For supply chains to work smoothly, two forms of collaboration are needed: external collaboration with customers and suppliers and internal collaboration among the people who actually get things done, says Mark Williams, demand management specialist at QAD.
External collaboration has been necessitated by the dramatic lengthening of supply chains in recent years, says Williams. "This has made it all the more important to get inventory where it needs to be on time, which is very difficult to do if you don't know what your customer wants. Relying strictly on a forecast just doesn't cut it any longer - you really need to understand when your customer is going to change strategy or change inventory levels in ways that will impact demand."
As companies respond to such changes from their customers, they similarly need to collaborate with suppliers so they too can meet demand, he says. Collaborating with customers and suppliers is not sufficient, however. "If you don't have that same collaboration going on internally, the information that comes into the front end will not get to the area where people need to execute," Williams says.
One way to ensure that this internal collaboration occurs is with sales and operations planning, he says. "S&OP focuses on the exchange of information within the organization." Very often a company's sales and marketing forecast will differ significantly from the production plan, he says. "S&OP is a tool to force the organization to come together and develop one goal and one set of plans. If you have one set of plans, you have a much better change of hitting the target."
Moreover, S&OP also holds people accountable for operations, says Williams. "People would like to forget about the commitments they made in the past and, when the month is over, just focus on the future. S&OP forces you to take a look at what you said you would do, what you actually did and explain the difference. The purpose is not to punish but to learn from the past and get better."
