Many businesses today still allow internal departments to work independently of each other, causing daily functions to shift into silos and creating disconnects in processes and, inevitably, the supply chain. This is especially true for sales and operations planning (S&OP) and financial planning. However, considering today’s volatile global supply chain, financial planning must be integrated with sales and operations during the planning process to align both department’s goals.
Where the Gaps Exist
In essence S&OP is all about collaboration. The problem is that what exactly collaboration should entail is sometimes unclear. Many companies believed collaboration should occur amongst sales forecasting, operations planning and procurement planning teams. However, companies today are now beginning to realize that the collaboration must include the complete ecosystem of an organization, including key trade partners, throughout the whole process.
Many manufacturers today still use past decision-making methods, which is a disconnected model that leads to critical departments, like finance and operations, being isolated from one another. In most cases, this model excludes any input from the finance team beyond the annual static budget recommendation.
If the gaps between these groups were minimized, businesses could determine the impact of supply chain decisions early in the planning process and at all levels of planning: from strategic to tactical through execution. For seamless operations, businesses must have the ability to make cross-functional decisions.
The Silo Problem
An excellent example of what can happen to a business that doesn’t make cross-functional decisions is a company that produces a specialized variety of deli meats. Demand for this product was predominantly found in major U.S. metropolitan areas and in a distinct demographic. The particular deli product, which was a low seller for the company, was prone to many production issues, including:
- High production costs
- Low demand but excessive inventory required
- Slowed down production time
As a result of these ongoing issues, the company decided to halt production of the deli meat product. This seemingly resolved the production problems, however, it created an unexpected new problem for the company: sales across the board for all of their other products in those metropolitan areas began to decline.
After the fallout from these changes, the food company conducted a market research study to understand why these results occurred. The study found that after removing the widely recognized and trusted product, customer loyalty shifted to other deli meat companies. And after considering the newly gathered information, the food processing company decided to resume production and sale of the discontinued product. This time, however, every department in the sales and operating processes were involved in the decision-making.
Bridging the Gap Between Finance and Operations
To have a connected supply chain that is adaptive and agile, a business must ensure three elements are aligned: people, processes and systems. And to achieve this, all operational groups need to be planning the same way to reach the same overall business goals.
The metrics that measure supply chain effectiveness and business KPIs, specifically those that measure financial success, should be merged. By combining these metrics, businesses can minimize the gap between these two departments by analyzing the unique metrics from both worlds to evaluate their impact on each other. This must be done throughout the entire planning process as a way to make informed decisions in respect to both the operations and financial parts of the business.
Each department must work with the same components for teams to be connected during the planning process. For example, if product development plans to introduce new products, or remove products, that needs to be in both operations and financial plans. As examples, potential profits, product cannibalization, distribution, and production costs all need to be considered by all groups.
Lastly, organizations need to integrate new technology into the mix. New technology can help an organization plan, rather than react, to internal business issues and to things that impact their trading partners. Disconnection between departments and siloed information can be eliminated by aligning the right people with the right processes and systems.
A Connected Supply Chain Equals Success
The companies that are succeeding today, in spite of current market pressures, are adaptive and have a connected supply chain. And by removing siloed data and communication, more companies can become successful. But to do this, businesses need to connect the people, processes, and systems throughout the entire organization, and include external partners. Because when every team is planning on the same page and working towards the same financial goals, an organization can become truly adaptable.
