I presented a couple of sales and operations planning (S&OP) workshops at our Kinexions user conference this week. One of my sessions focused on how the ability to “connect” supply and demand planning in S&OP can result in faster and more accurate S&OP planning cycles.
Let’s think about the traditional S&OP world. Most companies have a demand planning system where they create statistical forecasts, maybe the marketing team creates a forecast, perhaps the sales team…. they may even bring in customer forecasts. Through some process or another, they create a single demand plan and these demand requirements are then pushed over to the supply side. The supply planning team then start developing what they hope is an achievable supply plan.
In traditional ERP systems, they gauge doability by using end item build rates and bills of resources to “estimate” supply needs against a small number of key components, resources, and suppliers. Eventually, through give and take negotiations, the supply planning team and the demand planning team can achieve agreement on the plan and this is presented to senior management. Once approved, the production plan is entered into ERP, requirements are exploded through the “real” BOMs and a true picture of what is needed and what is available can now be seen.
Sounds reasonable, right? We’ve been doing it this way for years! Let’s take a look at where things can go wrong;
The first area of concern is that the bill of resources approach to rough cut capacity planning is just that…rough. By definition, you are looking at just a subset of your resources and components. Look at your own key resources and components. Have you ever had issues with non-key items? Of course you have! Also, how accurate is your bill of resources? BOMs change all the time. Does your bill of resources keep up with these changes? So while your S&OP plan may appear doable at the high level, once you actually start detailed planning, you often find that your plan isn’t doable after all.
The other problem is that traditional S&OP processes assume that you will only need to evaluate a single demand plan. This is probably fine for very simple supply chains, however, what if you have two demand plans that you need to evaluate? What if your executive team wants to see a supply plan that supports a demand plan both with and without a sales promotion? Some companies will plan three scenarios; a baseline (what is likely), an optimistic, and a pessimistic view. All of which require a doable supply plan.
So what’s the answer? Let’s play a little “what-if.” What if you could….
- Create a new demand plan (or several) and instantly see how this new plan would impact your supply chain down to the smallest component?
- Drive your supply plan from any forecast stream (sales, statistical, marketing, customer, pessimistic, optimistic) or combination of streams?
- Change which forecast drove your supply chain and evaluate the impacts?
- Visualize these plans against the same key corporate metrics you use to run your business?
- Compare various plans against each other AND against your annual targets?
- See a problem at the sales and operations level, and were able to drill down until you found the problem, no matter how far down the supply chain the problem exists?
Got you interested? Keep a lookout for my next post where we explore what is needed to make this happen.