Setting Sail With Sales & Operations Planning – Part 2

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SetSailIn Part 1 of “Setting Sail with Sales & Operations Planning” I discussed the wide variety of reasons companies move toward a more formalized S&OP process, the inputs required to sustain the plan, and the supporting technologies to make it all work. This second post will discuss the metrics that can be used to target different types of improvements in the enterprise and finally some of the headwinds to realizing the value from a technology-driven S&OP process.

As discussed in my previous post, if handled correctly the S&OP plan will get us a consensus-based plan down to the product family level. That consensus will include the agreed upon product demand and the agreed upon capacity and materials to produce that demand. For a successful process to work, members from all affected departments must be represented on the S&OP committee and each member must be given the responsibility and authority to make departmental decisions. Given the wide ranging nature of the problem, it is only practical to take the plan down to the product family level in the S&OP meetings. Once at that level the process continues downward to the item level starting with demand planning and leading to both materials and capacity planning to create the operating plan.

Once the plan levels are established and input requirements are determined along with the technology to create and maintain the steady stream of those inputs, we need to explore the process metrics, expected improvements from the process, and some of the barriers we might run into.

Key List of Metrics for Measuring the S&OP Process

  • Forecast Accuracy at the family and item level
  • Lead Times at item level
  • Stock Outs at item level
  • Inventory Turns
  • % Customer Retention
  • % Sales Volume Growth
  • % Complete Order Fill Rate
  • % Out of Stocks
  • Total Delivered Cost / Unit
  • % Capacity Utilization Rate
  • % Gross Margin $ Sales / Employee
  • $ Gross Margin / Employee
  • Increased Sales / Increased Assets
  • RONA (Return On Net Assets)

Expected Improvements from the S&OP Process

  • Reduced end item lead times
  • Reduced stock outs of end items and materials
  • Improved forecast accuracy
  • Improved demand and inventory planner productivity
  • Improved gross margin
  • Improved order fill rate
  • Improved customer retention due to shorten lead times and improved fill rates
  • Fewer supply disruptions
  • Reduced inventory
  • Better communication between departments

Barriers to realizing the benefits of the technology driven S&OP process

  • Applications supporting the process are not integrated with each other
  • Applications are too complicated to implement and maintain
  • Users are more comfortable with spreadsheets
  • Too expensive to implement and maintain
  • Data gets outdated very fast due to lack of a data repository
  • Too difficult to run the S&OP application more frequently (due to poor design)
  • Difficult to do what-if analysis without a robust data repository
  • Inadequate reporting capabilities due to lack of a user friendly data repository

What I have discussed in Part 1 and 2 posts are the basics of what is needed to establish a sustainable S&OP process. What I did not discuss is the time and resources required to execute the process or the guidelines and estimated costs of creating a technology-driven S&OP process.

A study must be conducted to gather data for establishing reasonable goals, to put a value of the process benefits, and to set company expectations. While costs and resources are extremely important in making the decision to move forward with a more formalized S&OP process, in my opinion clearly understanding and gaining agreement on the benefits and goals to be pursued is the first step in the evaluation process.

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This post was written by John Hughes