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How S&OP Is Like Your Golf Swing

Analyst Insight: The critical value-add of a manufacturing supply chain comes from constantly asking, "Can we make what we sell and sell what we make?" This is sales and operations planning (S&OP): a process of constant vigilance to meet customer commitments, while optimizing scarce working capital. Supply-chain optimization efforts can benefit from approaching projects as a hybrid of S&OP and supply chain. This places the focus on value creation over functional excellence. - Jon Kirkegaard, President, DCRA Inc.

How S&OP Is Like Your Golf Swing

To use a sports analogy, the process of S&OP is like a well-balanced, smooth-tempo golf swing.  A shift to an S&OP philosophy brings rapid improvements, much like a focus on swing mechanics brings quick improvements in a golf score.  Then efforts can be designed to master the skill for advantage.

How aware is your business of your goals in S&OP and supply chain? To find out, ask your team some key questions. Are you and your business leaders constantly looking for "Amazon"-type opportunities to bypass huge costs and unnecessary handling by flowing product direct from suppliers to customers?   Or do your business-process architects feel constrained like Radio Shack, still believing that improvements must be confined to how a rigid enterprise resource planning system flows transactions?

Here are some key points to keep in mind, on the journey to S&OP awareness:

• An S&OP solution must be built on the first principles of flow of real inventory, master production schedules, time-phase lead time and consumption of demand, design of planning, and bill-of-material flexibility –  not ERP and GAAP accounting transactions.

• Simultaneously, the S&OP solution must have constant and dynamic reconciliation back to pro forma financial statements, to solidify support and communicate improvements in traditional accounting metrics.   Leaders of the S&OP effort must be fluent in both languages and systems.

• Think of transportation as dynamic lead times in the S&OP fulfillment model, not simply moving inventory.

• Avoid any S&OP solution that is not built on an inventory time-phased algorithm.  It is this algorithm that differentiates the solution from accounting static views of capital.

• Realize that an outsourced operation is considered and planned in S&OP much differently than an ERP accounting model. It is not a transaction, but more a promise to perform that must be measured as such –  and planned long before there are transactions.

• Think about using an S&OP simulation to catalyze awareness to change.  Most software is designed to be used once the change has been solidified. Think about the potential for using the software to create and build awareness of a better way within your organization first.

• Look for financial wins using the S&OP mindset before the introduction of new tools.  Some examples might include: drop-shipping product to customers direct from suppliers, thus bypassing warehouses and balance sheets; having suppliers hold key components vs. finished goods until an order is placed; and offering customer discounts for longer lead-time orders. 

                                                    The Outlook

S&OP is no longer just for the big influential companies that can buy the best tools and talent.  Any company with the right mindset can literally β€œout-Amazon” Amazon at S&OP and working-capital efficiency.

Companies that are aware of the benefits of S&OP, and modify their behavior to play the right S&OP game, will continue to outperform those who do not - especially in dynamic, up-and-down markets.  Click here for more in-depth info.

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