Family Ties: Making S&OP Work and Defining Product Families
Updated: Nov 17, 2022
A printable PDF is available here
Should my S&OP families be setup as market-based or constraint-based? This is a question that I get asked quite often, and the answer always is: S&OP families should be constraint based but with the ability to segment demand by demand streams. If this goes against how you’ve always considered your S&OP families, I urge you to read on.
Let’s start with a little S&OP background. S&OP is a process that provides management the ability to strategically direct its business to achieve competitive advantage on a continuous basis. The S&OP process is performed monthly at the family level and brings together all functional & strategic plans. The S&OP process reconciles supply, demand, and new product plans.
S&OP is at the heart of the planning process. The monthly S&OP process is at the inflection point between strategy and execution which means you are establishing and monitoring short term objectives while setting and tracking your longer-term objectives. At the same time, you are establishing a plan that crosses functional silos in an organization (sales, operations, finance, and engineering) that don’t always speak a common language.
Getting the right view of your S&OP families is the most important structural starting point for S&OP. To get a complete view of the business you are balancing the different viewpoints or perspectives of the stakeholders. The sales or customer viewpoint may be by product use or type, while manufacturing may view the products by production line or facility. Accounting may look at products on a cost basis or by margin. Finding a common language isn’t always easy.
The right S&OP families, at the right level of granularity, support efficiency of reporting, and should drive accountability in your organization for actions and results. You only have one to two hours each month to cover the entire business with executives – so you need to make it count. If it is too detailed, you won’t get them involved. Not detailed enough and you won’t uncover issues. Remember, S&OP sets the operating parameters within which you execute; it is not the execution process itself.
I stated that you should setup your family by Constraints, but let’s take a second to understand the difference between a Market and Constraint view. The table below gives some examples of how you might take an external view (Market), or internal view (Constraint). There are other examples that could be used but these will suffice to help you understand the difference.
The “Market View” is important because demand is influenced by how you go to market. Some of your demand may be driven by events (projects) while the rest comes from smaller more predictable orders. You may run promotions via a specific channel that will drive demand events. You may have a different channel strategy in different geographies, that requires tracking of channel inventory. Your strategy may involve different lead times for standard versus make to order products. All these required segmentation by market. One of the first places to start is by segmenting abnormal (project) demand from normal (flow) demand. If you are interested in this, you can read more here.
Ultimately you need to be able to segment your demand to address the following:
Improve Demand Planning – using the correct demand planning technique by demand stream (opportunity management for projects, versus statistical forecasting for flow)