Nov
23
What should the Sales and Operational Planning process deliver?
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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.
Nov
22
Is supplier rationalization the always the best weapon?
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Many organizations find that as their business grows, they release more products that require a greater volume of component parts. In this scenario , especially where supplier selection processes are not closely managed, it’s not uncommon that businesses find their supplier base grows. The symptoms for a business with lots of suppliers can be easy to spot and includes:
• Commodity groups with many suppliers
• Many suppliers providing the same part
• A Multitude of prices and contract terms to manage
• Overly burdened bought ledger department
• Large numbers of purchase orders
• Significant numbers of “administrative” order raisers
But is a large supplier list really a problem – surely it promotes choice?
The thing is with suppliers is you should only need enough to meet the needs of your business. Supplier selection should be a carefully managed process (true strategic sourcing). Your supplier network should be rich with suppliers that add value to your operation.
The typical trigger for supplier rationalization is a supply chain that is perceived to be slow and expensive. Organizations then attempt to shed suppliers and appoint ‘champion’ suppliers with long term agreements or contracts. Whilst in many industries this is not a bad way to go how do you know if you have too many suppliers and could a supplier development process be a better way to deliver the same results?
Needlessly taking the axe to your suppliers can promote a significant risk – one in which without due consideration you remove suppliers that help your competitiveness or add value that can’t be simply replaced.
Many businesses flourish with strategic supplier relationships (not axing) where both organizations developing opportunities post contract (supplier development does not stop on contract award). Given this a simple slash and burn approach is unlikely to work.
The foundation for strategic management is an appropriate supplier development program one which will typically deploy performance measurements (usually along the Quality, Cost and Delivery route) that businesses can utilize to help shore up many of the issues resulting from poor supplier performance (over stocking, multiple providers for the same commodity etc).
Supplier rationalization will always be a common project that businesses will utilize to reduce cost and facilitate performance however – purchasers must be aware that there is more than one way to solve the problem.