- Doug Dedman
Oh Sh*t, and Plan: Why a good Executive S&OP Process is More Important Now
Updated: Nov 17, 2022
A full, printable PDF version of this article is available here.
There is no doubt that we are facing a point in history where we have more volatile demand than normal. The global pandemic has impacted almost all sectors of the economy and disrupted demand patterns around the world. Most of the executives that I’ve been working with, or have spoken to, have said getting a good demand forecast for their business is their number one issue. They’re not just dealing with volatility, but also the uncertainty of future demand.
The interesting thing is that our gut reaction to volatility and uncertainty is to look at our plans more often. This seems like a natural solution: we look at our order inflow, sales output, inventory, and production numbers daily, trying to gain insight from the day to day fluctuation so that we can correct our plan. If we just look at them more often and have better data, we will be able to react better. Real time planning.
The problem with real time planning is that we are looking in the rear-view mirror. Just like in the 1976 film, The Gumball Rally, the rear-view mirror can become an obstacle if we want to move forward. Looking behind us means we are reacting to our current order position and dealing with our current inventory position, but by the time we have the data, the events have already happened. As one executive I spoke with recently said. “We look at the data and we have an ‘oh sh**’ moment! Then we redo the plan.” Planning looking in the rear-view mirror often turns into OS&P: Oh Sh**, and Planning.
What we really want is good S&OP not good OS&P. It’s not about our ability to react, it’s about our ability to plan. That all starts with the demand plan. The planning horizon needs extend far enough that we can plan operations; it needs to cover our lead times. We can set the flow rate (production) or, in the case of buy for sale, we need to set the inventory levels to buffer us between supply chain lead-time and customer lead-time. We then need to trust the plan.
Sales and Operations Planning (S&OP) will help you improve your demand planning AND ultimately run your business better. This is critical in times of volatility or uncertainty. You can be certain, however, that to get out of the OS&P trap your S&OP process must have the following characteristics:
The process occurs monthly: This may seem counter intuitive, but most businesses have some amount of lead time to make or buy product. What we can ship today, is based on decisions we made a month ago or more. These may be finished goods, purchasing decisions, component purchases, or staffing decisions for line run rates.
The process is done at the volume level: There are two types of uncertainty to demand forecasting: volume and mix. Volume is the aggregate quantity by family, and mix is the SKU or product mix within the family. You need to determine volume before mix. This may also be counter intuitive for some. If unsure, we have a tendency to ask for more and more detailed data from our customers to build a better demand plan. They are however, in much the same situation as we are, they don’t know. Asking for more detailed information may result in a more precise answer; however, precision isn’t the same as accuracy. Settle for the volume question first.
It presents a single story of the business: There should be a clear linkage between demand and supply and your available levers or buffers to balance demand and supply. This is done at the family level. We use the 5-Section Sheet to present the story.