When thinking of S&OP measurements, people often jump to business results, whether it’s growth, promise date service level (PDSL), request date service level (RDSL), or trying to improve inventory turns. This is more specific to what type of business you have and what you are trying to drive for and are not necessarily standard measurements.
Metrics for S&OP start at the family level rather than the broader business level. This allows you to tie what you are doing from an S&OP standpoint to each family, and what you are driving from the strategy to that family result.
It is also important to establish a baseline when you are getting started. Look at where you are now, where you want to get to, and use this to make sure you are driving towards the results you’re looking for. Then you can do this monthly and include your objectives as a part of your S&OP meeting.
There are two measurements you should be including in your S&OP process.
1. S&OP Process Measurement
2. S&OP Effectiveness Measurement
The S&OP Process Measurement validates that you are adhering to a regular, standard, repeatable process. It shows if your process is becoming part of your management structure or company culture. We recommend using a scorecard to evaluate this.
There are three things that are a part of the process measurement.
1. Participation
Is the right participation happening? Do you have the right people attending the right meeting, and have the right accountability and responsibility?
2. Schedule
Is the process happening as scheduled and laid out? This is often a good indicator of how important S&OP is to your management of the business. You always have to report financials at the end of every month, it is not an option. The same thing goes for S&OP. Are the meetings happening with the right people in them on a monthly basis?
3. Data
Do you have the data to support the S&OP process? Are you getting that data in a timely manner before the S&OP meeting?
These three points are your S&OP Process Measurement.
The other standard measurement is the S&OP Effectiveness Measurement. Is your process becoming more effective? Overtime, this should be the case. This measurement shows if you are actually improving the accuracy of your demand and production planning process, and if you are reducing the volatility of that plan as you go forward.
How do you do that? Start by setting a tolerance level and measuring actuals compared to the plan. If you are out of tolerance, find a root cause. You are looking to improve the process to get it within tolerance. Once the process is in tolerance, begin to measure volatility. How much should you change the forward-looking plan? How do you reduce that volatility and push it our further?
This will provide you the S&OP Effectiveness Measurement.
So, before you start, make sure you have your metrics broken down to the family level, and track your objectives monthly. Next, use the S&OP Process Measurement, in the form of a scorecard, to highlight what needs to be improved. Then use the Effectiveness Measurement to see if your process is in or out of tolerance, and use the root cause to reduce volatility and improve effectiveness.
Doing this, you should expect those business results.
Learn more about our Meeting Scorecard and how to integrate it with your S&OP Process.
Also see our article “If you can’t measure it, you can’t manage it” for in depth detail on how to create an S&OP Effectiveness measurement.