S&OP - Throw a double six to start?
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1 S&OP - Throw a double six to start? Ben Wright, Project Director, Total Logistics 5a Market Place Wokingham Berkshire RG40 1AL United Kingdom
2 S&OP Throw a double six to start? Sales and Operations Planning (S&OP) focuses a business on one integrated business plan with a single set of metrics. It resides at the heart of the planning function, and delivers benefits to all of the main activities sales, procurement, supply chain and manufacturing. The S&OP process provides a forward looking, globally integrated set of processes, intended to align and synchronise supply chain strategies. It is a cyclical process, generally performed monthly, and is reviewed by the senior management team at an aggregate level. Good examples are usually found in agile businesses, enabling them to reconcile supply and demand plans and determine the supply chain requirements over short, medium and long term horizons. So who is doing it? S&OP is not new, but has changed its format, method and content over the years. Certainly elements can be found in nearly all companies, but best practice examples are more limited. In a recent example, Total Logistics delivered a successful S&OP program to a global manufacturer. As a result of this, finished goods inventory holding was reduced by more than 50% and operational costs were reduced by nearly 10%. I m doing it already is one of the most common comments businesses make. However, in reality, this is usually only partially true. The majority of companies do perform some elements of the S&OP cycle, but not all of them. This is usually still labelled or referred to as S&OP internally. This means that the main issue resides in the misunderstanding of the complete S&OP process, rather than the company s ability to execute it. So the starting point is to address the misunderstanding of what true S&OP is. One of the best ways of demonstrating the holistic process is to visualise it in a more familiar way. 1
3 Here, the S&OP process revolves around the four stations or stages, with an initial Demand Review, a Supply Chain Planning meeting, a Pre-S&OP review (attended by key operations managers) and a full S&OP meeting (attended by senior managers). Each meeting is attended by groups appropriate to that stage, with the whole process chaired and driven at a senior management level. This structured process happens on a monthly basis, and can be held regionally, centrally, or both. Key stakeholders within the process include representatives from supply chain planning, commercial / sales, finance, marketing, procurement and production. 2
4 The objective of the Demand Review is to produce a rolling unconstrained forecast of demand, typically months out. Net demand is calculated, along with opportunities and gaps relating to budget. Particular events or marketing campaigns are tabled and planned for. The Supply Chain Planning meeting produces a medium term constrained supply plan, using the consensus demand forecast. Material requirements are planned and supply or resource constraints identified and mitigating actions put into place. Events are planned for through either demand adjustment or inventory building. The Pre-S&OP meeting reviews the implications of the proposed rolling plan in terms of profit and financials against budget. This meeting is attended by all the groups identified above, to ensure consensus planning, collective resolution of disputes and integrated decision making. The output of the meeting is a set of recommendations for sign off by the senior leadership team at the S&OP meeting, along with any unresolved issues that require escalation. The S&OP meeting provides the senior team with visibility of the expected business performance versus budget on a rolling monthly basis, and allows for identification of any actions to close performance gaps. The output is an approved consensus plan, along with additional relevant input into the next planning cycle. The benefits of a successful implementation are clear: Lower inventory levels Improved demand forecast accuracy Lower distribution costs Lower production costs Improved operational efficiencies Better customer responsiveness Importantly, sales increase through improved on-shelf availability, and customers will view the business as a reliable, trusted and competitive supplier. Even better news is that a successful implementation within a global company is infectious - our experience shows that once the ball is rolling, rapid deployment across multiple regions can happen almost under its own momentum. The implementation focus then shifts from getting going to quality control. So how do companies go about instigating the change? The key ingredient to success is nearly always in the initial definition, setup and execution framework. Previous experience is highly desirable and is a key driver in risk mitigation and ensuring benefits are realised. The key steps in making the change are: Identify current practices through current state reviews and mapping Determine scale of potential benefits though analysis and process reviews Map IT systems and identify constraints Develop a best practice model for the business and produce a robust business case Establish senior level sponsorship and engagement Develop the S&OP process framework and implementation rollout plan Create monitoring dashboard and benefits realisation programme. 3
5 The biggest risk to implementation, and the primary reason why most implementations fail or become unsustainable, is because the required level of buy-in is not achieved from day one, thereby losing momentum. It is nearly impossible to re-implement after an initial failure, as key stakeholders will have lost interest and moved on. To mitigate risk, many businesses turn to external support to ensure that right first time is achieved. This provides benefits by avoiding the common pitfalls and working to a best practice model. Furthermore, it provides assurance that the benefits described to the senior management team are actually achieved, or exceeded. Businesses that are unable to build agile and responsive supply chains will not be able to create a competitive advantage or react faster than their competition to market opportunities. Those that are able to, will continue to throw double sixes. Total Logistics is an independent management consultancy, specialising in all aspects of commercial supply chains, from strategy definition to implementation and project management. For further information or to arrange an initial discussion on how this may benefit your business, please contact: stuart.hearn@total-logistics.eu.com Tel- +44 (0)
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