Why Should We Do S&OP?

When discussing Sales & Operations Planning with clients, in relation to business improvement and system implementations, “Leave it ‘til later” is a comment that we hear all too often. It usually follows on from statements like:

• “We’re too busy getting our new system working to have time to think about S&OP.”
• “We’re fire-fighting to get today’s orders out of the door, never mind about tomorrow.”
• “We haven’t time for S&OP this year.”

One reason for S&OP being deferred may be its apparent sophistication. The text books show an Operations Plan, assessed by Resource Planning, above the Master Production Schedule, validated by Rough Cut Capacity Planning. Presumably there is a difference that we need to understand before we can start applying S&OP? Many of the texts these days refer to 'demand plans' which may or may not be the same as 'forecasts'. The five-step approach to S&OP may appear to imply that we need armies of people finding, translating and passing on bits of information. Perhaps when this is taken into account, management feel justified in saying “leave it 'til later”?

In fact S&OP is not complicated. It is nothing more than introducing formal mechanisms whereby the senior management of the company reach agreement on the forward plans. Demand and supply is balanced, allowing the sales and operations plans to drive other planning activities and, crucially, the financial elements of a revenue and profit plan. The level of complexity depends on the nature of the business but, as ever, the aim is to keep things simple.

S&OP is simply balancing Supply & Demand, which sounds easy, but we need to take account of new products, supply constraints and various resources (human, financial and others). So it’s easy in concept, but many companies have obviously encountered problems because S&OP is not as widely used as it might be if this were not the case. However, getting the master plan right has to be the most important contribution that any General Manager and Senior Management Team can make. This plan drives product availability and is essential to meeting market needs; it also drives all expenditure on materials and manufacturing resources. Some formal mechanism whereby senior management time can align the business plan with production and material scheduling systems has to be a massively worthwhile investment.

S&OP is about planning the medium term. If we do not plan the medium term well, then we are likely to get bitten when the medium term becomes the short term, as it inevitably will. As this happens, it may be too late, or too costly, to react in the ideal way to satisfy the market. We need to be proactive in the medium term, so there is enough time to react at an acceptable cost.

Robin Goodfellow has recently provided some education on ERP and Supply Chain to a company in the early stages of its implementation of a major ERP package. The company had decided that S&OP fell outside the scope of the initial project. The education emphasised the importance of medium term planning within production and material planning systems. This led to the decision to reconsider the scope of the project. What is the point in spending significant sums of money on an ERP implementation, if the company’s medium term plans are not validated first?

If you fail to plan, you plan to fail.

All too familiar?

To discuss how S&OP could make a major difference to your business success click here and we will contact you.