Principles of Successful S&OP
By: John Galt
January 25, 2017
The world of managing the supply chain is rapidly becoming more complex, every day. We have at our fingertips, increasing amounts of granular data, along with complex tools that attempt to help us handle the ubiquitous nature of uncertainty. Without an effective S&OP process, however, we often only gain an illusion of precision and control, which causes us to get “lost in the woods.”
Make no mistake, keeping balance between demand and supply is essential to a successful enterprise. That’s because when demand and supply are out of balance, bad things happen – high inventories, low customer service, and eroding financial performance – often all at the same time.
It is important to understand that there are two distinct and separate (yet integrated) parts of accomplishing and maintaining this balance:
1. Volumentric Planning (S&OP) over a longer horizon to gain balance in families, setting appropriate strategies, policies, and financial plans. This creates conditions for success that allows the detailed level to happen routinely, and secondly,
2. Mix Scheduling (demand pull and master scheduling) mechanics to respond to detailed customer needs in the short term in a cost effective and responsive way.
!! If the first is done poorly, the second has no chance !!
To accomplish Volumetric Planning, some have blured the boundary between it and Mix Scheduling, extending Mix methods long into the future. In previous writings we have referred to this as being in the Suicide Quadrant. 2 Not a fun place to be.
On the other hand, making S&OP work is NOT an exercise in complexity, nor detail, but rather one of simplicity. That does not mean, however, that it is easy because it involves strong conformance to the principles that make it work. Below is a complete list of all ten principles. I’ve highlighting the five we will focus on in this Webinar: 1, 2, 4, 8, & 10.
If you’d like to obtain a copy of any of the references, let us know and we’ll let you know how to get them.
1. Executive S&OP requires the hands-on participation of executive management, up to and including the leader of the business (president, CEO, COO, general manager, managing director, etc.).
2. Executive S&OP is a decision-making process that balances demand and supply at the aggregate level, aligns operational planning with financial planning, links strategic planning with day-to-day sales and operational activities, and sets the tactical direction of the business.
3. The Executive S&OP planning cycle is monthly, with provisions for mid-period revisions when major changes occur.
4. Executive S&OP is an aggregate planning tool. It focuses on aggregate volumes, and only rarely looks at issues of mix (individual products, stock keeping units, customer orders).
5. The volume plans authorized in Executive S&OP direct the plans and schedules for mix. Therefore, tight alignment between volume plans and mix plans is essential in the near term (inside the Planning Time Fence).
6. Executive S&OP must function in multiple units of measure – to support demand, supply, finance, logistics, and so forth. There must be tight alignment between the operating plans and the financial plans through appropriate unit of measure conversions into currency.
7. Executive S&OP is cross-functional and collaborative. It involves, at a minimum, Sales/Marketing, Operations/Supply Chain, Product Development, Finance, and General Management.
8. Executive S&OP by its nature will trigger disagreement between various parts of the business, and thus an organization must learn how to openly welcome and resolve these differences.
9. S&OP puts a spotlight on accountability. The sales plans and operations plans in Executive S&OP represent commitments by Sales/Marketing and by Operations/Supply Chain respectively to achieve those plans.
10. Product groupings (families) in Executive S&OP should be based on how the marketplace views the company’s products. Other processes exist within S&OP to convert those market-facing families into meaningful groupings for Operations and Supply Chain.
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