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Sales and Operations Planning from an Omnichannel Perspective

  • Patrick Bower
July/August 2017

Increasingly, today’s manufacturers are seeking to engage shoppers by launching online, direct to consumer (D2C) portals that enable — even encourage — entrenched customer bases to cut out wholesalers, distributors and retailers. This trend raises the question of whether sales and operations planning (S&OP) can function in a world based on omnichannel engagement, lightning speed execution and agile delivery. White Plains, New York-based personal care company Combe is fresh off the battlefield of the recent launch of its first consumer-facing portal for the Just for Men hair care product line. The following case study highlights the major challenges, strategies and lessons learned, particularly with regard to the company's S&OP process.

Hopes and apprehensions

As the D2C initiative began, some Combe decision makers were understandably apprehensive. They wondered how this consumer delivery model would integrate with the organization’s long-view S&OP process and were concerned that omnichannel would disrupt an embedded planning culture. This new and unfamiliar business model forced a rethinking of established processes, data movements and roles. It also required Combe to find a connection between well-established business-to-business (B2B) processes and systems and D2C efforts.

The aha moment came when Combe’s S&OP process owner realized that the organization would no longer be just a manufacturer. Instead, it also would be a vertical retailer, with complete control of consumer-facing creative deliverables, the storefront and the supply chain. To that end, Combe’s customer focus also needed to change. Instead of paying attention to only major retailers such as Walmart, Target and Walgreens, for example, the D2C model needed strong and direct connections to target consumers via a new and more individualized communication model. It also necessitated adopting a new, different and delicate balance for maintaining Combe’s highly valued retailer relationships while growing these direct consumer connections.

A significant majority of consumer packaged goods (CPG) organizations have S&OP processes that are based on the five-step process model shown in Figure 1. Some CPG businesses also have D2C offerings, and those companies were the ones that offered essential insights to Combe team members during their implementation research. Two of the most important lessons they learned are as follows:

  1. Similar to a B2B model, D2C business models have portfolio plans, demand plans, product plans, supply plans, a logistics and transportation focus, and top- and bottom-line revenue strategies and expectations that dovetail into the S&OP construct.
  2. All the basic planning inputs for S&OP exist inside of B2B-D2C hybrids. The challenge is to identify — and determine how to integrate into the S&OP process — the new and different touch points and data flows arising from D2C.

The S&OP Process Model
Touch point 1: marketing

Marketing for D2C is about pointing consumers to the D2C portal and then trying to convert them to customers once there. In this way, marketing plans for D2C channels are similar to their B2B cousins, with the real differences centered in the execution. In traditional B2B CPG organizations, advertising, marketing, in-store activity, and print and digital campaigns are employed to help attract consumers to the retailer’s shelf. This makes the availability of a product on that shelf a key success factor. Success also requires foot traffic and the ability to examine and buy products. This is where marketing efforts make a difference by bringing consumers to the retailer’s outlet.

With D2C, of course, there are no shelves and no foot traffic in the traditional sense. To convince consumers to purchase goods, it’s necessary to draw them in to a digital storefront. D2C customers usually are acquired through online ads on other websites, search engine optimization efforts, loyalty databases, or promotions on social media or informational platforms. These outreach efforts very often are personalized in order to reach targeted consumers.

Once executed, many digital plans are pulsed like a traditional marketing model would stagger or distribute advertisements to increase or balance gross rating points. In traditional B2B, the execution of media plans is tracked to understand any corresponding lift in sales. One challenge with digital marketing is capturing the conversion rates of actual sales. This makes conversion the digital equivalent of lift. Therefore, the timing and conversion expectations of digital marketing plans should be treated as D2C inputs into the S&OP process. These inputs must be evaluated, discussed and understood within the demand review process step. When holding a demand consensus meeting, digital marketers should bring

  • the digital reach plan
  • an estimate of the expected conversion rates
  • tracking as it relates to the conversion rates (a new metric to the process)
  • a projection of expected D2C sales aligned to the products affected, allowing for some cannibalization of base B2B demand.

Because these plans are similar to traditional marketing plans, there isn’t a huge departure from a process perspective.

Touch point 2: sales

It’s imperative that CPG companies engaging in D2C activities integrate sales personnel with the D2C business planning process. In most CPG organizations, the sales force calls on retailers directly or via a broker network, but with D2C, the manufacturer is also the retailer. Thus, there would not seem to be an obvious role for a traditional sales organization to support a D2C model. However, the reality is that there are multiple implementation scenarios. CPG companies tend to manage a hybrid operation of both their own D2C activities and traditional B2B manufacturer-retailer interactions. They support some level of interaction with retailer D2C sites such as Walmart.com or e-tailers such as Amazon.com. Each CPG company has products that may or may not lend themselves more easily to the D2C model. In addition, there are differing views of the benefit streams and return on investment of D2C activities.

