Setting Sail With Sales & Operations Planning – Part 1

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SetSailA number of business challenges are driving more and more companies to formally embrace Sales and Operations Planning (S&OP). While the benefits are usually obvious, the challenges of implementing a formalized S&OP process are sometimes hidden and can be enough to sabotage a project if discovered after the process has begun.

In this two-part series, we will look at the various elements of the S&OP process and the considerations that should be taken into account while designing the process. This post will review the front end of the process and what drives it, along with the technologies needed to support and sustain the S&OP process.

What’s Driving S&OP Today?

To better understand the task at hand we need to look at the challenges that drive most companies to a more formalized S&OP process due to changes in their competitive landscape and relaxation of business process discipline. This includes:

  • Shrinking profit margins
  • Slowdown in business growth
  • Complexity caused by new products and services
  • Improved customer order fill rate expectations
  • Extended and uncertain lead times in global sourcing
  • Complexity due to increased options in global sourcing
  • Increased transportation and logistics costs
  • Rising variable costs
  • Better return on net assets (RONA) while maintaining or improving customer service

Any one or all of the above can be an overwhelming reason to move to a more formalized S&OP process, but not without a cost.

S&OP Plan Levels

Perhaps the best strategy to employ when launching an S&OP process is to clearly establish beforehand the project goals, the organizational support required and the effort that must be expended to make the process successful.

At a high level, the S&OP Plan is comprised of multiple levels of detail related to both dollars and volume. For a manufacturer, this includes:

  • Financial numbers in dollars at the product family level
  • Financial numbers in dollars at customer/SKU combination
  • Volumes in units at a product family level
  • Volumes in units at some intermediate product grouping level (more granular than the product family, but not at the individual SKU level)
  • Gross supply available (material and capacity) at the location level in units

The S&OP product family-level plan is handed off to the collaborative demand planning process which will produce a more detailed demand plan that takes the monthly operating plan down to the SKU by customer by location level.

Potential Inputs to drive the S&OP Process

In order to create and sustain an accurate, executable S&OP plan a variety of up-to-date detailed data is required, including:

  • Point of Sale data normalized to the proper calendars
  • Causal events which could abnormally effect demand or supply
  • Demand history over at least the last 3 years
  • Sales history over the last 3 years
  • Sales targets to establish where the goals at set
  • Promotion Targets that can significantly shape demand
  • Material constraints that can effect finish goods
  • Capacity constraints in manufacturing and suppliers
  • Transportation constraints, especially for global sourcing
  • Safety Stock targets providing the buffer for plan variances
  • Material, labor and outsourcing costs

Supporting Technology for the S&OP Planning Process

The S&OP Planning process also requires enabling technologiesto support effective and efficient analysis, scenario planning and decision-making. Such technologies include:

  • Information Repository to collect, house and report on both historical and up-to-date enterprise data for planning and analysis. Without such a globally accessible system of record, the S&OP process becomes disconnected and untrustworthy.
  • Demand Forecasting and Collaboration tools for producing a solid, repeatable baseline forecast upon which a collaborative process is superimposed to arrive at the final detailed demand plan.
  • Demand Shaping (e.g., Trade Promotion Management) tools that can help produce sales lift by properly allocating funds throughout the distribution channel.
  • Supply and/or Production Constrained Plan typically generated by an ERP system. Inputs to this plan can also be sourced from material plans generated by an MRP or pull-type manufacturing system, along with production constraints handled by a rough cut capacity planning system or pull-type manufacturing system.
  • Inventory Optimization tool that focuses on producing an optimum safety stock level and reorder point by SKU (for make-to-stock type environment).
  • “What if” Analysis tools to analyze and report on variances to plan and provide optional plans for consideration.

While the S&OP planning process is not a “free lunch” based on the rigor, discipline and resources that it requires, if the expectations and goals are properly established and agreed upon, the S&OP plan can be a savior of your company.

Stay tuned for Part Two of this blog series, in which I’ll cover the S&OP plan targeting process, metrics and potential barriers.

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This post was written by John Hughes