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What S&OP is Not – Part 2: S&OP Is NOT a Real-Time Decision-Making Process

Clock in a warehouse, not a real-time process

“What S&OP Is Not - Part 1", introduced three topics or ideas of what S&OP is not:

  1. It is not a tactical process; it is a management process.

  2. S&OP is not a real-time decision-making process.

  3. S&OP is not a magic bullet.

That article covered how S&OP is not a tactical process. Executives must be involved to make it a management process, and the 5 Section Sheet provides the tools to ask the right questions. Next, S&OP is not a real-time decision-making process.

In some technology circles there is a push for something called “real-time” S&OP, in which a monthly cadence no longer makes sense. The ability to create real-time dashboards and control towers that show data at a moment’s notice means decisions can be made on the fly, and there is no need to step back monthly and look at the plan. After all, who wants to be locked into a plan that was created 30 days ago, when the world may have changed in those 30 days? We want to be nimble; we want to react.

There’s been a push to move from the traditional view of S&OP, where it sits at the middle of the planning process as a separate but connected planning step. Defined inputs and outputs allow this traditional view to occur on a monthly basis. The push with technology is to move to a more integrated approach, where S&OP, demand planning, and production scheduling are all being done in a continuous loop all the time. Companies can react and re-prioritize on the fly, and the three planning processes are happening at the same time. Changes in demand or supply issues can then be addressed all at once.

While it is important to be able to react to what’s happening, it is more important to establish operating parameters or operating strategies beforehand that clearly show whether to react or not.

S&OP needs to be the step back from the day-to-day operations that looks at what has happened and ensure the daily decisions are still driving in the right direction. This can provide parameters to make these decisions. If a customer asked for a large order to be delivered in 5 days, does that mean the plan should change right now? The answer may be yes or no, but the person making that decision should be clear on the parameters for that decision and be held accountable for making the right decision.

S&OP process

Looking at this diagram, the S&OP process informs (or sets the parameters for) the demand plan and the production plan, but also takes feedback from those processes to identify what must be changed in the plan. The feedback loop validates the accuracy of the plans. This provides useful questions to ask: If the plans are not accurate, what happened? What assumptions need to be changed in the next plan? What buffers are needed between demand and supply to meet strategic objectives? Do the plans need to change going forward?

This type of step back and evaluation of the plan can’t be done in a real-time decision-making process.

First, looking at things on a weekly basis means details are sorted out into smaller and smaller buckets. The smaller the bucket, the harder it is to look further out. Daily variation or noise will always be greater than the average over time. If the planning buckets are smaller, the natural tendency is to respond to any immediate differences or issues. If orders are down today, there is pressure to change the plan right now. This leads to reactionary thinking instead of proactive.

Secondly, even though the plan can be redone quickly, that doesn’t mean the entire organization can react or keep up. This is “the illusion of flexibility”. Plans can be flexible, but in most cases, the lack of flexibility in execution constrains the plan. Most manufacturers have a certain amount of inertia in their supply chain, whether this is component lead-time, production change over issues or fixed short-term capability. Understanding what flexibility is available, and the role that the planning horizon has, establishes the parameters that must be operated within.

This should be the role of S&OP, to set buffers (inventory, lead-time, upside flexibility) to manage the variation within the frozen planning horizon.

Finally, a real-time decision-making process is not necessarily a learning process. To learn as an organization, take a step back from the day to day and look at decisions, data, processes to understand what should be done better. This requires the look back AND look forward that S&OP provides. It requires data to measure the plans against the actuals, documentation of assumptions, and the proper level of detail that engages senior executives without overwhelming them.

This is why S&OP is not a real-time decision-making process, but instead something that requires planned execution, and flexibility throughout the organization.

If you missed part one of “What S&OP is Not”, read it here. Subscribe to receive our newsletter, “The DBM Executive”, so you can get notified about part three, “Why S&OP is not a Magic Bullet Process”!


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