One of the biggest problems for many medium to large sized business is to wrestle the differing objectives from the variety of functions within the organization. These may not all have the same end goals.
This can be a significant issue, which results in various challenges (getting multiple buy-ins and various stages of the supply chain pricess often individually and dealing with statements such as “I would never have agreed to that had I known”. So how does S&OP help?
Firstly let’s take a step back and look at some of the functions of a typical business, these generally include various silos of skills such as :
- Finance
- Human Resources
- Manufacturing
- Sales
- Information Technology
- Logistcs
- Procurement
Let’s consider each function for a moment. What would Finance’s objectives be regarding say that stalwart of supply chain – inventory? Inventory as we all know is one of the fundemental elements of a business and if your involved in physical product there’s not much you can do without (at least a minimal) amount of it.
So it’s really important right?
So what might the finance department make of Inventory?
Most Finance teams want to minimise inventory as it ties up capital which might be spent (or stored) elsewhere. Is that likely to be the objective of everyone in the company?
Manufacturing might have a different opinion – there prime objective is to make product, and you can’t get far without parts right? And there’s always the risk of stock outs and other issues to mitigate.
So manufacturing will likely pull to have plenty of inventory. That’s different from Finance right? So what do you do?
Each of the departments above will have their own opinion. And there’s the rub.
Supply Chain straddles an organisation and helps steer it towards its objectives based on a set of signals (demand, capacity, risk etc). Somewhat surprisingly many companies miss this and leave one or more of these functions within the organization to set a plan and execute it (often without the correct signals Supply chain will try and set the objectives (big mistake!) often as not it’s the finance team).
Key S&OP Inputs
However, without a centralised set of objectives though this is usually doomed to failure. Whilst a business needs a supply chain team it needs to centralise its objectives if it’s going to be successful and agree on a negotiated shared view within the company that satisfies the combined needs of everyone. Getting this wrong can cause various problems, not least severely hampering efficiency.
The good news is that there are proven methodologies such S&OP, or SIOP as it is sometimes referred to, which bring an organisation together to share and then mutually agree objectives and actions on a routine basis (usually monthly) to deliver them.
It may come as a surprise but these steps really can be bought off by consensus from all functions. The key is that you need a well understood process, clear rationale data based logic behind the resulting inventory levels and they that can balance and satisfy all of the needs of the business.
Mastering this results in the business marching together as one and is one of the first steps most businesses need to take in taming their supply chain.
