Sales and operations planning can yield a competitive edge.
Sales and operations planning (S&OP) is a critical set of business activities that lies at the centre of business planning. S&OP addresses planning at several levels: strategic, tactical, operational and execution. The scope of S&OP therefore ranges from yearly (including budget), monthly, weekly and down to hourly planning and scheduling. It is fundamental to manufacturing, and every business that makes widgets needs to have some form of S&OP in place. Yet, surprisingly, despite manufacturing companies often having invested heavily in transactional systems to support manufacturing processes, the S&OP process is frequently run on spreadsheets.
There are many reasons for this: for example, formal S&OP training is based on spreadsheet models to help students build up a conceptual understanding of the subject. Another reason is that there are no silver bullet S&OP applications available, and if you happen not to be running the all-singing, dancing ERP, then bad luck. Fortunately, this environment is changing and with the increase in collaboration between business process automation, performance management and event management technologies, this is all changing.
So what is the problem?
S&OP planning is generally based on a model of the business that matches supply, finite production capacity and demand, sets operational and financial targets and monitors execution and tactics to adhere to the plan. Yet, those in manufacturing will agree, these plans are useful to set objectives, but a large degree of tactical decision-making is required when things change, as they tend to do in reality. Suppliers fail to deliver raw materials on time, production plants break down, customer orders hardly ever adhere to forecast, exchange rates (and prices) fluctuate and more.
It is possible to manage the tactical decision-making on spreadsheets, but this will not achieve an optimal result. A good S&OP system should facilitate collaboration with suppliers and customers, react to variations in plan, constantly optimise production and distribution networks, be able to compare multiple what-if scenarios against a baseline and keep historical records of decisions that can be used to improve future tactics. Anyone who has used a spreadsheet beyond the ‘breaking point’, where the complexity of the model is beyond the understanding of the creator, will understand the limitations of a spreadsheet-based approach.
The ease with which spreadsheets are changed and multiple versions created has a further downside – it leads to an entrenched culture in the business that is resistant to growing the level of maturity necessary for maintaining global competitiveness – after all “if my spreadsheet works, why should I support the new disciplines required of a collaborative S&OP system that takes control away from me?”
S&OP redefined
A good S&OP application requires both strategic and tactical elements that present metrics in a relevant and simple way to decision-makers. Dashboards and KPIs that can react to real-world events and provide management with simple indicators on which to base tactical decisions are essential. Strong collaboration capabilities that allow customers, suppliers and production to agree on a ‘single demand number’ are critical. Event management and associated defined workflows are necessary to make any response to unexpected events resilient and coordinated across multiple departments.
Several vendors already have the building blocks of a good S&OP system in their technology stacks. However, coupling these components together to meet the requirements of a business is not a standard configuration process. Existing systems need not be ripped and replaced: an S&OP system is a new technology layer that binds these systems together to enable better decisions, faster reactions and improved collaboration.
This is unlikely to be a one-off process, but rather a series of incremental projects that start, for example, with a collaborative demand forecast, followed by tactical optimisation of production and distribution using a mixed integer linear programming model, then the implementation of event management capabilities and a performance management system that reports against strategic and tactical KPIs.
Each business is different, and this may not fit all. It is, however, important to recognise that the process is one of simultaneously maturing the business together with implementing a technology solution as an enabler. This is the same philosophy used when implementing ERP or any other complex system. In principle S&OP is no different, but rather a new frontier of manufacturing systems evolution. If ignored, however, the business stands to lose competitiveness to those which do execute S&OP effectively with the best tools available.
For more information contact Gavin Halse, ApplyIT, +27 (0)31 514 7300, halseg@applyit.co.za, <a href="http://www.applyit.com" target"_blank"> www.applyit.com</a>
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