Executives setting up an S&OP program must undertake five building-block tasks:
Set service and supply policies. This works in much the same way as service levels negotiated with a third-party vendor. For example, executives might decide how long is acceptable for a customer to wait in line, or how long mortgage applicants can be left waiting before they are given an answer.
Tighten forecasts. Often, companies can improve forecasting accuracy by focusing on the factors that drive demand volatility (such as promotion, pricing, and advertising) and then examining their degree of past correlation with demand for that product. For many service companies, any forecasts that factor in market information would be a big improvement over current practices.
Develop analytical models. Almost every product or service has a point of diminishing returns, after which the value created begins to decline relative to its cost; executives must be able to find this point in order to determine the right trade-off between the cost to the company and the service provided to the customer. A model for finding that point makes it much easier for managers to set policies.
Communicate across functions. Manufacturers who have had success with S&OP say it is important to schedule a monthly meeting of executives from each department to review their current activities and goals for the next month, discuss whether a forecast is still on track or needs to be adjusted, and decide whether the models or goals must be modified in light of new results.
Track metrics to monitor results. Appropriate metrics, such as average use by customer-service representatives, processing errors, or data-entry accuracy, should be identified in the course of the modeling to determine how well the plan is being executed and to reveal weak spots in either the model or the process.
Finally, even though these five elements are frequently executed in the order presented above, it is best to view S&OP more as a wheel than as a line, because a well-executed S&OP process tends to lead to iterative improvements over time.
As competition for customers grows, both locally and globally, service executives must move beyond the old hit-and-miss guesstimates that are now often used to determine the proper level of service and support. Companies that are even modestly more adept at S&OP than their competitors will gain share over time.
Muir Sanderson ([email protected]) is a vice president with Booz Allen Hamilton in London. He specializes in helping clients, primarily in the consumer products and automotive industries, with supply-chain management and globalization issues.
Piyush Doshi ([email protected]) is a principal in the London office of Booz Allen Hamilton. He focuses on operational performance-improvement issues, including back office and call centers, for clients in service industries, particularly in the public sector and in financial services.
Christine Korwin-Szymanowska ([email protected]) is a principal in Booz Allen Hamilton’s London office. She specializes in advising clients in the financial services industry on strategic issues, as well as setting up efficient operating models for group functions, primarily in the retail banking and bancassurance sectors.