The recent report from Oracle presented data issues and information quality as being a key facilitator in lost business revenues and inefficiency (you can see the report here http://emeapressoffice.oracle.com/Press-Releases/Oracle-Research-Reveals-1bn-Cost-of-Fragmented-Supply-Chains-183a.aspx). The Oracle report, indicated that executives spent a significant time reviewing information, but over 30% suspected that physical products flowed better than the data within their organizations.
When you consider the sheer volume of data that is created and managed by a typical supply chain this is unsurprising. Consider the following data that most organizations will have within their systems
• Open Purchase Orders
• List of suppliers
• Price lists
• Parts Master
• Customer Lists
• Authority lists
• Material demand and requisitions
Now consider the impact of that data either being incorrect or slow to move from one place to the next. Whilst it’s a key business issue its one that is all too common.
Lets look at one example – the parts master. Typically controlled within the ERP system most parts master databases will consist of part numbers, descriptions, unit of measure etc. Where there are no robust processes providing controls it is not uncommon to find that
• Obsolete parts remain live within the database
• Part number syntax rules are not adhered to and the part appears multiple times in various guises (e.g. ABC123, ABC-123, abc1-23) resulting in confusion
• Free text is just that – consider – “Metallic clip”, “clip, metallic”, “clip”, or even the dreaded “-“ killing any hope of reliable management information.
• Associated data (e.g. unit of measure, Min/Max buy quantities) are incorrect or poorly maintained
• Etc etc etc
The impact of these errors and inconsistencies is that data that triggers decision making is poor (often resulting in the role strategic choice) and the processes that consume this data are inappropriately slow and cumbersome.
Many systems do not make managing data simple
One of the key issues especially within the supply chain is that there are often numerous (stand alone) systems at play which requires manual alignment of key datasets. For example, the procurement system and financial systems are often divorced but supplier data needs to be shared between them to maintain bought ledger requirements. I have lost count of how many times I have reviewed live supplier lists that include terms such as “Do not use” or contain multiple version of the same supplier with different spellings. Managing and maintaining isolated databases can be a key reason for poor data with companies often overlooking the benefits of system integration.
The result
But why is this important? Purchase orders still get sent, suppliers are still paid, inventory is still supplied. The true cost of poor data is efficiency and agility. Organizations that struggle on a daily basis with data are most likely both un-responsive and unaware of true performance (and therefore how they can improve). This does result in a cost to the business and at worst poor processes that are executed without true requirement.
In today’s highly competitive market this is not a problem that businesses can afford to live with. How do you solve it? Business must make data integrity and communication seriously it must become a key strategic objective. Resources must be appointed to ensure quality and the businesses must work with its supplier network improve data across the supply chain.
The “Sales and Operational Planning” process (or S&OP for short) is a business tool used to develop a set of plans (which includes sales, production, inventory and financial plans) which provide a timed plan of what products to produce, in which quantity and for which customer. An effective S&OP process facilitates competitiveness and provides clear demand signals to its supply chain.
All business will have slightly different review period requirements (for example FMCG and small volume suppliers will have different needs) but most business will review their S&OP on a monthly basis and appraise a 12, 18 or 24 month planning horizon.
S&OP is a decision making tool, its outputs (in particular production plans and inventory plans) commit costs (resources, materials etc) and determine outputs. A best practice S&OP business process will engage both functional and senior management in plan development (Senior management must be involved in the sign off of the resultant plans). This is especially true given that the the resulting plans directly correlate to businesses financial planning (e.g. budgets).
Most businesses will deploy performance measures along side their S&OP to measure its effectiveness – many organizations choose to include measures that help the organization determine (and improve) the accuracy of their plans – KPI’s that assist with this typically include:
• Delivery Schedule Adherence to customer
• Production Plan stability
• Demand Forecast accuracy
• Accuracy to budget
Many organizations try to move beyond the traditional S&OP plans by incorporating more advanced techniques such as scenario planning or modeling (what happens if my customer demand increases by 10%). Closer ties with financial controls are often a key objective. Many businesses also seize upon the unique structure of S&OP and utilize it as a tool that improves organizational communications.
Problems with S&OP
Like all processes S&OP is not without its issues – the more typical challenges that accompany S&OP are:
• Poor quality data used for planning
• Organizational politics and silo departments
• Clear understanding of roles and responsibilities
• Ensuring compliance with the resultant plan
This last issue is perhaps key – what do businesses do when their plan is challenged by the customer. S&OP works best with stability (when everyone knows what the need to do over the medium term). Consistently fluctuating priorities can kill even an excellently constructed S&OP.
Summary
S&OP processes are an integral part of many manufacturing organizations. The process provides a unique, cross functional tool that provides the business with a strategy (what to build, in what quantity, within what time period, for which customer). The by-product of a successful S&OP can be an efficient supply chain, a well directed work force and high levels of customer satisfaction (providing the plan is adhered to!).
While there is no specific rule of what S&OP process have to include businesses should ask themselves if their process is delivering the expected benefit? And if not what action plan could be put in place to recover the situation.