It’s possible that you are scratching your head after reading the title of this article, especially if you work in the Sales or Procurement function in your company.  Typically, Sales and Procurement teams do not work closely together, or they don’t work together at all, for their focus is on opposite ends of the supply chain.  Moreover, both functions have higher priorities than exploring ways to improve overall supply chain performance. Sales teams focus on the top line; Procurement teams focus on the bottom line.  So where is the benefit for both functions to work together and drive results?

It is commonly known that sales force activities drive the forecast from which procurement executes their orders.  As a result, inventory is built and managed based on forecasted orders anticipated or confirmed by the sales team, and subsequent product is manufactured.  Often this process does not flow as smoothly as described for various reasons.  Let us explore what often breaks down in the process of managing the supply chain, and how a stronger partnership between the Sales and Procurement functions can benefit the process.

Data Input Accuracy

Procurement functions in companies that utilize an ERP system, such as SAP, Oracle or a homegrown platform, often assume that the forecast calculated via the input by the sales team is accurate, and this is commonly where the process can fail.  By the time that the errors are discovered, the inventory has either accumulated or is missing, and it is too late to rectify the situation.  Typical failure modes for the process can be overestimating revenue by the sales team, entering forecast sales data that does not materialize, or a simple lack of understanding by the sales team regarding how inaccurate information impacts the procurement cycle farther downstream.

Now, you may be thinking to yourself that I’m being a bit hard on sales teams.  My intent is quite opposite, for I realize that, as an account executive, it is a challenge to juggle customer orders in conjunction with meeting sales targets on a regular basis.  For example, a customer may intend to purchase at a given time, but business priorities often interfere with the best of buying intentions.  Conversely, a sales representative may believe an order is coming from the customer, so in order to ensure an on-time delivery to the customer, the sales rep may input the order for production so that the proper internal lead-time is met without necessarily confirming the exact delivery date.  It is this misalignment of internal production lead-times and customer delivery date expectations that can often cause the failure to occur between the sales team’s input and procurement’s response to the data input.

Given the thousands of orders that a sales team may input and a procurement team may receive, it is understandable that mistakes will occur.  If the company solely relies on the system to facilitate the communication between sales and procurement, then the odds increase that something will go wrong in the process.  Hence, wouldn’t it make sense for the sales teams and the procurement teams to communicate on a regular basis outside of the system?  I think so, but it occurs rarely in larger organizations.

What would we talk about?

Many organizations have a Sales and Operational Planning (S&OP) process that facilitates communication between sales and procurement, and determines what topics should be addressed within the supply chain.  Simply defined, the S&OP process is supposed to drive regular meetings between sales, operational managers, procurement professionals and inventory specialists that address the following:

• Changes in the forecasting

• Projected swings in inventory levels

• Potential operational issues that could impact production

• System driven information accuracy

• Supplier-related issues

• Cost and pricing accuracy

If implemented and executed properly, S&OP can be very successful and elevate an organization to a world-class status.  If all of the major functions are communicating regularly with one another, continually discussing issues and fine-tuning the system information, how could the organization go wrong?

The Challenge

The challenge that I have witnessed with S&OP over the years is the constant battle to align the different functions to accomplish the goals that the process is supposed to deliver.  While regular meetings between functions can be scheduled and even occur, the process is often derailed due to conflicting or misaligned objectives by each function.  For example, sales goals target revenue generation.  Inventory goals target the reduction of inventory levels, which can be in conflict to overly optimistic sales targets and managing on-time delivery expectations of the customer.  Procurement teams focus on cost reductions, which are of little to no interest by the sales force.  It often takes the alignment of strategic goals and objectives of each functional leader at a very high level in the organization who are committed to the success of an S&OP process to make it work.  All too often, the process is driven by mid-level leaders in an organization who struggle to influence other functional leaders to care about their S&OP challenges as much as they do.

So what is the solution?

Measuring Success

I have watched companies struggle with S&OP implementation throughout my entire career, and I do not profess to have the answer.  However, I can offer some thoughts on best practices I have witnessed that have made some S&OP infrastructures a success:

Obtain top-down support for the S&OP process.

• Since the process requires the commitment from multiple functions across the supply chain, the road will be a lot easier if the process is supported from the top.
• Designate an executive S&OP sponsor that reports directly or is closely linked to the CEO.
• Nothing gets the attention of the organization more than a top-level executive dedicated to the S&OP process.  This sends the message that S&OP is a top priority.
• Ensure alignment of cross-functional objectives.
• The S&OP process should not be a program – it should be an infrastructure that is built containing dedicated resources from the respective functions, proper training resources and accountability from functional leaders in their goals and objectives.
• Establish metrics that affect every individual that touches the S&OP process, and put them in their goals and objectives.
• Nothing motivates individuals more than achieving their bonused goals.

Implementing an S&OP process is difficult, but not impossible.  A good place to start is simply getting sales and procurement in the same room to discuss challenges and share information.  Who knows where the conversation will lead them.

Written by Julie Brignac, Principal, Vantage Partners, and a member of the firm’s sourcing and supply chain management practice.  She has worked as a transformational leader in globally matrixed organizations, with over 20 years of strategic and operational experience in supply chain management, international outsourcing, sales and operational planning, procurement transformations and business process improvement initiatives. She is the inventor of The RoSS Model®, an end-to-end project benefit financial validation process that helps organizations predict, report, and reconcile project benefits to financial statements, specifically in the supply chain arena. Julie is an Associate Adjunct Professor for the Undergraduate School of Supply Chain Management at the University of Maryland, as well as an Adjunct Professor of Online Learning for the Whitman Business School for Syracuse University. 

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