What Commercial Companies Need to Know about S&OP

Sales and Operations Planning (S&OP) is an iterative planning process. It ensures cross-functional alignment on sales forecast and performance, as well as manufacturing forecast and performance. It also provides visibility into forecasted demand and an accurate view of volumes for inventory and production. With this information, companies can quickly react to changes and adjust both their procurement schedules and production plans. In this way, it allows leaders to address supply chain constraints and develop relevant risk mitigation strategies.

S&OP is important for life sciences companies
Jen Foulkes is a supply chain management consultant specializing in S&OP, inventory management, clinical supply, and sourcing. She works with a variety of life sciences companies in pharmaceuticals and biotechnology.

Why is S&OP Important for Life Sciences Companies?

Life Sciences companies at all stages of growth deal with extremely long lead times. The pandemic has elevated the difficulties that companies face to source the right quality materials. A wide range of product ingredient mix and varied expiration periods only add to the complexity of managing supply in this industry. A robust S&OP process is essential regardless of company size. Cross-functional alignment is critical for balancing supply with demand, successfully launching a drug, and thereafter growing revenue.

In Preparation for Product Launch

Clinical development and commercialization require substantial resources and an intense focus on patients, supported by an equally complex supply chain. I highly recommend that our clients implement S&OP in preparation for commercialization, and then scale it as the company grows. In the clinical setting, companies can substitute demand for sales to create an equivalent Demand & Operations Planning (D&OP) process.

At the Time of Launch

No sales history is available when a new product launches. Hence a production plan must be established based on expectations, forecasts, and the S&OP platform. The Demand, Supply and Finance functions often plan to over-produce. They agree on a tolerance for obsolescence rather than risk a post-launch stock out. Moving forward, companies need to take the excess inventory, expiry and demand scenarios into account for planning future supply. Likewise, manufacturing operations are often relatively new and can be unpredictable. This makes it important to be prepared for an occasional batch failure. These uncertainties, as well as mitigation and recovery strategies, are often discussed in S&OP.

After Product Launch

Once the product is in market, the Commercial team brings in data on actual sales and future demand, as well as knowledge of other factors that may influence forecasting. The Operations team reports on actual production and advises on performance and metrics for both manufacturing and quality. Both sides also bring information on outlying obstacles, such as upcoming shutdowns, tech transfer, new regulatory approvals, or label and market expansions. The Finance team presents performance to budget and supports decisions on accelerating or slowing down investments. S&OP provides the forum for each of these critical functions to accurately report its performance, creating an opportunity for the organization to identify gaps, adjust plans and optimize future performance.

I emphasize to our clients that it is never too late to implement S&OP. Even companies that think they “tried and failed” can benefit from establishing a very basic S&OP process. There are many benefits to implementing some level of S&OP strategy and regularly reviewing assumptions and forecasts.

  • Functions can align and react quickly to shifts in demand, supply shortages & uncertain events.
  • Companies can react while a “problem” is small or an error/omission is rectifiable.
  • Companies can analyze performance against forecast.
  • It provides insights for better management of working capital & cost reduction.
  • Leadership can make informed decisions about product demand, patient forecast & supply.
  • It drives competitive advantage and helps improve key business performance metrics.

In one of our recent engagements, an emerging company benefitted from having an S&OP process in place when a competitor’s drug did not receive FDA approval. Through S&OP, their Sales team had a routine forum for sharing potential shifts in demand. The Manufacturing team had predictable metrics to project inventory coverage and an ability to increase production. The Finance team could predict any increase in both investments and revenue to adjust budgets accordingly. Working together, they were able to react and capture market share.

Key Takeaways

  • S&OP is an ongoing process that enables cross-functional collaboration to balance supply and demand. It is not a one-time meeting. Most companies follow a monthly cadence.
  • Commercial, Supply/Manufacturing and Finance each have an active role. S&OP cannot be successful with the involvement of just one functional area. Finance, Quality, and Regulatory also have a vested interest.
  • The S&OP focus is on surfacing supply and demand issues and developing mitigation plans. S&OP should not be a forum to place blame or point fingers. Each function needs to report the facts, whether good or bad, and relay the mitigation plan. Either way, all functions have a role to play to ensure that focus on patients is maintained in a cost-effective manner.