Sales & Operations Planning (S&OP) is frequently a flawed process. While S&OP may succeed in balancing supply and demand, it does not help maximize profits. Why not? The problem lies in the fact that no true profitability metric is included in the process. The actual S&OP process typically consists of a logistical negotiation between the production team and sales & marketing to make the products in the quantities that sales & marketing have forecast. In preparing their forecast, sales & marketing may have used margin per unit of product to rank all products and the customers to whom these products are sold. In fact, they probably used margin as a metric to decide where to spend marketing dollars to increase demand.

"Lean" manufacturing gained prominence with the revolutionizing methods advanced by Japanese manufacturers. Approaches such as "kanban / just-in-time" and kaizen dramatically changed manufacturing practices and brought about much greater efficiencies. A major focus and benefit of these approaches is the reduction of work-in-process inventories. This inventory reduction often exposes problems in the manufacturing process which can then be addressed. The common analogy is that of draining the water so that the rocks which were previously below the surface are now apparent. The rocks represent problems or inefficiencies in the manufacturing process. Once they become apparent, these inefficiencies can be addressed, thereby making the manufacturing operation more efficient and more profitable.

Marketer extraordinaire Seth Godin had a great post on his blog late last year called "Top Ways to Defend the Status Quo" with the caveat that "All quotes actually overheard, or read on blogs /comments about actual good ideas." A few highlights include gems like "we'll let someone else prove it works... it won't take long to catch up" as well as "it's fantastic, but the salesforce won't like it."

It got me to thinking about some of the things we have heard from prominent manufacturers that might make the list.

The move toward BI as a service is being accelerated by the emergence of BI applications and their appeal to a broader range of users. A relational database could be thought of as a tool and a CRM software package (based on a database) as an application directed to particular business area. Similarly, differing from BI tools with their horizontal focus, BI applications are now emerging that target individual business challenges.

A frequent question posed by manufacturers concerns whether a profit-per-minute approach is still useful when production is not at capacity. If production is indeed running at 100% capacity, manufacturers readily realize the value of using a profit-per-minute approach to increase profits by making some products rather than others, by taking orders from certain customers rather than from less profitable ones or by selling into only the most profitable markets.

Salesforce.com is widely considered to be a pioneer of SaaS, and at their "Dreamforce" user conference in San Francisco this past October, the No Software buttons were omnipresent and analyst quotes were flying. In his keynote address, CEO Marc Benioff noted that Gartner Group projects that 25% of all new business software will be delivered as a service in five years. Another firm, Triple Tree , has the number at 40% — but within 3 years. The thing he said that really struck me, however, was the Gartner Group claim which states that nearly two-thirds of the entire IT budget in midsize businesses is spent on IT infrastructure (servers, software licenses, maintenence, etc.) and that none of that money contributes direct value to the business or to the improvement of the enterprise performance.

Business Intelligence (BI) software has brought a powerful ability to use data that companies have captured to make informed business decisions. The ability to look at masses of different types of data allows companies to look at many dimensions of the business in a variety of ways. However, bringing different sources of data together is not a simple task and it requires specialized applications that go beyond the focus of BI tools' horizontal focus.

According to Wikipedia, a company's "Return on Assets (ROA) percentage shows how profitable a company's assets are in generating revenue" and "is an indicator of how profitable a company is." Regardless of what type of company you are, ROA is calculated the same way:

ROA = Net Profit / Total Assets =
(Sales/Total Assets) (Net Profits/Sales)

Total assets is a key component in the equation, so obviously asset structure plays a vital role in how ROA is measured and controlled — but asset configurations can be very different from industry to industry, which leads to interesting problems in how companies can proactively monitor ROA. The equation, after all, is based on historical performance - so how can it be applied to your business while you are negotiating contracts or making scheduling decisions?