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In our last article we identified the key characteristics required to have an effective Executive S&OP process. In this article, we will dive into designing an effective product family for S&OP. This is an updated article of S&OP Families Ties.
The foundation of a good Executive S&OP process starts with your S&OP family structure. S&OP families must segment your business in a way that facilitates planning, decision making and tracking to your strategic priorities across sales and operations. All data and presentations for S&OP should be managed and discussed at the family level. This needs to be managed at a level of granularity that is meaningful but not too detailed so as to lose executive involvement.
S&OP families should also have five key traits to make the most of your S&OP process:
S&OP families should be constraint-based. If you are going to sell something you have to be able produce it or procure it (in the case of buyouts) when the customer wants it. Your ability to do this is determined by constraints. Changing your supply level, or capability, typically means changing your constraints. Determining whether this is necessary requires aggregating the demand plan and viewing it in aggregate by the constraint. This means that all products that are produced off a particular resource, for example a production line, should be in the same family. When you are unable to change your constraints by increasing capability, your S&OP process should highlight the trade-offs that might be required to meet demand.
Within a constraint-based family you should be able segment demand into market facing views or demand streams. This will support moving from an unconstrained view of demand to a constrained view. This improves demand planning by allowing you to apply the appropriate demand planning technique for each demand stream (opportunity management for projects, instead of statistical forecasting for flow). You will be able to drive specific go-to-market strategies and track results. It will also provide accountability for the plan and performance within the Executive S&OP process. Ultimately, the demand plans need to roll up to a constraint-based view. You can do all kinds of great work to develop a really accurate demand plan but if you are unable to align your supply strategy and capability, you will not be able to effectively meet demand. If you can’t build it, you can’t sell it.
Data across sales and operations needs to be in a common unit of measure for Executive S&OP. Typically, this means you should be using “units” or “pieces”. Sales and Operations must be speaking in the same language. Common units mean that bookings, shipments, backlog, production, capability, and inventory are standardized to present a complete story across the family. Revenue does not work well as it introduces the variables of mix, pricing and potentially exchange rates and must be translated into meaningful numbers for supply and capability. Common units may be pieces, labour hours, volumetric (e.g. tonnes). Once you have balanced the S&OP plan, you can convert it to other units of measure, such as revenue to connect to other planning processes.
The family structure should support the planning and management of your strategic buffers. By starting from constraints and using common units, you should be able to set, measure, and plan strategic buffers. This includes the buffer between orders and shipments (backlog), between shipments and supply (inventory), and between supply and capability (upside flex).
You should have no more than 15 to 20 families in your Executive S&OP process. Having more than 15 families is too granular for the Executive discussion. To put this in perspective, if you have 20 families, all of equal volume, each family would represent only 5% of the entire business. A family that is only 5% of the business may not warrant a discussion at the Executive S&OP meeting. In most cases 4 or 5 families will represent the majority of the business. You can consider combining families for the Executive S&OP process. This may mean data, discussions, decision making in the pre-meetings and leading up to these meetings may need to be at a more detailed level.
Incorporating these traits will lead to having a family structure that is clear, focused, and supports the business strategy. This is one key way to build an effective S&OP process that works for your business. You also can watch our related video, S&OP: Family Design, which expands on implementing these points into your S&OP process.
At DBM, we provide your team with coaching and the tools needed to run an effective S&OP process. Through the Virtual Accelerator process, you can implement a sustainable Executive S&OP process in just six months. Not quite sure how to incorporate these best practices into your S&OP process? We can help! Reach out to us. We can help you unlock the power of S&OP in your organization.