectives.

 

Tagss: Dave Jordan, Performance Improvement, S&OP