The reality is, if you have a supply / demand imbalance problem that requires immediate attention, you probably don’t have any time to read. The good news is that commencing an effective S&OP program is achievable without a large investment in new technology or talent.
In his book Good to Great, Jim Collins writes about the key characteristics of 11 companies that significantly outperformed the S&P 500 during a 15-year time-frame. One characteristic of these companies is that they follow a principle described as “First Who, Then What.” In other words, getting the right people involved and putting those people in the right positions is more important than what you are going to do strategically or operationally. Therefore, if you have been charged with developing a S&OP capability, a critical first step is to identify director level personnel from Sales, Marketing, Manufacturing, Purchasing, Finance and Supply Chain to participate in this process. You will need to engage each of your targeted team members to describe the initiative, gain their buy in and get a 3- to 4-hour time commitment each quarter.
Your first meeting should be scheduled shortly after you assemble a team of committed participants. After you introduce the history, scope and purpose of the initiative, your functional experts should each have 20 minutes to describe their processes as they relate to developing the supply or demand plan. For example, Sales and Marketing should provide an overview of how products are rationalized each quarter and how they establish the demand forecast for the various product groups. Purchasing and Manufacturing should provide an overview of how they build their supply / production plans to accommodate the Sales and Marketing demand plan. Supply Chain should describe how they plan and manage warehouse space and transportation assets to accommodate both the supply and demand plans. Finance should provide an overview of how each of the above mentioned areas impact the financial objectives of the company (e.g., revenue targets, COGS management) and existing debt covenants (e.g., targeted inventory levels). Each group should be asked to specify if / how they communicate with the other functional groups and their number one “pain point” in the supply / demand planning process. As the conversation of this first meeting unfolds, you may find, for example, that Purchasing builds the supply plan without any reference to the demand forecast. Moreover, Sales and Marketing may build a demand plan without understanding the Supply Chain or Manufacturing constraints. You may also discover that each of these functional areas have conflicting financial incentives which are counterintuitive to an effective enterprise S&OP.
As you plan the agenda for your next S&OP meeting and assign action items to your team members, the process will seem like a lot of additional work and new meetings. Over time, the reality is that S&OP will reduce the work and number of meetings originally caused by missed shipments, canceled orders, capacity problems and ad hoc problem solving.
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