Back to Basics: The Importance of S&OP
Nick Ostdick - February 23, 2017
With so much of the conversation in global supply chain management surrounding technological advancements and the digital revolution via platforms like Big Data, Industry 4.0, and advanced analytics, it’s sometimes easy to forget the core principles that have driven the automotive supply chain for the last two or three decades. S&OP (sales and operations planning) is one of these basic principles that, while critical to an efficient supply stream, can sometimes go overlooked in the most pressing discussions of the day.
It’s easy to get caught up in the newest and most disruptive technologies poised to impact the automotive supply chain - even when it comes to S&OP. For example, a recent survey conducted by Supply Chain Trends cited major technological and software complications in implementing sales and planning solutions. Contrast that with a report issued by Supply Chain Management Review in which companies surveyed said they allocate roughly 70 percent of their S&OP budget on developing and implementing new technologies.
What seems to be most evident here is a disconnect between today’s fast, powerful automation and technology platforms and a fundamental understanding of S&OP and how OEMs can incorporate these technologies into their existing S&OP platforms. In order to help correct this, we’re going back to basics in the hopes of understanding the importance of S&OP and its many benefits (especially when paired with advanced computing and reporting systems) to create a truly lean, agile model for global automotive supply chain management.
S&OP: A review
If we’re going back to basics, then it’s worth taking a moment to review the very base definition of S&OP and its place in global automotive supply chain management. Simply put, S&OP is the way planners and managers create a glimpse into the short and mid-term future to assess demand planning and production needs. S&OP usually provides a 3 to 18 month window with which OEMs and manufacturers can evaluate their overall supply situation from inventory, container or yard management, job allocation or scheduling, and even transportation or routing practices. S&OP also provides crucial information for setting those long-term goals because the supply chain has such impact on operational costs and profitability.
It’s worth noting S&OP should not be confused with S&OE (sales and operations execution), which can be viewed as a close cousin to S&OP but with a different purpose and level of functionality. S&OE often gets rolled into S&OP because it can be seen as an extension of S&OP. In contrast, the S&OE process focuses on a much more immediate time frame, usually zero to three months.
The importance of S&OP (which we’ll discuss in greater detail in a moment) primarily resides with the need for greater breadth and scope in sales and planning solutions companies will require as the global manufacturing and trade market expands and diversifies. While not necessarily a crystal ball, S&OP provides a working model for future planning and production for all major players at each touch point of the value chain. This alignment is critical for driving efficient business practices based on sustainable growth, productivity, and efficiency.
Advantages of S&OP in today’s supply chain
As we discussed at the beginning of this post, there appears to be a gap in understanding in how OEMs can effectively integrate powerful computing and reporting platforms with basic S&OP strategies to leverage lean supply chain management principles. However, incorporating technology with S&OP tenants can yield a number of core advantages:
Movement away from manual data entry and reporting. Even in 2017, too many companies still rely on the spreadsheet model to gather, aggregate, review, and share data points that are too crucial to leave to the potentiality of miscalculation and other brands of human error. S&OP software solutions not only automate data mining and reporting for immediate analysis and distribution to those throughout the manufacturing and supply stream, but these systems also centralize data entry and reporting points; reduce waste in time and resources associated with manually gathering and compiling data; and allow for real-time reporting to help manufacturing and supply managers make in-the-moment, cost-effective decisions from inventory to retail settings.
Predictive capabilities. Ask any manufacturing, supply, or freight manager what their ideal superpower would be, and most would probably choose the ability to see into and predict the future. While S&OP solutions probably won’t help you pick winning lottery numbers, sales and planning technologies do provide companies with the capability to run ‘what if?’ simulations and scenarios to create detailed forecasting and predictive models. These models, along with the capacity to pull and review data based on past supply and demand analytics, allow companies to craft proactive strategies to manage future inventory and supply to meet market demands.
Real time data analysis and analytics. If up-to-date data, information, and analytics capabilities are king among the priorities for OEMs, then S&OP can provide these companies with the keys to the castle in terms of gathering and interpreting metrics to gauge everything from future demand for products to overall company performance. Sales and planning solutions create a greater understanding about the numbers and benchmarks to achieve across functional groups in order to increase communication and collaboration throughout the supply stream. In essence, a well-conceived S&OP strategy and solution makes it easy for the left hand to talk to the right, and for those within the supply network to review and analyze such potential pain points as pricing and cost data, marketing plans, financial targets, and more.
As you can see, S&OP is at once much simpler and more complicated than many planners and managers realize. However, remembering the importance of S&OP can go a long way toward helping to cut the complexity of today’s global automotive supply network.
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