Reason #2: Poorly executed or non-existent sales and operations planning
Over the years, working for and with numerous manufacturing companies, I’ve seen many supply chain practices that cost companies money. Over the next several weeks, I’ll outline these issues and discuss some ideas around how to avoid these practices. You can find the previous post here:
Tell me if you’ve heard this one before. Your company has implemented an S&OP process. At first it showed some promise, but now it has turned into a blamefest attended if at all by lower level representatives that aren’t empowered to make decisions. No one trusts the numbers, inputs are late and you aren’t seeing any improvements month over month and people are starting to wonder “why bother”. Sound familiar?
So how does a poor S&OP process cost money?
- Excess and obsolete inventory. S&OP is all about aligning manufacturing and sales. When you don’t make what you sell and don’t sell what you make you create inventory. Lots of it.
- Lost sales. This is the corollary to the above. Typically companies with poor planning don’t have too much of everything. They have too much of things that aren’t needed and too little of things that are.
- Lost market opportunities. Companies without an effective S&OP are typically much slower to react to market changes. This means that their competitors will beat them into new markets and products.
A well-executed sales and operations planning process can transform a company; allowing them to better control inventory and costs while meeting rapidly changing demand pictures. It does this by gaining alignment across the sales, demand planning, manufacturing and finance organization. In effect making sure all areas of the company are working towards the same plan and towards the same goal. 5 years ago, I wrote a blog post in which I discussed the 3 pillars of S&OP. They are;
Process: Trying to run sales and operations planning without a clearly defined process is like driving in a city where no one obeys the rules of the road….you probably won’t get where you are going. If there were no process driving S&OP, then there is a very good chance that key information would not be presented (or presented poorly), key people would not be in attendance and that critical decisions would not be made. It is important that the structure, timing and agenda of S&OP is documented, published and adhered to. If the process needs to change due to changing business requirements, those changes need to be documented and published.
Executive Commitment: It is very difficult (bordering on impossible) to implement an effective S&OP process without executive commitment. Why? First let’s ask what is the purpose of S&OP? The purpose of S&OP is to align supply and demand and the various departments contributing to that alignment. Departmental alignment can only occur if the top level department executives are involved in the key decisions…because those top executives have the decision making authority. Sales and Ops is a failure if the representative at the meeting needs to go back to their executive to get a decision.
Effective S&OP Tools: This includes the tools to analyze the data, present information and make decisions. Effective S&OP tools also include the ability to integrate the data that drives S&OP. While Excel can be fine to do the initial S&OP model, moving to the next level of S&OP effectiveness requires a more integrated, responsive and collaborative application.
S&OP is a powerful tool if performed well. Inventory reductions, improved efficiency, improved customer service and reduced expedites are all expected benefits. However, If there is no buy in, if executive commitment isn’t there, if data isn’t reliable and doesn’t drive action your S&OP process won’t delivery these results.
Have you experienced poor S&OP planning processes? How about excellent planning? Comment back and share!