You’ve all heard the saying, “the left hand doesn’t know what the right hand is doing.” This encapsulates many organizations' approach to sales and operations planning, or S&OP. Too often, companies fail to include all the relevant stakeholders and departments in their S&OP process, leading to major sections of the supply chain being left out. For a process that impacts every aspect of a manufacturing concern, this seems not only short-sighted but also like a potentially catastrophic oversight. On the other hand (no pun intended), when a company’s S&OP process is run by an integrated team that includes representatives from the C-suite, sales & marketing, production, inventory, all the way to logistics—the outcomes can improve drastically.
We all have different ways of getting a handle on our supply chain activity. Some folks might check a series of KPIs every morning to see what small fluctuations in supply and demand have occurred overnight, while others might be more interested in the big picture, seeking out a comprehensive visualization of the supply chain at the end of every month. However you like to think about and analyze your supply chain data, your routine probably revolves around a dashboard.
If you ever go to Las Vegas, you should be advised that casinos heavily frown upon card counting, and it’s easy to understand why. A game like blackjack is supposed to be more or less random in terms of what cards are dealt when, which puts the house at an advantage. Over the course of several hands (before the entire deck has been reshuffled), however, a careful observer can note the proportion of face cards that have come out in order to come up with a rolling estimate of how likely or unlikely they are to come up in future hands. This puts the player at a real statistical advantage over the house—at least until the casino politely (or not so politely) asks her to leave.
Raise your hand if you’ve heard the story of William James giving a lecture on the structure of the galaxy. After the lecture, an old woman comes up to him and says that his theory (in which the sun is at the center of the solar system) is no good, because the world actually rests on the back of a giant turtle. When James asks his interlocutor what the turtle stands on, she responds: "You're a very clever man, Mr. James, and that's a very good question… but I have an answer to it. And it's this: The first turtle stands on the back of a second, far larger, turtle, who stands directly under him."
Is your ERP working for you? Or against you? Sometimes businesses can get so entrenched in “how we’ve always done things” that they don’t see how the old ways are actually hindering their forward progress. And when it comes to a smoothly functioning sales & operations planning (S&OP) process, this hinderance can become fatal. S&OP is a constantly evolving, cross-departmental, high-level set of processes that are deeply entwined in and around multiple business units. It focuses on developing a future outlook, using historical data as its source material. Being locked into an archaic ERP system can throw up a brick wall in front of that future vision. To be sure we’re all on the same page as we get started, here are brief summaries of the major terms we’re working with today, ERP and S&OP.
Do you check the weather report before leaving for work? What about for the upcoming weekend, to be sure your plans for a hike won’t be washed out? OK, how about paying attention to the long-range outlook, like how much snow is expected next winter and how that will affect the prospects of a drought the following summer? Weather forecasting shares many aspects with demand forecasting for your supply chain. You need to be able to look at the near term—say the upcoming few weeks—as well as the next 3-18 months and beyond. This is equivalent to checking the weather for tomorrow, the next two weekends, and the upcoming few seasons. If you want the whole picture, you need to gather as much information as you can on all three time frames.
People say that the only constant is change. When they say that, they’re usually not talking about sales and operations planning (S&OP). And yet, what could be more relevant? If you’re an automaker, for instance, your business constantly needs to adapt to changing market conditions, customer expectations, technological realities, and other factors that can have a big impact on the success of your production plans, supply chain, and profits. There are any number of strategies that decision-makers use to try and address these constant internal and external changes, but one of the most commonly talked about (in some circles, anyway) is S&OP.
Why does your company exist? This isn’t a metaphysical question, like “why are we here,” it’s purely practical. We hope the answer you thought of was, “to keep our customers happy,” because if not, the rest of what we have to say today might not make as much sense. Customers are the reason manufacturers make things. If there were no customers, you would have no reason to make products, and therefore you’d have nothing to ship, right? As a production planner, you’re likely already relying on S&OP workflows and software solutions as a key piece of your strategy to keep your customers happy. Especially in today’s world of next-day shipping, S&OP remains necessary to keep up with these demands and delivery expectations.
Supply and demand are the first two concepts that most people learn about with regard to economics—and they’re also two of the most crucial elements of any manufacturing supply chain. In order to effectively meet customer demand, you need to ensure that you have enough supply on hand; and in order to profit by that demand, you have to make sure that your supply doesn’t wildly exceed your needs. As with so many things in manufacturing, this is easier said than done.
Transparency is at the heart of both Industry 4.0 and the sales & operations planning process. Without visibility into every aspect of a supply chain, planners have no way to know for sure how something they do today will impact another department or team in the months to come. With visibility into those teams’ processes to see where the overlap is, they can see clearly how each move they make will impact the rest of the company and can better ensure that the entire value chain is protected from non-compliance. This may look different for production planners and operations managers, as each has their own priorities and needs. different needs. It can also look different at each stage of the plan from the same department, but the bottom line remains the same—visibility into the planning process is key to successful implementation.