Back to Basics / Free Consulting
Why should we ‘do S&OP’? (Sales and Operations Planning), if at all,
Here is how I brainstormed with a learned guy the other day. Just for philosophy’s sake.
1) Check whether Unconstrained Forecast is ACHIEVABLE
2) Check if there are any events that can DEPRESS supplies and hence Sales.
3) Check if ALTERNATIVES exist to meet Forecast.
4) Check whether revenue targets MATCH the forecast
5) Check if CAPITAL is available for the expected supplies against forecast.
6) (Optional) Check if PROFITABILITY targets are met
7) Check if everyone agrees to Constrained Forecast.
Isn’t this what sequential/simultaneous demand and supply planning activities (can) also do? Why call it by some other name? It is just another excel worksheet at best!
The key premise here IS (but not necessarily), do functional leadership know critical situations / events / business directional changes that can depress expected sales. (Director has a reason to exist)
E.g.
– A raw material supply at risk (because vendor wasn’t paid for over 90 days),
– A contract capacity agreement breach because the contractor declined to work with you because a new GM of operations was being too arrogant.
– Abrupt price hikes of raw materials because of some new bogus regulation.
– Some new import taxes impacting pricing and hence demand,
– A newly hired sales manager resigned in 4 months.
– Non-availability of a machine- part lead time is 3 months.
– Lenders declined recent overdraft application.
– Abrupt hike in freight costs because truckers found better markets to serve
– Advance / Delay new product launch.
– Advance / Delay promotions.
These are some situations that are otherwise not readily modeled in the application. ‘Supply Chain’ software used by planners.
What’s the point?
If you must make any sense of S&OP
– Articulate the objectives of S&OP in your company in so many words.
– Call out Actions (verbs) and Doers clearly (What do you ‘do’ in S&OP ‘meetings’)
– Quantify the outcome (e.g. Make up/live with Lost Sales, Hold the promotion, cancel new product launch etc.)
– Ensure the constrained demand plan is Executable.
What’s wrong now?
Consultants. Poets.
Most can’t understand nor make attempts to understand the objectives of S&OP in a named company. They just concoct another worksheet. Use lot of adjectives (like synchronize, harmonize, align..). No verbs.
Software doesn’t solve all the problems. Nor model it. Else there wouldn’t be so many bankrupt firms. (Most are simply not credit worth. Big plans. No money. No friends in the Govt. to bankroll)
