Supply Chain Comment: Executive S&OP – Five Steps to Success
Real Success Flows from Practical Thinking, Guided by Three Principles: Make it Easy to Implement, Execute and Sustain
Often the biggest obstacles to S&OP excellence stems from complexity—difficulty gathering data, too many meetings, a hard-to-govern process, or difficulty analyzing key data. The natural tendency is to attend to the “squeaky wheel.” The change in thought process has to be focused on the activity that provides the greatest impact toward reaching corporate goals and strategic alignment. Additionally, understanding the role of finance in S&OP and integrating it into the process is critical to fully understand the impact of forecasting sourcing, inventory, postponement, production, and other pivotal business strategies.
So, while S&OP helps develop a plan and set priorities to maintain this focus, real success flows from practical thinking, guided by three principles: make it easy to implement, make it easy to execute, and make it easy to sustain.
The monthly S&OP process aggregates results from connected and recurring planning processes. It allows executives to assess trade-offs between many interdependent business components: demand and market opportunities, customer service, inventory investments, production capabilities, supply availability, and distribution concerns.
Bursa Says: |
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| Successful sales and operations planning is a journey of continuous improvement that aligns an organization strategically to execute tactically. |
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Step 1 - Innovation and Strategy Review
Introducing new products is a key aspect of the innovation and strategy review. NPIs can significantly impact the well-being of a company including inventory and lost sales. The ability to predict sales where there is no sales history to model can be difficult. Companies that have been successful in managing NPIs utilize advanced techniques such as attribute-based forecasting which generates demand profiles for new products based on existing product demand tied to identifiable attributes such as style, color, season, material type, etc.
In addition, attribute-based forecasting techniques can be used for product retirements. When retiring a product, the history for that product is no longer a reasonable indicator to predict a retirement demand profile. Attribute-based forecasting is a preferred method to predict how fast or slow the product will sell during the retirement phase by looking at how products with similar attributes have been previously retired.
Having solid forecasts for NPIs and retirements is an essential first step in preparing for the S&OP meeting.
Step 2 - Demand Review
A primary output of the S&OP process is a decision on the level of customer service the company will strive to achieve through the effective use of all of its resources. To plan to meet demand, you must know what current demand is and how it can change over time—the art and science of the forecast.
Proven forecasting techniques rely on rigorous statistical analysis of past demand including orders, shipments and point-of-sale (POS) patterns overlaid with demographics, product lifecycle projections, seasonality factors, and management judgment. These techniques abound for mature products with a sales history though each still requires consistent and accurate information. To this end, collaboration is critical and must be sought whenever possible while developing, refining and creating consensus forecasts.
Step 3 – Supply Review
Once the demand plan is finalized, the supply team needs to determine how they can satisfy the demand plan. Two elements are key in determining how to profitably satisfy the demand plan. They are:
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