Sales and Operations Planning (S&OP) is often hailed as the holy grail for supply chain management. By aligning demand and supply plans, S&OP helps companies improve forecast accuracy, maximize the use of available capacity, enhance customer commitments, boost financial performance, ensure cross-functional collaboration, and reduce risk.
Yet, many companies struggle to get it right.
Here are five tips based on my experience to help you master your S&OP process:
- Focus on Tactical and Strategic Decision-Making: Ensure that your S&OP process exclusively covers tactical and strategic decision-making, steering clear of operational issues. In fact, block out the first three months in the reporting. This focus allows your team to concentrate on long-term goals and significant shifts in capacity and demand rather than getting bogged down by tinkering with the normal day-to-day operational distractions.
- Remember the Key Objective: Once you start building your S&OP model, the ideas will start flowing. But just remember that the objective of S&OP is to identify where capacity and demand are out of balance and then make informed decisions. When designing your process, always keep this as your primary objective.
- Create the Right Groups: S&OP is done at a Group Level, not a product level. So, invest time in forming the right groups. Don’t just use your traditional product groups because, many times, these groups are set up based only on demand patterns. When I set up S&OP groups, I create Flow Groups. They are groups of products that share similar supply patterns and manufacturing processes. This makes output so much better.
- Leverage the ‘Bill of Flow’ For S&OP to work, you need the ability to link Demand and Supply and simply show this relationship from sales through your distribution and manufacturing process and then onto your suppliers. At the product level, this is achieved with Bills of Materials and Routing, but in S&OP, we do not work at the product level. We set up a concept we call the “Bill of Flow.” In a few workshops, we use this concept to flatten the Bill of Materials (BOM) and describe the relationship between finished goods and critical resources. This simplification of projection logic enables instant scenario modelling, making it easier to visualize and plan for various demand and supply situations.
- Model Instant Scenarios: No longer can your S&OP cycle be monthly! In today’s VUCA (Volatile, Uncertain, Complex, and Ambiguous) world, you need the ability to instantly model the impact of demand and supply changes across all scenarios—revenue, cost, margin, inventory levels (working capital investment), resource capacity utilization, service achieved, and lost sales. This capability allows for swift decision-making and responsiveness to market changes, ensuring your S&OP process remains dynamic and effective.
By implementing these five tips, you can enhance your S&OP process, making it more strategic and aligned with your company’s long-term goals. Remember, the key lies in maintaining a clear focus on strategic objectives and being agile in scenario planning.
Think flow,
Kevin Boake
