Updated: Oct 19
In the first installment of this series, three topics or ideas of what S&OP is not were introduced:
S&OP is not a tactical process; it is a management process.
S&OP is not a real-time decision-making process
S&OP is not a magic bullet
The second article discussed how S&OP is not a real-time decision-making process, and how most companies make the mistake of believing it is.
Lastly, S&OP is not a magic bullet.
Having an S&OP process won’t magically fix all the issues in a business. In most cases, S&OP starts to highlight other processes that need to be fixed or cleaned up.
S&OP sits in the middle of the planning hierarchy between strategy and execution. As such, S&OP informs and is informed by demand planning, and it is informed by and informs production planning and master scheduling. This is shown by the arrows in the diagram below:
The plan is developed and then executed. Of course, real life gets in the way and things don’t happen as planned. You have to adapt. The point of comparing actuals to the plan is so that the organization can learn how to make better plans, how best to set up the parameters for success.
Tolerance levels help highlight where the process is out of control. They don’t fix it, they highlight it. Then you need to fix them.
A good example of this is master scheduling. Do you have a good master scheduling process? The monthly process has a measuring stick to see if you can actually lay a plan one month out and deliver on that plan. If the process is out of tolerance as in the example S&OP sheet below, where one month is above plan (green outline), and one month is below plan (red outline), then the plan isn’t being delivered within the month.
This example is interesting because this particular business is running almost entirely to backlog (in the shipping plan, month one's (March/M1) 4,458 shipments are entirely made up of the 3,934 backlog scheduled for that month plus the 524 past due). This means going into the next month, they know how many units are needed to produce, and they actually have the orders for all of these units. If the plan isn’t delivered to, this is a matter of execution. The process only highlights that there is an issue.
The other area where disconnects in the execution process often arise is the management of backlog, specifically past due backlog and the process to establish promise dates. In this situation, it’s not unusual to see a large number of orders in excess of the shipment plan. S&OP data, if presented right, will show disconnects between these processes and disconnects between the shipping plan and backlog as well. Once again, the process should highlight the issues, and then they need to be fixed.
Everyone wants to focus on the results from S&OP but results only come from doing the right things. S&OP is about driving the predictability of demand and predictability of supply, THEN setting your buffers to manage within the unpredictable level to achieve your lead-time and capital goals. To get results, you need to do the right things, then do the right things better until the desired results are achieved.
So how does this work in S&OP? This is where measuring for success comes in. There are three levels of measurements to break through this issue, and companies should consider measuring their progress in S&OP at three levels.
First, start by measuring the process. Do you have the right data? Are the right people participating? Have you made this a monthly repeatable process? What is the organization struggling with? A standard process measurement for this covers these three main topics.
Second, are we getting better at what we do? This is the effectiveness measurement. Is performance in or out of tolerance? Are we getting better at putting the plans together? Are we more in control? This only comes from fixing the causes of being out of tolerance.
Third, only by improving your effectiveness can you get results. KPIs such as on-time delivery, inventory turn improvements, and reduced freight expedites will only happen if the S&OP process is connected to the execution processes. It must be used to prioritize and fix the challenges within the business. Doing this will get the results. This is the third level of measurement. While everyone wants to measure right away, results will take time.
That is why S&OP is not a magic bullet.
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Lastly, check out our videos on Youtube for more helpful explanations.
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At DBM Systems, our consultants have over 20 years of experience providing S&OP leadership to businesses worldwide. We equip teams with coaching and the tools to quickly start and sustainably run an effective S&OP process. Learn about our process and unlock the power of S&OP in your organization.