President's Note
An effective S&OP process is one where the process is both linked to your planning and execution systems (ERP) AND provides feedback on the validity of the plans in these systems. Data is key to these relationships. Having the right data at the right level of granularity is both important and necessary. S&OP data will highlight processes that are broken and drive accountability.
In this series we are identifying the key characteristics required to have an effective Executive S&OP process. In this article, we will outline what data is required to support each step in the cycle.
The Executive S&OP Process needs to be data supported. The data should model the plan for each family and be supported by historical information to assess the validity of the plans. At the center of this is the 5-Section Sheet. This sheet is a family view that connects demand with supply and covers the buffers or levers to manage the business. These buffers being inventory, backlog and flex capacity. Pulling this data together presents a “story” for the family and will drive you to have a balanced or viable plan.
Current or actual data should come directly from your ERP system to ensure the S&OP process is connected to your execution and financial systems. ERP data that doesn’t make sense should drive improvement projects to other processes. For example, if aged backlog reviewed by family is consistently past due, seeing the summary data each month should drive improvement for backlog management. It is strongly recommended to have an identifier in your ERP system for the S&OP family. This will support pulling inventory, production, open orders out of the system quickly.
Data needs to be normalized across sales and operations to give a complete picture of what is happening in the family. All data is in the same unit of measure for a family. You should be able to compare actual data to the plan for each month completed. Future plans should be balanced and incorporate any firm orders (production orders, open customer orders (backlog)) available in your planning system (ERP).
The 5-Section Sheet below demonstrates how the full plan comes together for a family. The blue lines show the actuals (M-1, M0) and the current plan (M1 to M3), while the line above represents the previous S&OP plan. In the example, February is the month just completed. (Note: The sheet is truncated to only show 3 future months of the 12-month rolling period.)
o Bookings (orange arrow): Actuals (February) are the sum of the new orders taken the previous month to be compared to the forecasted bookings for the month (in units). March and forward are the bookings plan, or forecast developed by sales.
o Shipments (green arrow): The sum of the shipments (typically called sales) that have happened (actuals) or are planned. In this case we are showing the constrained shipment presented at the executive S&OP meeting.
o Backlog (blue arrows): The aged backlog is a snapshot of the current open customer orders, based on the month you have promised them. This is a picture of your customer commitments. The total backlog plan is a forward projection of backlog based on bookings and shipments (previous backlog plus bookings minus shipments equals new backlog). Projected backlog should reflect plans to reduce or increase lead-times.
o Supply (red arrows): The current Supply plan is the sum of actual production (M0) and planned production (M1+) for each month. The plan is production’s commitment to a build quantity. This is constrained by the capability for this family. Planned increases or decreases in capability should be reflected in the capability line.
o Inventory (yellow arrows). The calculation for each months ending inventory starts with the current inventory and projected with the following formula: ending inventory = starting inventory + supply – shipments. A balanced plan should hold inventory below the target level and above zero.
Good data is critical for making S&OP worthwhile. Knowing where it comes from and how to use the information to support the plans is one key way that can make your S&OP a more effective process. See the Executive S&OP: Best Practices to get a full picture of what an ideal process should be like.
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.
Our training provides participants of S&OP the support and guidance to effectively execute S&OP and get to the true story of the business. Let us help you unlock the power of S&OP in your organization. Reach out to us.