Effective S&OP can drive significant value in private equity portfolio companies. Here’s an article that explains why and how firms can generate results both in the short and long run.
In today’s higher for longer interest rate environment, manufacturing companies and their private equity backers must pull off a delicate balancing act. Excess or incorrect inventory leads to unnecessary financing costs, while insufficient inventory risks delaying order fulfillment, leaving customers without the goods they need. The supply chain reorganization since the pandemic, along with many other global disruptions, has further complicated these challenges.
However, there is a solution: effective Sales and Operations Planning (S&OP). By implementing S&OP, private equity backers can avoid these pitfalls, enhance overall portfolio company efficiency, and boost growth prospects—all in a relatively short period.
Effective S&OP sees all parts of the organization, from sales and operations to engineering and production, work together in a choreographed fashion around common goals. All too often, this only becomes an area of focus when a portfolio company is struggling with fulfillment or inventory problems. However, rather than waiting for a problem to emerge, private equity firms that implement this process systematically across all their manufacturing portfolio companies can create additional value creation and boost growth sustainably. That’s because effective S&OP builds agile businesses that anticipate – rather than react to – demand.
Exploding the S&OP Myth
Effective S&OP doesn’t require building new processes from scratch — the vast majority already exist in any manufacturing business. The real work is removing silos to synchronize functions, align staff around unified goals, and use actual and forecast demand to ensure the right inventory is available at the right time.
Who Benefits from S&OP?
The entire organization. Customers receive orders on time consistently. Employees gain visibility, collaboration, and decision-making involvement. The business improves forecasting, inventory management, and productivity. For private equity owners, it means a more profitable, better-run business with stronger growth prospects — shifting from a constrained-demand model to an unconstrained one, where expansion decisions are informed by input from across the organization.
The results speak for themselves: a hair product manufacturer improved supply from 60% to 99% of retailer demand in four months. Another business grew revenue 10% without adding a single new customer — and by month nine, EBIT had risen from 9% to 14%.
Four Elements Critical to Achieving S&OP Results
- Optimized Inventory Management: Effective S&OP ensures companies maintain the right inventory levels, minimizing costs and meeting customer demand promptly. By aligning all parts of the organization—sales, operations, engineering, and production—around unified goals, businesses can anticipate demand rather than react to it.
- Enhanced Operational Efficiency: S&OP fosters collaboration across different business functions, breaking down siloes and synchronizing processes. This improves overall productivity, forecasting accuracy, and responsiveness to market needs. Customers benefit from reliable order fulfillment, while employees gain better decision-making and problem-solving skills.
- Sustainable Growth: Implementing S&OP can lead to significant revenue improvements and higher profitability. For instance, a hair product manufacturer we worked with increased its supply fulfillment rate from 60% to 99% in just four months. Another company saw a 10% revenue boost without acquiring new customers, simply by synchronizing revenue, costs, and cash flow.
4 Steps to Successful S&OP Implementation
Ensure leadership is committed and aligned.
S&OP must come from and be led by top leadership — there is little point in implementing it any other way. Leaders need to set clear expectations, establish KPIs across all functions from sales to HR, and be incentivized in a way that removes competing priorities and promotes teamwork. All teams must commit to monthly meetings to discuss demand, needs, and execution as a collective effort.
Use the right data to provide a single source of truth.
A common issue is that different teams use different systems, creating information silos. Effective S&OP requires identifying the right data, unifying it, and regularly updating it with actual and forecast demand — including seasonal fluctuations and projections like the impact of a sales promotion or engineering upgrade. When this system is in place, it keeps suppliers informed and can even prompt them to proactively offer solutions.
Use experts to accelerate internal ramp-up.
Getting all parts of a business to work collaboratively and seamlessly is no easy feat, and it’s unlikely an existing employee can become an instant S&OP expert. A third-party expert brings objective insights, knows what good looks like, understands where the pitfalls lie, and can guide the business until leadership and staff are fully trained and processes are running well.
Make iterative adjustments.
Effective S&OP is not a one-and-done effort. Monthly meetings should not only plan for upcoming demand but also examine what has worked, what hasn’t, and identify actions for improvement. Continuous improvement is integral to the process — and the part most at risk of falling away when leadership changes or the business returns to firefighting.
S&OP for the Win
Effective S&OP has the potential to add significant value to manufacturing portfolio companies in a relatively short space of time and – contrary to popular opinion – it doesn’t require putting in place a whole raft of new processes. At any point in time, ignoring this is a missed opportunity and risks delaying a portfolio company reaching its full potential. Yet as these manufacturing businesses face the twin challenges of high interest rates and shifting supply chains, implementing effective S&OP becomes more important than ever.
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