This third in a series of posts that investigates some of the S&OP myths and mistruths and takes a look at one of the hot buttons in the industry. Real-time response planning. Is S&OP the right solution to manage your real-time respond planning needs?
Myth: “S&OP is a Real-Time Process to Identify and Respond to Problems as they Arise”
This myth misses the fact that S&OP should be focused on a longer-term planning horizon: evaluating and looking at the business 12-24 months out using aggregated data. Usually when an S&OP process is focused on identifying and responding to near-term problems it is because a company lacks the ability to create an adequate forward looking plan and to analyze potential future problems ahead of time. Often we see this is caused by processes that are out-of-date leading to a greater focus on short-term needs. Solving these real-time problems can be rewarding with the instant satisfaction of putting out a fire; however, you are only setting yourself up to remain in mode of constant firefighting.
Reality: “A Supply Chain Planning (SCP) System of Record (SOR) Supports the Ability to Respond to Real-time Issues.”
An SCP SOR manages demand, inventory, supply, manufacturing and transportation planning activities and provides input into the S&OP process (demand plan, supply capacities, inventory positions, etc.).
While every company needs to address real-time supply chain issues, if executives focus their time only on real-time issues they lose the benefits of more strategic planning. S&OP is an aggregate planning process that usually occurs monthly to ensure all company plans and strategies are aligned over an 18 to 24 month rolling planning horizon sometimes reaching into a 3 to 5-year horizon. Taking a longer planning view enables the leadership team to identify and mitigate potential risks, assess timing and impact of new product/market introductions, and optimize plans from both a volumetric and financial standpoint. Taking a longer-term view allows management to focus their time and energy on executing the company’s strategic and business plans rather than on firefighting.
The next-generation S&OP/ Integrated Business Planning (IBP) process brings everyone to the same page, working in collaboration to synchronize multi-functional plans that support a company’s overall strategy and business plan which includes financial and operational measures. The key word in both S&OP and IBP is “Planning”. The outputs of this well-executed, holistic process enable the creation of successful product/portfolio, demand, production, inventory and financial plans that meet business objectives. S&OP also enables executives and functional managers to build synchronized, time-phased plans for sales, marketing, purchasing, distribution, capital expenditures and other investments along with determining optimized financial management strategies.
Sales & Operations Execution (S&OE) has evolved recently to focus on the need to execute and monitor the monthly S&OP process. S&OE generally involves both a real-time process to sense and respond to changes in the S&OP plan and a weekly periodic process to measure progress against the S&OP plan and make proactive adjustments. A supply chain planning system of record can be used to facilitate both the real-time and periodic S&OE processes.
What myths or untruths have you heard about S&OP?
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Fifteen years ago, I worked for a company that embraced Lean 6 Sigma as a core operating fundamental. Just about every member of the management team w