Lean Principles and Sales & Operations Planning (S&OP)
Many companies have high hopes when they set out to establish a Lean operating environment. But if your efforts fail to yield expected results, it can be difficult to pinpoint where the problems lie. A growing body of knowledge and experience indicates that advanced Sales & Operations Planning (S&OP) may be the key ingredient for Lean success.
Lean applied to supply chain operations is all about creating capabilities that efficiently move materials from raw through finished product, and then to the customer. Lean success requires eliminating waste and wasteful practices, reducing costs and cutting lead times, while synchronizing all partners and activities in the value chain (read the post, Applying Lean – 6 Sigma Principles to the Supply Chain).
Advanced S&OP consists of overlapping business planning processes over a continuum of planning horizons, focused on ensuring end-to-end business alignment and synchronization to maximize business performance. Advanced S&OP stretches from nearer-term tactical planning to longer-term strategic and financial planning.
The S&OP process typically occurs on a monthly schedule to develop a consensus demand plan, a constrained supply plan, an inventory plan and a synchronized financial plan, followed by an executive meeting where alternatives are reviewed and the path forward is agreed upon. (Often, a blend of periodic and continuous planning is required, which you can read more about in Periodic vs. Continuous Planning – What’s Needed for Success?) Most often, the S&OP process looks out 12 to 24 months in advance, with heightened focus on the upcoming three months to ensure supply can meet the expected demand while maximizing financial performance. Due to the long term nature of S&OP, data is aggregated to product and customer groups and most often the process tends to be managed by senior level supply chain personnel. Both volumetric and financial data is used to analyze options and drive better decision-making.
Strategic planning generally takes place on a less frequent (quarterly) basis and tends to focus on longer time horizons, 2 to 5 years or more. Data is more aggregated and the focus tends to be on financial tradeoffs of strategic opportunities such as product introductions, new facilities, new markets, etc. Financial planning tends to take place on a yearly basis and focuses on laying out the business plan for the next one to two years. Key players in both strategic and financial planning tend to be senior level company personnel.
Most companies have tactical and strategic planning processes. Unfortunately, many organizations run these two critical processes independently with little to no coordination between them. They have different process owners, are based on different data and assumptions, and run on different enabling systems. These disconnects cause confusion on what plan to follow, resulting in extra effort to convert information from one plan to another, misaligned priorities and missed opportunities.
Today’s best practice is to tightly align these important business processes into a continuum of planning processes that use a common set of data, business assumptions and share a common integrated business planning solution. This is commonly referred to as Advanced Sales & Operations Planning or Integrated Business Planning (IBP).
A trip to the optometrist provided me insight into the relationship between S&OP and Lean. Like many people of my age, my eyesight is at the point where I need different lenses for near and far sight. Since I already wear contacts to correct my distance vision, my best option for reading and computer work is to wear reading glasses. The combination of contacts and reading glasses allows me to approximately see with 20/20 vision.
Just like my need for different solutions for near and far sightedness, a business needs to be able to focus on different planning horizons. Businesses need the ability to focus from the mid to long horizon and to anticipate and plan for changes (S&OP). They also need the ability to focus up-close, to efficiently execute manufacturing and supply chain operations (Lean). Advanced S&OP provides the clear vision to identify demand and supply issues far into the future while Lean allows companies to focus on removing waste throughout their extended operations and providing their customers with the best value.
S&OP and Lean are as mutually complementary to business vision and success as my contact lenses and reading glasses are to my vision and success.
If you create a manufacturing environment where material flows with minimum waste, but you can’t predict capacity and material availability problems in time to mitigate them and maximize operational performance, you will revert to firefighting and finger-pointing. Even if you do an excellent job of future planning, poor near-term material flows will result in higher inventory levels, longer lead times and lower profitability.
Remember the commonalities between S&OP and Lean—they truly work hand-in-hand! Both strive to streamline internal processes and eliminate waste, which may come in the form of excess warehousing and distribution space, inventory buffers created to hedge against erratic demand signals, or misaligned plans.
A best practice is to consider Lean and S&OP to be complementary approaches to improve a company’s supply chain capabilities. By using S&OP and Lean together, you can rationalize supply chain assets based on clean demand signals and prevent unnecessary supply chain expenditures.
- Sales & Operations Planning and Lean go hand-in-hand.
- More accurate and stable plans allow companies to drive Lean improvements.
- If you implemented a Lean philosophy and it is not working as well as expected, try adding more advanced sales & operations planning capabilities to the mix.
Logility is closely monitoring the Coronavirus (COVID-19) situation around the world with a priority on doing what we can to protect the health and sa