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THE WEEKLY Link
BARRY ELLIOTT
'Sales & operations planning (S&OP) is a process that provides management the ability to strategically direct their businesses to competitive advantage on a continual basis by integrating customer-focused marketing plans for new and existing products with the management of the supply chain," says the APICS Dictionary (8th Edition). Readers may recall that we prefer to use the term "integrated business management" for this process, simply because it is more apt.
More importantly, we are regularly confronted by people who figure that their management process, whatever the label, is up to scratch. However, in most cases, we find that it is not. So, how can one tell? Perhaps a brief diagnostic checklist may help, based on a white paper by one of our Oliver Wight colleagues, as follows:
1. Your company's operating plan: Check off the individual plans that are maintained and used in your business:
- Marketing plans: customer-focused for new and existing products;
- Sales plans: forecast of sales (bookings and/or shipments);
- Development plans: new product and major existing product extension availability;
- Manufacturing plans: production, capacity and inventory;
- Sourcing plans: capacity, material, and product;
- Financial plans: strategic, annual business, budgets.
These are the components of your operating plan. Are they synchronised; do the numbers tie out across different plans? Are they reviewed and updated on a regular cycle? These are important roles of S&OP.
2. S&OP: S&OP isn't an easy task. Sales, marketing, development, manufacturing, sourcing, and financial planning cycles and plans reflect their own levels of detail, cycles and measurements. S&OP processes can be confounded by conflicting objectives, personalities, and lack of co-operation across departmental boundaries. Key to overcoming these obstacles, the top manager provides strong leadership, a vision for the business, and makes that vision happen via enthusiastic participation in managing based on facts.
3.Level of detail needed: The S&OP planning horizon must be sufficient to plan for resources as well as support the annual business planning process. The plans are developed in terms that reflect both manufacturing product/process families and marketing groupings. Each family has an appropriate unit of measure that can be translated into financial terms.
4. Performance data: Typically, a limited but very valuable three months of historical planning and performance data is made available for each family. This data is important for validating and challenging the commitments made when developing a new plan.
5. Sales plan (forecast): This is a demand forecast. In our example, the data combine booked orders and a forecast of new sales (shipments) presented in units. Other expressions of data could include converting them to average selling price, standard cost, yards, pounds, whatever facilitates communicating customer demand in a meaningful way to all participants.
Insist on consistency between aggregate and detail forecasts. There needs to be a mechanism that adds up detailed item sales plans into their respective families and compares the two sets of data to agree within tolerance.
6. Inventory plan or backlog package: In an example of a make-to-stock family of products, the inventory plan is calculated by taking the starting inventory position and reconciling the sales and production plans month by month. The S&OP process is used to review and approve the resultant inventory plan and/or suggest changes.
For a make-to-order family in our example, the backlog plan would be calculated from the system taking the starting backlog position and reconciling the sales and production plans month by month. As with the inventory plan, the S&OP process is used to review and approve the resultant backlog plan and/or suggest changes.
7. S&OP process steps: S&OP is typically done on a monthly cycle. There are a series of steps in a pre-S&OP process where participants use functional meetings to prepare for the S&OP approval meeting. These meetings involve management who are concerned with finance, sales, marketing, product development, and manufacturing to review alternatives and strive for consensus. All significant changes to existing plans are communicated and reconciled. Sales, product development, production, and inventory/backlog plans are updated. The production plan is balanced to support the sales plan. Rough-cut capacity planning is used to compare required and demonstrated capacities for each S&OP family.
The S&OP approval meeting culminates the monthly process. An agreed-upon sales and production plan with resultant inventory and/or backlog plans for each S&OP family is the principal outcome of the process.
We will continue with the balance of our S&OP checklist next week.
Weekly Link is co-ordinated by Barry Elliott and Chris Catto-Smith CMC of the Institute of Management Consultants Thailand. It is intended to be an interactive forum for industry professionals; we welcome all input, questions, feedback and news at: BElliott@OliverWight-AP.com, cattoc@cmcthailand.org
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