Sales and operations planning (S&OP) receives a lot of attention as a potential panacea for inventory optimization and rationalization. Done properly it can help along those lines. The key, usually missing, is “done properly”.
Over the last few years I have attended, reviewed, and even facilitated several S&OP meetings. Sometimes sales is not there. Sometimes operations is not there. Sometimes planning is not there. Sometimes inventory is not discussed. Sometimes logistics is not involved. Sometimes the meeting morphs into a seminar, or worse. Sometimes the meeting doesn’t happen. Reliable data is the exception rather than the rule. The decision support tools necessary to answer tough questions are rarely available. Though seemingly a “standard” in the industry, I have found S&OP to have as many different meanings as there are companies.
Despite those disappointments, I was encouraged recently at two client sites. Pratt & Whitney Canada coined the term “SIOP” for Sales, Inventory, and Operations Planning. Coca-Cola Consolidated coined the term “T&OP”, Transportation & Operations Planning. They both recognized something is missing from “S&OP” and launched out on their own.
As I mentioned early on, there are a variety of valid perspectives on inventory – (1) financial, service, and operations; (2) strategic, tactical, and execution; (3) customer service, manufacturing, sourcing, transportation, and warehousing, Each of those perspectives needs to be addressed, optimized, and rationalized in the “S&OP” process and meetings. In addition, though traditional S&OP has focused primarily on inventory, the scope should be expanded to consider the total supply chain and its ability to support the financial and service requirements of the business. We developed the RightChain™ planning process to help companies move beyond S&OP to integrated supply chain planning and optimization. The process is steps 1 through 7.
- Cadence and Gates. Supply chain requirements and capacity must be rationalized and optimized in the short, middle, and long term. Therefore, the RightChain™ program works in daily (Gate I), weekly (Gate II), monthly (Gate III), quarterly (Gate IV), and annual(Gate V) buckets accordingly.
- Organization Levels. All levels of the organization are impacted by, should participate in, and be held accountable to RightChain™ decisions. Participation by levels including manager, director, and executive are highlighted in the diagram. Meeting types are labeled as Management RightChains™, Director RightChains™, and Executive RightChains™ to reflect the nature of the decisions considered in the work sessions.
- Players. At each gate in the RightChain™ planning process, appropriate representatives from the major multi-disciplinary areas of the corporation should meet. For example, Executive RightChain™ meetings would include the CFO/VP Finance, COO/VP Operations, CEO/President, CSMO/VP Sales and Marketing, CMO/VP Manufacturing, and CSCO/VP Supply Chain. Director RightChain™ meetings would include their counterparts at the director level. Management RightChain™ meetings would include their counterparts at the management level.
- Demand and Requirements. Forecasted demand has typically focused on customer demand in units or dollars and is often developed solely by sales. Customer demand should be vetted through consensus forecasting, and should be extrapolated to include all supply chain units of measure including pieces, cases, pallets, cube, weight, and loads. The elements of the customer service policy such as fill rate, response time, delivery frequency, etc. also act as requirements on the supply chain and should be considered as well. All of these are reflected in the swim lane labeled “Demand and Requirements”.
- Supply and Capacity. Capacity in “S&OP” has typically focused on unit manufacturing capacity. Capacity should reflect not only manufacturing capacity, but also sourcing capacity, transportation capacity, warehousing capacity, I/T capacity, and financial capacity to fund inventory investments. Each of those is a potential bottleneck in total supply chain capability. Each potential bottleneck is considered in the Supply and Capacity swim lane.
- Performance Measures. Traditional S&OP performance metrics are focused on operational inventory indicators like inventory days-on-hand or turns. However, a supply chain schedule, plan, and strategy impacts many more metrics including inventory financial performance, EBIT, ROIC, workforce productivity, supply chain asset utilization, revenue, total supply chain cost, customer service, complexity, etc. Our RightChain™ Scoreboard considers the full range of inter-related metrics and is illustrated in Figure 4.16. It is organized by metrics related to providing customers with excellent customer service, employees with a great place to work, and shareholders with excellent financial returns.
- Tools and Data. One of the typical hindrances to successful S&OP meetings is the lack of real-time decision support tools to answer the tough and sometimes meeting-squelching questions that arise. We developed the RightChain™ Analytics Portal to support real-time data mining and decision making at each planning stage.