As your supply chain partner, Cornerstone Edge is focused on always building trust and delivering value. That’s one of the many reasons we’re part of the Collinear Alliance, to provide limitless supply chain resources. Sales and Operations Planning is a large piece of the supply chain puzzle, and we can provide that service thanks to our many partnerships. We sat down with one of our crew members, Jim Noblitt, to pick his brain on Sales and Operation Planning, and to discuss why it may be a valuable strategy for some organizations to implement.
WHAT IS SALES AND OPERATION PLANNING?
Sales and Operation Planning (S&OP) gathers input from an organization’s main functional areas, like sales, marketing, manufacturing, distribution, human resources, and finance to create a unified and effective business plan. This is how organizations can control inventory costs while simultaneously improving their service levels. It coordinates different areas of the business to meet customer demand with the appropriate level of supply. As Noblitt put it, “The whole idea behind S&OP is to enable upper management to do their job, providing them insight into their goals and to track how close they are to achieving those goals.”
S&OP is both strategic and tactical. Strategically, it offers insight into how demand may change in some geographies or for specific product lines impacting manufacturing, workforce, and supplier decisions. Tactically, the S&OP process creates a production plan that is approved by upper management, which is then used to create a master schedule and a material requirements plan (MRP). S&OP will vary by organization, but the general process can be used in almost every industry.
Read on for an overview of how Cornerstone Edge tackles S&OP with Noblitt’s expertise at the helm.
Step 1: Build the team & touch base often
S&OP is a process that requires time, patience, and collaboration. Creating a team and setting goals and expectations from the get-go is essential. Designate one team member as the S&OP process facilitator, they will manage the process from start to finish. Noblitt says the organization’s Master Production Scheduler is an ideal candidate; since they drive the production schedule, they’ll have insight into both sales and operational needs.
One of the more important aspects of S&OP is having preliminary meetings to ensure key stakeholders are on the same page. The project lead will meet with stakeholders and department heads to ensure all aspects of the organization are taken into consideration. In these preliminary meetings, the team as a whole can agree to a general plan outline. As Noblitt says, at this point, “Consensus is important, not necessarily the agreement.” With this consensus in place, the team can start the S&OP process.
When implementing S&OP initially, it’s best to utilize existing planning meetings when possible and to change the meetings to accommodate the new S&OP process. This accomplishes two things:
- It doesn’t add as many new meetings as would otherwise be done
- It replaces legacy processes that might otherwise continue, negating the internalization of the new process into the business
Step 2: Gather and manage data
The S&OP process starts with extensive data gathering. All the data you gather will be used for forecasting, one of the most important parts of the S&OP process. You’ll want to compile data about past sales and trends, and to include any internal and external factors that could impact sales, like industry changes, seasonality, customer behavior, supply chain disruptions, and competition. Past and anticipated future production performance is critical to completing the S&OP data model. With a good sales plan and production plan, the S&OP process will be a very effective tool for managing inventory or backlog and meeting the company business plan.
Accurate data gathering and management is critical. If you have inaccurate data, your forecasting will be off, which means the entire plan will miss the mark. It’s important to understand your forecast error, especially in determining how much inventory you need to reach a certain fill rate. The more inaccurate the data, the more inventory it’s going to take to reach your desired fill rate.
Step 3: Supply and demand planning
Once the data has been captured and forecasting has been completed, supply and demand planning can begin.
Demand planning includes:
- Validating forecasts
- Understanding sources of demand
- Accounting for variability
- Revising customer service policies
Supply planning includes:
- Determining inventory targets
- Establishing safety stock levels
- Setting production levels
- Implementing production methods
- Assessing the ability to meet demand by checking available capacity, inventory, and scheduling
Depending on the industry, the plan can look three, six, 12, or 18 months into the future, S&OP is always tailored to each organization’s needs. No matter how far into the future the plan looks, S&OP requires monthly meetings to allow stakeholders to see how the plan is progressing and to assess any pitfalls and areas for improvement to be addressed the following month. The point is to have a guide so that everybody on the team is working toward the same end goal. If something is not working, it’s easy to review the plan to see what needs to be changed.
Step 4: Reconciliation of Plans
Those monthly S&OP meetings include plan reconciliation, which entails sorting through supply-side issues to see if the sales plan can be accommodated and inventory and backlog objectives can be met. The team will also use this time to review the previous month’s supply performance and how they align with forecasting.
With constant checks and balances, management can take care of business. Noblitt says S&OP allows executives to run the business from an informed perspective, “It’s a good way to keep production consistent without breaking the bank or your employees.”
Step 5: Approve and release
At this point in the process, the team has met multiple times, has analyzed data and trends, and they have agreed to a general plan. Once the demand and supply plans are finalized, the result is presented to the executive team during the monthly Executive S&OP meeting. The goal is to leave that meeting with an approved demand and supply plan that can be executed by operations.
The challenges of Sales and Operation Planning
As a company-wide, recurring, and collaborative process involving multiple departments like finance, operations, marketing, and sales, coordination and communication can be especially challenging in S&OP, but there are other difficulties we cannot ignore.
- Ensuring data is accurate so that forecasting isn’t hindered
- Obtaining buy-in from top management from the start
- This is why having preliminary meetings is essential for your S&OP process to work
- Planning for the introduction of new products
- This also includes planning for the end of life of other existing products
- Transforming data into action items
And while all of this may sound intricate, Noblitt has one piece of advice, “DON’T OVER COMPLICATE IT.” If that sounds easier said than done, don’t worry, that’s why we’re here. Cornerstone Edge works with industry experts like Jim Noblitt to ensure you’re able to get the most out of your supply chain.
Sales and Operation Planning empowers organizations to look into the future at a macro level, to ensure you have what’s needed in the pipeline to be prepared for the future. It allows top management to reach into the business and run it with a data-backed approach. Companies that practice S&OP have much better control over how they use their resources and service their customers.
If you’re looking for a supply chain partner to help lower your inventories, manage your backlogs, meet your customer’s needs, improve your customer service, and more, Cornerstone Edge can help. Reach out to us today, and let’s see if we’re a fit.