Competing successfully is all about providing the highest possible customer service with the least amount of resources, says Donald Sheldon, president of D.H. Sheldon and Associates. Sales and operations planning helps achieve that goal by bringing the best minds in a company to consensus on these two issues, he says.
The whole idea behind S&OP is to align to demand as closely as possible with supply, says Sheldon. "A lot of companies feel that forecast accuracy is the whole point of S&OP, but it is not. The point is understanding the risks around the forecast going forward." Sheldon notes that companies that are "rocking and rolling" in the market with high demand and a lot of new product introductions are the ones that have the hardest time with forecast accuracy - and yet they are also the most successful. "So the important thing is not absolute accuracy, but acknowledging the risks, or in the language of Six Sigma, to know the process variation."
In fact, Sheldon says that "risk management" is the best two-word description of S&OP. "If you think about critical risks, especially for manufacturers, things that come to mind are supplier failures, new product introductions and having to shut down a plant and move products to another area," says Sheldon. The best way to deal with these and, at the same time, keep shipments moving to customers is to focus on a 12-month rolling process that also has to align with a strategic plan that goes out two to three years."
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