S&OP, sales and operations planning (sometimes including inventory in the name), assists management in understanding current financial results and anticipating future financial performance. Challenges faced by management include decisions to ramp up or down production and inventory, and the S&OP planning process focuses on changes in sales and production forecasts.
Demand volume, prices, labor costs, labor productivity, and even foreign exchange rates, are among the variables to be examined. The point of the planning is to align supply with demand, and so demand planning becomes important in the process.
Streamlining this S&OP makes sense in encouraging all of the stakeholders in the organization to work together, each bringing their department’s perspective to be considered. Here are a few tips to help in that process.
Look Beyond the Horizon. It’s easy to align supply and demand in the short term. But when parts or materials have a long lead time for delivery, the S&OP must extend at least that long, if not longer. If your business experiences major demand swings, and the hiring and training of essential personnel will take six months, the planning must match that time frame, if not longer. Developing an initial S&OP plan that extends planning beyond the horizon, and then maturing that forecasting and demand planning out to it as time moves along, will make ongoing forecasting analysis both easier and more accurate.
Use Better Measuring Sticks. We all want more accurate forecasting analysis, of course. But that perfect measuring stick does not exist, just like the perfect, defect-free product does not exist. Looking within the lead time windows mentioned above is one thing, but you should also be looking at how accurate forecasts are across a longer period of time. A 30% accuracy a half-year out, a 45% accuracy three months out, and a 60% accuracy 30-days out creates a progression that needs to be understood so that the degree of variability can be incorporated into the planning process.
Expand the View. Thinking outside the box is crucial to better forecasting. Always have a fall-back position for suppliers of mission-critical parts and materials. A key supplier may be facing a difficult union contract negotiation six months down the road, and that might present a problem if the union chooses to strike. Identifying and qualifying an alternative supplier for those parts or materials will take the time that needs to be incorporated into the planning process. Ascertaining that time frame identifies when to put that process into motion.
Anticipate Changes. Knowing how flexible a supplier can be to meet changing demand, and understanding how long the supplier will need to ramp up production is essential to continuity. Having this data in hand for planning helps many storms be weathered smoothly. Once obtained, it requires only periodic updates to keep data fresh and accurate, and that improves the effectiveness of planning.
S&OP as Central To The Business. The significance of S&OP can not be overstated for its effect on performance metrics and the company’s financial statements. It must be led from the top of the organization, and attendance at S&OP meetings must be mandatory. Sales representatives need to know that their reports on incoming orders align well with production so they can offer quality customer support. Production needs to understand what’s happening in the marketplace, what customers are requesting, and their satisfaction level.
Every department in an organization considers itself to be crucial to the organization’s success, but it is the coordinated forecasting and planning among all of them that leads to success. A centralized technology platform helps bring them all together, and the Atlas Planning Platform is one such technology. John Galt Solutions can help with those early steps and guide you in their evolution. Streamlining Your Sales and Operations Processes.
