Smaller companies often rely on informal processes where sales, production, and finance make forecasts and adjustments periodically. While larger and potentially more sophisticated companies may have structured processes, these can often be rigid and unresponsive to market dynamics.
In both cases, the primary emphasis is on ensuring that production runs smoothly and the primary goal is to meet customers demand without disturbance, but this focus may lead to issues when there are unexpected changes in market conditions, such as a sudden increase in demand or a decrease in sales.
To overcome these issues and bottlenecks, especially for middle-market companies, there needs to be a transformation in the sales and operations planning process. This transformation should aim to strike a balance between informality and bureaucracy, allowing executives to make adjustments that enhance cash generation and profitability, making the sales and operations planning process more adaptive and responsive to changing market conditions. It should also align cross-functional teams (operations, sales, and finance) and encouraging them to consider cash flows and profit margins alongside other key performance indicators, more flexible forecasting, and rigorous supply chain monitoring in operations planning.
This transformation has four elements:
Aligned Team: Aligning the operations, sales, and finance teams is crucial. All participants should be motivated by factors that affect profit margins and cash flows. Incentives should be adjusted to include cash flow and working capital measurements (e.g., Accounts Receivable).
Rigorous and Flexible Forecasts: Building rolling mid-to-long-term views of customer demand, creating scenarios, and predetermining indicators for various scenarios are recommended. Data on customer churn and loyalty should be used to validate and adjust forecasts.
Rigorous Supply Map: Identifying material, component, and labor availability, especially focusing on items with the longest lead times, is important. Supply chain control towers and real-time tracking can be beneficial.
Profit-Optimizing Operations: Operations planning need to balance profitability and predictability. Flexibility should be used to shift production, prioritize orders, and manage inventory effectively.
In essence, the goal is to create a more agile and integrated approach that enables companies to proactively respond to shifts in supply and demand, ultimately leading to better financial performance and improved cash flow. This approach is particularly relevant for middle-market companies that may face unique challenges and need to be more agile in their operations and financial management.
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