Taking Collaboration With Your Customers To A New Level
There is a new measure of buyer – seller collaboration. It is called Sales & Operations Planning (S&OP). Those sellers who can integrate effectively with their customer’s sales and operations planning can become more strategically important as suppliers.
A New Level Of Collaboration
When a supplier engages with the customer around what is to be supplied and when, that is a form of S&OP planning. When the issue of what is to be kept in inventory, what is to be shipped and how it will be used by the customer is discussed, that is a form of S&OP planning too. However, the supplier may not think of it that way. Getting more actively engaged in discussing these issues and in particular focusing on the customer’s operational metrics and efficiency can really strengthen the customer-supplier bond.
If what you are selling is used by your customers in the production and sale of their own product then their approach to sales and operations planning (S&OP) will:
- Shed new light on how and when they order from you
- Reveal new opportunities to boost their results and increase your value.
If your customer is struggling with it’s S&OP, there maybe particular opportunities for your sales team.
Are Your Customers Struggling With S&OP?
Sales and operations planning is not easy. Chances are that several of your customers are facing challenges in this area. These can manifest in any of the following ways:
- Production complains ‘why don’t they sell what we are producing, or what is in stock?’
- Sales complains that they could sell more if there were no stock-outs, especially for the most popular items, or if delivery times were faster.
- Customers complain of late, or incomplete orders, or worse still of quality problems.
- Finance complains that there is too much money tied up in stock and is looking for savings in respect of procurement, production, warehousing and logistics.
- Customer Service worries that incomplete orders are resulting in customer complaints.
- Warehousing complains that buffer stocks are too small, or that there is not enough warehousing space for the level of stock required to meet service level targets.
- Logistics complains of the costs of expediting ‘short’ orders is driving up costs.
- Suppliers complain of new rush orders and last minute changes to orders already in the system. These complaints are echoed by Procurement.
Poor S&OP Hurts Everybody
Where any of the above complaints are heard in an organization, better Sales & Operations Planning (S&OP) is likely to require attention. As the last point (on the list) shows, when S&OP is struggling it doesn’t only affect the buying organization. It can directly or indirectly impact on the supplier too, for example:
- If the customer does not have the right goods in the right place then that results in stock-outs and limits the sales volume for both the buyer and seller.
- If the customer underestimates demand that is likely to result in a last minute order therefore disrupting your planned production/delivery schedule and causing tension in the relationship.
- If you are managing inventories for the customer and there is a misalignment of demand by the customer then your costs are likely to increase.
On the other hand an organization is said to run smoothly and efficiently when S&OP is done well. It:
- Results in a dynamic alignment between the organization, its suppliers and its customers.
- Ensures maximum flexibility with respect to responding to; changing market needs, the unique requirements of particular segments, the moves of competitors and so on.
- Is key to delivering superior business performance, without it an organization will inevitably under-perform.
At the core of S&OP is the overall efficiency of how an organization produces its products / solutions and gets them into the hands of customers. That makes it an organization wide concern, with all departments being involved; Procurement, Finance, Warehousing and Logistics and Customer Service. But it makes it a concern for those supplier’s who want to be strategic.
S&OP Is By-word For Collaboration
If you really want to be strategic to the customer then imagine your business not as a separate stand-alone entity, but as an integral part of your customer’s supply chain. Imagine your production, warehousing and logistics interfacing with theirs in a seamless, yet dynamic way. That requires an integrated approach to sales and operations planning (S&OP) between customer and supplier.
Best practice points to the need to bring both suppliers and customers ‘inside the circle’ in respect of S&OP. This can take many forms including:
- Sharing Information
- Using Technology (improving paperwork accuracy, reducing administrative costs, etc.)
- Joint Planning
- Improving Processes
- Sales/Marketing Plans and Promotions
- Innovating in terms of the Product
Knowing Your Customer’s Key Operational Metrics?
The sellers needs to understand the customer’s business goals and then how they are translated into supply chain, or operational goals for the customer. That is the customer defined and measured goals for performance. When you know what the metrics are then you can explore how you might be able to impact on them. These may be:
- Cost per unit
- Order accuracy / fill rates
- Expedited orders
- Customer satisfaction levels
- Days in transit
- On-time shipment
- Inventory levels – Stock-turn
- Sell-through rates
“When you know what the metrics are then you can explore how you might be able to impact on them”.
S&OP Is Strategic
Your relationship with the customer will reach a new level when he/she starts sharing their operational goals, metrics and challenges with you. When they recognise you as an important link in their supply chain and include you in their sales & operations planning (S&OP). This is the essence of real supplier collaboration and a major milestone on your progress to becoming a strategic partner.
Involving important suppliers in S&OP could be a great opportunity for the buying organization. The S&OP discussion requires deep cross functional collaboration across the supply chain. That means a new transparency and openness regarding what drives success and how it is measured. Unless there is trust between buyer and supplier this cannot happen – so when the buyer engages with you on the issue of his operational metrics you know your relationship is a special one.