Following the Demand Solutions webinar "Aligning Objectives and Output with Sales & Operations Planning" with S&OP pioneer Dick Ling and Demand Management, Inc. President Bill Harrison, we received several good questions from the audience. We sat down with Dick to get the answers.
Q: Can you give me some advice about initiating a Sales & Operations Planning process?
Dick says he gets questions all the time about the pieces of the S&OP process rather than the whole. This is understandable since people tend to focus on where the pain is (within the forecast or over supply). Adopting a robust S&OP method within your company will alleviate the pain, but S&OP software alone does not fix supply or demand problems. It is essential that you have a good understanding about the process and the components of the process before you begin.
Q: Do you recommend any books to learn more about S&OP?
A: Listed below are a trove of good articles and books that offer insight into getting started.
Orchestrating Success: Improve Control of the Business with Sales & Operations Planning by Dick Ling
Sales & Operations Planning: The Executive's Guide by Tom Wallace and Bob Stahl
Sales & Operations Planning: The How-To Handbook, 2nd Edition by Tom Wallace
Sales & Operations Planning: The Self-Audit Workbook by Tom Wallace and Bob Stahl
Sales & Operations Planning Best Practices by John Dougherty and Chris Gray
Sales & Operations Planning Starter Kit by Dave Garwood
Bills of Material by Dave Garwood
Enterprise Sales and Operations Planning by George E. Palmatier with Colleen Crum
Q: Will an S&OP process and tool eliminate surprises in my company?
A: In many industries, no matter how much planning is involved there will always be surprises such as unexpected promotions, increased orders or production delays. In the automotive industry, for example, even though you plan to basic forecasts established by the large auto manufacturers, you still have to respond when the manufacturers make demand changes to support their schedule changes.
Emergencies happen even with a solid S&OP process in place. The difference is that when S&OP is in place, only the true exceptions are dealt with as emergencies. Companies with S&OP deal with exceptions in a systematic way versus widespread chaos. Many people asked about a standard method to combat the unexpected, but one does not exist because it's impossible. The lesson is that if you have 90 percent of your supply and demand coordinated with S&OP, you are better able to deal with exceptions.
Q: What can I do to mitigate damages when a surprise does occur?
A: "Often I suggest a mini-S&OP meeting when a major change occurs," Dick says. "But for the most part, establishing regular, methodical S&OP meetings within the company avoids the crises before they happen."
Q: How do I measure S&OP Success?
A: Most people measure inventory turns, customer service levels and overall profit. The main benefits companies experience from doing S&OP, however, are often immeasurable such as: instilling a constant flow of *communication within a business, making better and more informed decisions, and understanding the demand and supply streams from a strategic point of view.
*Dick points out that communication does not solely mean numeric data entered into the system. Communication includes information from a conversation with a supplier, for example. "I'd rather have inaccurate information early than accurate information late," says Dick.
Q: From your experience, who usually wants an S&OP tool?
A: The people who want their companies to implement an S&OP tool are usually the ones in the trenches responding to poor communication. Ling says that successful S&OP comes from the executive level. The process needs to be adopted from the top down in order to instill a common methodology for strategic planning.
Q: Do you have any advice on customer-provided forecasts?
A: The concept of this kind of forecast is great, but it does not necessarily guarantee a more accurate one. Ling suggests testing customer-provided forecasts against the one you're using, and decide based on that comparison whether to incorporate it - do not average the two forecasts, though.
Q: Why do I need a stand-alone S&OP tool if I already have an ERP database?
A: Many companies do not understand that S&OP cannot run off an ERP database. ERP is a transaction-based system; it does not store aggregate or family-level data. That's why an automated S&OP tool that's integrated with your ERP package is necessary. The purpose of S&OP is to give a broad view and direction of a business, not to manage every SKU.
Q: What are the main credentials I should look for in an S&OP solution?
1.) Simplify the data gathering process.
The first step to the S&OP process is collecting all of a company's data. Considering the various internal departments and external partners even the smallest organizations have, this step is not easy. It is therefore essential for a stand-alone S&OP tool to have a smooth process of consolidating the numerous plans.
Demand Solutions S&OP (DS S&OP) supports this by directly integrating with the other modules in either the DS Solution suite or any other tool. Through an Import/Export utility, which accepts data from the DS system as well as others, multiple departments can easily share valuable information.
2.) Validate the data.
Everyone has heard of the term "dueling spreadsheets." A good S&OP tool should eradicate planning controversies by providing a transparent forecasting process. To validate the data further, an S&OP tool should then incorporate collaboration with sales and customers to verify the forecast numbers are the most realistic and incorporate promotions.
DS S&OP eliminates all of the "pre-S&OP" meetings by validating the data. The pre-S&OP meetings are designed to fix any problems in the data before the monthly S&OP meetings. DS S&OP shows everyone involved where there are issues in the organization and allows them to fix inconsistencies before meeting with C-level executives.
3.) Be flexible to support the needs of all the departments involved in S&OP.
A complete S&OP process involves every department. The operations department likely wants to see different information than the marketing department. That's why a dedicated S&OP must provide flexible views of the company.
Demand Solutions allows users to customize the data content and the layout of their S&OP sheets. The Summary Views feature allows users to create multiple views of the data to support each of the steps in a pre-S&OP meeting process. Source Record Views provide even more depth into each family. The function allows users to enter spreadsheet formulas to create customized calculations for analysis. The customer can add additional metrics or KPIs that are important to their business.
4.) Be an integrated S&OP solution.
The final and most important requirement for a good S&OP tool is that it should support the S&OP process at all levels of a business through integration. Only an integrated solution will allow visibility into the families that have problems.
Demand Solutions' functionality makes the S&OP process simple - every step of the way. Through Performance Evaluation and Filtering in Forecast Management (DS FM), Action Messages and Exception Filtering in Requirements Planning (DS RP), and Business Plan Deviation Filters in DS S&OP, a company can develop a strategic and realistic business plan.