Combe leaders investigated this issue and discovered that sales organizations are an essential part of any blended retail model where both B2B and D2C exist. In the CPG organizations studied, D2C offerings had a direct impact on regular B2B business. D2C rarely provided a purely incremental sales increase, and, in fact, traditional sales channels often were cannibalized by online sales.

For instance, a consumer who otherwise might buy a hair-coloring product at Walmart once a month may be a prime candidate for a guaranteed monthly subscription to the same product via a D2C site. This simple example reveals why it is essential to consider — and account for — the shelf-level retail impact of such a sales channel shift. Of course, Walmart is likely to note a decline in in-store sales and (eventually) question the impact of the D2C platform. Here, an effective and engaged sales organization is essential to validate the importance of the digital platform. It is the salespeople’s role to socialize all trading partners to the value and benefits of the new channel and offer consumer insights derived from D2C in return, such as purchasing patterns, product mix and other knowledge that is mutually beneficial. At Combe, it also was determined that the sales force must work with retailers in order to help them participate more effectively in their own D2C sales of Combe’s products.

Anticipating this level of activity requires some incremental input or insight into the impacts of a D2C business within the various S&OP processes. The in-house role of sales leaders — in dual support of both outward-facing D2C channels as well as their employers’ S&OP process — is to present all volume-based impacts related to D2C (as well as B2B) at the demand consensus meeting. If a stock-keeping-unit count reduction in traditional retail is part of the holistic omnichannel solution, then this must be assessed and discussed. Likewise, if a sales organization commits greater focus to support non-company-owned D2C retailers, this too should be included in the meeting.

In short, any platform changes, product additions, agreements and the like must be incorporated into the D2C subset of input that sales leaders bring to consensus meetings. Sales teams play an important role in providing organizational stability while navigating the waters between traditional retailers, third-party external D2C retailers and a company-owned D2C site.

Touch point 3: innovation

It goes without saying that D2C is an innovative platform with the potential for revolutionary go-to-market approaches. In general, omnichannel is a great way to connect with consumers previously unserved — or underserved — by traditional retailers. It also is a powerful platform for testing new product ideas without wasting money and effort trying to obtain shelf placement. However, for most CPG companies that are entering the D2C fray, the products being sold are not unique to D2C; they already are in the product portfolio.

Moreover, only a subset of the existing product line is likely to be suitable for a D2C platform because not every product is economically, physically or commercially viable for online sales. D2C has some intrinsic structural constraints. Consider the realities of shipping a family-sized bottle of laundry detergent via D2C. Large, heavy or unwieldy products are very expensive to ship relative to their sales value, which can make the practice unsustainable. (Some e-tailers are overcoming these constraints with pantry-type approaches.) Sample packs, trial-size bottles or condensed formula packages are great alternatives. Basically, D2C marketing tends to work best for large-count, economical, one-time orders or subscription orders of products that do not present an undo transportation burden.

Combe offers traditional B2B products to its D2C consumers. Because most people have little reason to buy a dozen units, or eaches, of such items, the business developed something called a consumer shipper. This is a special set of package configurations (from one to four eaches) designed to give consumers a better overall purchasing selection and buying experience and to reinforce Combe branding.

Keep in mind that the products developed to fulfill D2C are no more complex or interesting than other products flowing through the innovation pipeline. In terms of S&OP, alignment with D2C happens during the product portfolio management step, which is crucial to understanding the new product ideas, forecasts, execution information and launch plans that flow into the process from a company’s innovation teams. So, whether innovation means creating a sample size or developing packaging that includes a new item count, D2C ties into the product portfolio process just like most other commercial projects: Product concepts enter at the top of the new product funnel; pass through stage and gate processes; and, finally, are managed and tracked.

Touch point 4: demand planning

Assuming all products sold on a D2C site are identical to a company’s everyday products, most of the demand and supply planning will remain the same. Although Combe ships to a diverse list of individual consumers, the business treats its entire D2C entity as a single customer for the purposes of demand planning. The challenge is in connecting planning and forecasting with the growth expectations of the D2C platform. For this to work effectively, D2C leaders expect to be a D2C business unit, the S&OP process and supply planning is a nonlinear function of the number of standard products offered by the D2C business. Because supply planning hinges on the outcome of the demand planning and portfolio planning process steps, all production values — from rough-cut capacity planning to inventory plans to pilot production requirements — for any D2C-specific items are passed to supply planning for processing into a constrained plan. invited to the S&OP demand review meeting and are prepared to bring insights about any major new D2C demand-shaping activity such as blasts or increased reaches and conversion levels. Except for actionable new information and metrics that will arise from D2C, the day-to-day task of demand planning should remain unchanged relative to this new channel.

