Best Practices for Mid-Sized Companies, Part 1: Recipes for Success to Strengthen Financial Performance and Profitability

One of the most important challenges arising from the multiple crises of recent months is dealing appropriately with change. This raises, among other questions, the matter of what significance plans still have at all in view of the frequency and scale of current upheavals. And what influence do they have on the profitability and competitiveness of Mittelstand companies? enomyc Partner and sales and marketing expert Jan Ulrik Holsten explains how sales needs to rethink and how planning processes can be linked across functions.

The problems of trading and manufacturing companies embedded in complex supply chains often follow a similar pattern. For example, the deliverable products do not match customer demand. As a result, customers switch to competitors or demand recourse for the non-fulfillment of contractually agreed services. Or the products do match customers' needs but are not deliverable in sufficient quantities or, in the worst case, not at all. Here too, customers are likely to defect. Another variant of the same problem is cases in which products are deliverable but find no buyer. The resulting consequences range from insufficient storage capacity and high capital tie-up to a massive impairment of company liquidity.

This means: the problems described are not merely annoying but have a direct impact on a company's earnings and financial strength. In the worst case, they can even lead to insolvency.

The Problems Are Homemade and Show Up at Three Typical Weak Points

The responsibility for the problem lies, as a rule, with the same three causes: rigid sales plans with too long a horizon, which assume linear cause-and-effect relationships and are poorly coordinated with other functional areas.

But first things first.

In many companies, sales planning for volumes and revenue is done only once a year, for example as part of budget planning. Short-term market changes can therefore not be integrated at all, or only inadequately. If one thing should have become clear in recent months and years, however, it is the fact that markets are changing faster from year to year, and that upheavals have increased significantly in amplitude, frequency and impact.

We are currently experiencing a multitude of mutually influencing changes that create an unprecedented level of complexity while at the same time demanding a maximum of short-term ability to act. Anyone who in this context tries to create their production and delivery processes on the basis of an annual sales plan is doomed to fail.

A second essential cause of the outlined mismatch between supply and demand is the assumption that there is a linear relationship between cause and effect. But those times are over. Today, markets and their actors resemble complex, networked systems whose cause-and-effect relationships are characterized by feedback processes. The results of these processes show up in self-reinforcing loops, combined feedback and time-delayed reactions, but rarely in simple causal chains. Anyone who does not want to build complex impact models (such as system dynamics) against this background must adapt the existing linear planning processes pragmatically: for example by defining planning premises and running sensitivities on them. Here too, what is decisive is that the planning horizon is sufficiently short.

Planning in “Silos” Is Still More the Rule Than the Exception

Another problem in corporate planning processes is thinking and planning in silos. Although management gurus have been preaching the opposite for years and many companies have introduced more or less complex planning and ERP systems, control loops (plan, do, check, act) are often found only within functional silos. That is: sales optimizes sales, purchasing optimizes purchasing, and so on. Taking mutual dependencies into account, cross-functional coordination of (sub-)process results, or even integration of planning processes? Mostly nothing of the kind. Yet there are manifold dependencies between sales planning results and the planning processes of purchasing, production and finance, so that planning results should be coordinated as closely as possible within an S&OP process (sales and operational planning).

Admittedly, solving the problems described is not entirely trivial. But more than 50 sales and operational planning processes that we have introduced in client projects show that implementation is not rocket science. Blueprints, proven concepts and pragmatic, transferable approaches provide concrete starting points.

What matters in a well-functioning S&OP process? What needs to be considered during introduction? And: which levers have proven to be quality drivers?

Do you have questions about how cross-functional, networked planning processes and high planning quality can improve your profitability and competitiveness? We are happy to answer them! Schedule a no-obligation conversation with our expert Jan Ulrik Holsten now.