Supply Chain Transformation: Establishing S&OP Process in An Ecommerce Furniture Company Based in Sydney, a Pen & Darts Approach

Establishing an Effective S&OP Process for a Rapidly Growing Furniture Company

A newly established furniture company experiencing rapid growth approached us to implement a robust Sales and Operations Planning (S&OP) process. The company began its journey with a marketplace presence in 2013, and its strong sales performance motivated them to launch their brand in 2014. This decision led to exponential growth, particularly during the COVID-19 pandemic. However, the existing inventory and ordering system relied on past consumption data, offering limited insight into future forecasting and planning needs.

Step 1: Understanding the Business Model

The company's sales distribution included:

• Website sales: 55% of total revenue.

• Marketplace operations: 35%.

• B2B customers: 20%.

All inventory was imported from suppliers in China, Malaysia, and Vietnam. Understanding these sales channels and sourcing strategies was critical, as this information directly feeds into demand and supply planning.

Step 2: Inventory Categorization

We classified inventory based on its contribution to revenue and strategic importance. Unlike standard practices, we categorized inventory into A1, A, B, and C classes. This method highlighted:

• Slow-moving items.

• Low stock-turn products.

• Obsolete inventory.

This classification provided a strong financial basis for allocating purchasing budgets and company resources while driving effective inventory management policies.

Step 3: Identifying Stakeholders

S&OP is inherently a collaborative process. For this company, key stakeholders included:

1. Performance marketing team: Their efforts on platforms like Facebook and Google Ads significantly impacted sales volumes.

2. Marketplace operations team: Selling across 11 marketplaces, their seasonal promotional plans influenced demand.

3. Account managers: Managed large B2B customers, contributing vital insights into demand.

4. Product development team: Played a pivotal role in launching new products, determining product life cycles, and identifying market trends for long-term forecasting.

5. Finance team: Ensured cash flow management aligned with the company’s bootstrap financing strategy and approved purchasing budgets.

6. Purchasing and logistics team: Provided updates on supplier constraints and logistics challenges, mitigating risks of stockouts.

Step 4: Data Gathering, Validation, and Adjustment

Reliable data is the cornerstone of effective planning. However, the company lacked robust inventory audits, leading to discrepancies between system-reported and actual stock levels. Key tasks included:

• Conducting root-cause analysis of sales history.

• Adjusting outliers and accounting for seasonality.

• Clearly defining lead times and inbound stock levels to improve planning accuracy.

Step 5: NPD and Forecast Model Application

Robust forecasting is challenging in industries with short product life cycles, such as furniture, where trends shift rapidly. For stable products, we used a weighted average method. For new or declining products, exponential smoothing was applied, factoring in cannibalization effects.

For most items with available historical data, we adopted a same-month-last-year baseline approach, adjusted with a growth factor based on current-year performance and targets. Input from the product development team was crucial for integrating new product development (NPD) considerations.

Step 6: Incorporating Promotional Calendar Effects

E-commerce businesses thrive on promotional events such as Father’s Day, Black Friday, Christmas, and Mother’s Day. The marketing team provided an annual promotional calendar to the demand planners, who integrated these effects into the unconstrained forecast, collaborating with marketing to ensure accuracy.

Step 7: Creating a Material Requirements Plan

Supply constraints, such as supplier capacity limitations and logistical bottlenecks, often necessitate adjustments to forecasts. For instance, optimizing orders to fit container loads while minimizing excess stock was critical. Exceptions were made for high-priority (A1) items with a strong likelihood of rapid sales turnover.

Step 8: Preparing a Budget Summary

The budget summary outlined the capital required to meet inventory demands. Given the company's reliance on bootstrap financing, the finance team’s approval was essential to ensure sufficient resources for uninterrupted supplier payments. Budget overruns required contingency planning to secure additional funds.

Step 9: Final S&OP Meeting

The final step was establishing a monthly S&OP meeting, where all stakeholders reviewed:

• Key targets and findings.

• Major planning updates.

• Inventory KPIs.

These meetings ensured alignment and facilitated data-driven decision-making.

Conclusion

The outcome of the S&OP process was a strategic purchasing plan aligned with the company’s financial goals. With monthly spending ranging between AUD 700,000 and AUD 1 million, logical and demand-driven decisions were critical. The S&OP process became the cornerstone of this approach, enabling sustainable growth and operational efficiency.