Touch point 5: product supply

Within an enterprise, the level of interaction between a D2C business unit, the S&OP process and supply planning is a nonlinear function of the number of standard products offered by the D2C business. Because supply planning hinges on the outcome of the demand planning and portfolio planning process steps, all production values — from rough-cut capacity planning to inventory plans to pilot production requirements — for any D2C-specific items are passed to supply planning for processing into a constrained plan.

Although it may seem boring considering D2C’s wild-frontier nature, the best strategy for managing supply is to treat D2C products the same as B2B products, with minor additional consideration made to accommodate higher fill expectations associated with online purchasing. This absence of any specific D2C engagement strategies should come as no surprise because the S&OP process is predictable if its principles are adhered to. And the more that planners work within the existing S&OP process model to manage D2C products, the better.

Touch point 6: order execution

In some standard S&OP models, there is a process element referred to as the demand control function. Demand control is something of a catchall process that roughly encompasses the daily morass of reconciling orders, fill issues, matters relating to forecast overconsumption and underconsumption, and the general flow of inventory. It is an informal, ad hoc process element designed for planners to address short-term, execution-based issues that involve supply, demand or inventory. Demand control often serves as a repository of issues attached to order fulfillment in general. It also is the one place where D2C tends to depart significantly from the B2B side of most businesses.

For perspective, the B2B business at Combe is typical of CPG companies. The organization ships about 200 orders per day. Large amounts of each product are shipped on every order using the less-than-truckload carrier network one would expect of a business Combe’s size. By contrast, its D2C business typically ships one to three eaches of any given product — and there eventually may be thousands of such orders each week. In D2C, orders are dropped to Combe’s third-party logistics provider, and then picked, packed, processed and shipped once per day.

However, the business uses package or mail carriers such as UPS and the Postal Service to ship its D2C products because their order fulfillment and logistics requirements are completely different, the consumer base is all new, the volume is staggering compared with normal flows, and the tracking mechanisms are different. The biggest challenge is the need to measure in a way that assures stable execution. With such a large volume of orders, Combe leaders need detailed metrics that account for the daily pulse of the business, including data about

  • orders shipped (fulfillment)
  • orders cleared (reconciled between the order entry platform, shipments and cash receipts)
  • stuck orders (those not dropped or processed)
  • order-fill and timeliness rates.

If Combe’s D2C metrics indicate any discernable pattern of issues that may arise from the daily order flow, a small subteam within the operations group will escalate such matters to the supply review meeting for review and reconciliation. Any issues that are deemed out of control or economically impactful are escalated to the pre-S&OP review, where potential impacts are considered and solutions offered. If these matters remain unreconciled, they may be brought before the executive review meeting for further discussion. In both B2B and D2C, pulsed, regular metrics help assure the continuous and accurate flow of orders through the system. Given the significant volume — and fast-growing potential — of D2C orders, the importance of attention to detail can’t be overstated and grows more critical every day.

Touch point 7: pre-S&OP and executive review

As much of the previous information in this article has shown, there is little difference between B2B and D2C when it comes to a pre-S&OP meeting. To the extent that D2C issues may be raised in S&OP process review meetings, or if there is a D2C metric that is considered out of range, these would be discussed at the pre-S&OP meeting. If an issue or a rogue metric is significant enough to warrant deeper examination or senior leadership oversight, then the matter is elevated to the executive review meeting for discussion. D2C plans can be presented either in aggregation or separately within executive review.

Touch point 8: metrics

S&OP leverages metrics within each process step to ensure the success of both the overall S&OP process and the entire company. Because D2C is a completely different business model, it will drive an atypical set of metrics. Just as B2B businesses keep close tabs on shipments, trade inventory and point-of-sale data, D2C overseers must track order flow, mix and similar attributes to make sure that the large number of consumer orders are serviced well.

To ensure the overall quality of the marketing plan (digital or otherwise), it is not uncommon to track click-through rates, sales volumes, subscription percentages, lost-cart percentages, and customer acquisition rates and costs — essentially any measures tied to this newfangled digital platform. Other tabulation-type metrics such as orders filled, shipped on time in full, suspended and lost in transit are measures of process performance within the operations group. The objective is to gain a good understanding and measurement of performance. An unmeasured D2C platform represents a significant lost opportunity to learn.

Omnipossible

After dissecting the anatomy of S&OP in relation to the idiosyncrasies of D2C, the Combe case study makes it clear there is little to no mismatch between the traditional process and the omnichannel business opportunity. In fact, there is as much potential for alignment with and maximization of S&OP as one might observe in a strictly B2B operation. The primary difference lies in the additional D2C-specific information being used and processed within each step of the S&OP process. There is vast potential in the D2C marketplace, particularly if a business can maintain a high-quality S&OP process design and adapt to differing and nonstandard business models.

Patrick Bower is senior director of global supply chain planning and customer service for Combe. He is responsible for the company’s sales and operations planning process, order management, and third-party logistics management. Bower may be contacted at plbowerone@yahoo.com.

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