In this blog, I’m going to highlight the critical importance of integrating the organization’s financial plan and the actual finance function in general into the operations department-led sales & operations planning process. Yes, in this sales & operations planning process, or S&OP, where future supply and demand plans are compiled, aligning the S&OP with the financial plan results in greater corporate alignment, improved information transparency, and more timely and effective organizational execution. 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 role to their agenda seems like it will only exacerbate an already overburdened finance team. My response is that 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. Here’s why:
Operations 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. Granular alignment is critical. 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 culture 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 because they’ve got greater insight into the financial and operational plans. The focus is on strategy and not on simply the veracity of the numbers. Also, improved buy-in and commitment to plans from the business results and increased cross-functional collaboration, financial modeling and planning assumptions materializes too.
Other things to consider to help jump-start this process are:
- Get CFO involved in the process as an owner or co-owner communicating why finance is becoming more involved in the process and what the expected outcomes will be
- Determine a common method across each planning domain for calculating the financial implications of plan changes
- Set a short-, medium-, and long-term strategy for aligning these two planning domains;
- Assign an overall program manager for this effort
- Align these two processes on a single, technology platform that can manage each domain’s planning, forecasting, and reporting current and future needs.
I encourage you to check out IBM Cognos TM1 which has the capability to manage massive data volumes at SKU-level detail with embedded controls, simplified modeling capabilities, and ease-of-administration functionality to streamline all of your planning, forecasting, budgeting, reporting and analytic needs. It’s what I call the ‘Swiss Army Knife of Technology Solutions’.
Blog @ http://ibm-business-analytics.com
YouTube Videos @ http://www.youtube.com/user/ProvenPractices?feature=mhee