Everyone in manufacturing and distribution seems to be abuzz about topics like Sales and Operations Planning (S&OP) and Integrated Business Planning (IBP). And with good reason. S&OP has a nearly 30-year track record of helping organizations improve their efficiency and profitability. IBP is a newer strategy that helps companies go one step further by eliminating organizational silos and involving a broader coalition of executives and partners in every supply chain decision.
We at Demand Solutions believe the benefits of S&OP and IBP can be applied to any manufacturer or distributor. But we also realize that if you’re still running your business on spreadsheets and trying to bring consistency to your most basic business processes, the thought of fully embracing S&OP and IBP can seem overwhelming.
My advice? “Crawl, Walk, Run”.
In other words, solidify the basics before you try to maximize the profitability of every business process.
Start Crawling Forward with Good Demand Planning
I’ve talked to many customers who have launched their supply chain operations from scratch. When it came to demand, some started with no system in place, simply reacting to whatever orders came in. When volume increased, they simply worked longer hours and asked their staff to do the same.
From there, it’s common to see companies implement a rudimentary forecasting system. That often consists of a spreadsheet filled with last year’s order data. 50 orders last July… then let’s plan to fill, say, 55 or 60 this July. Sound familiar??
This all works fine - until it doesn’t. What if a successful promotion or shift in the market brings you 110 orders in July? There’s only so much you can adjust on the fly. You need to start predicting the future with a good demand planning system.
This is what I’d call the crawl stage. Get a handle on how much of your stuff your customers have wanted in the past and how much they’re likely to want in the months to come. The process involves much more than just extrapolating this year’s demand from last year’s sales. You’ve got to take into account promotions, product introduction and decommission, the competitive landscape, your vendors’ production schedules, and many other factors. One of the biggest issues is distinguishing between shipments and true demand. And you’ll want to alter your forecasts a bit based on your tribal knowledge of your business and your instincts about what’s happening with your customers.
Once you put your first forecasting system in place, you can begin to crawl.
Get a Steady Walk Going with Requirements Planning
So, your forecasting system has begun to give you a clearer picture of how much product you’ll need to deliver over the next week, month, quarter, year. And after testing out a few of your forecasts in the real world, you can see you’re on the right track.
You’re crawling. So far, so good. Ready to walk? Start by optimizing your supply side to satisfy the demand that you and your fellow stakeholders agreed upon. This will involve requirements planning.
Good requirements planning involves more than just making sure you have enough raw materials to meet your production goals. It can also help you minimize your inventory—and with it, your overhead costs. Once you’ve implemented a reliable requirements planning or inventory planning solution and integrated it with your demand planning system, you can use powerful algorithms—rather than best guesses—to plan and manage your inventory positions.
How to Run Towards S&OP and IBP
Moving from walk to run is, in some ways, the easiest step. This is where you’re going to enhance those solid demand planning and requirements planning process you’ve already established by extracting metrics and key performance indicators (KPI) from every aspect of your supply chain. You’ll then establish a feedback loop in which every piece of data becomes actionable and is used to improve next month’s results.
When you reach this state of constant improvement, you’ll know you’re truly off and running.
No matter where you’re at on your journey to supply chain excellence, the most important thing is to commit to getting better. Demand Solutions offers a white paper that can help you get started: Achieving Supply Chain Excellence.
And if you’re in the southwestern U.S. and would like to meet up with me to talk about your supply chain challenges, drop me a line at: firstname.lastname@example.org.