Over the past several years, APICS has been expounding on and explaining the Sales & Operations Planning technique. APICS has a long definition of the S&OP technique in the 14th Edition of the Dictionary. In this definition it uses the word “process”. This word is probably the most important, and yet the most misunderstood, term in the definition.
When the S&OP process was first promulgated, and as APICS and management consultants began to extol its use and its virtues, many companies grabbed this process and misapplied it to their operations. Many manufacturing firms simply used S&OP as a glorified Master Scheduling system with “improved” forecasting techniques added to it. In at least one case in which I was familiar, the S&OP process was compiled and managed by a secretary. Senior management reviewed it, blessed it, and then it was sent out to the production managers. The production managers promptly ignored it and flew by the seat of their pants as they had for 20 years. Needless to say it was worthless and the company suffered.
S&OP is a process used to create tactical plans for all operations that conform to the strategic direction set by senior management. This direction encompasses not only manufacturing operations, but marketing and sales, finance, and supply chain management. S&OP brings together information from all areas and disciplines in the company to formulate an integrated set of plans that drive all activities in a coordinated fashion toward established strategic management objectives. Note the words, “strategic” and “tactical”. The strategic direction (set by senior management) is applied in a coordinated fashion to create tactical plans for operating departments. The operational departments report back their results for comparison with the strategic expectations. The information flow is both down, and up, the organization; and this information flow is constant.
The S&OP plan is reviewed and modified, or enhanced, at least monthly. Regular reviews are necessary to monitor the performance and make adjustments in a continuous improvement mindset.
Let’s look more closely at the S&OP process. This article is simply an overview of key principles that should be considered when you implement the S&OP process.
First, it is of such importance (or, should be) that its preparation and review should be of the highest importance to senior management. They may not be the ones to assemble the plan, but they most certainly have the responsibility for its success and application.
Second, the S&OP should include important measurement parameters. These measurements may include as many as ten to twenty different parameters and the data for these measurements should be quickly and unambiguously collected. A wise consultant once said, “If you can’t measure it, you can’t improve it.” This axiom applies to the S&OP process.
Third, the S&OP meetings should follow a standard agenda. The team should first confirm the actions that were set in the previous meeting. Then the S&OP team should look at the measurements of the past month’s activities. Were there deviations from the planned actions? What caused these deviations? What corrective actions should be taken to return the business to its course? These questions and their answers will typically generate action items for different departments or team members. As with all action items, a scope of work, a deadline for completion, and a responsible individual should be assigned for the action. The team should be prepared to review the action items for their completion at its next meeting. Or, if it is time critical, at a specified date for review. If the S&OP process is so important to the strategic success of the company, the action items should not be left to chance, or to casual interpretation.
Fourth, the senior management should be presented with a summary of the S&OP meeting. This senior management review should be conducted at least one day after the team meeting. There is no justification for delay in presenting the meeting results. The senior team must be allowed to assess the risks, opportunities and resource requirements for the forward-looking plan.
It is helpful to set up a regular agenda and format for the S&OP team meetings and their senior management meetings. This agenda allows for a consistency of presentation and makes it easier to avoid omissions.
The process of developing and maintaining an S&OP plan can be a powerful tool to improve the success of the business. Its application should not be left to chance or casual implementation. If you don’t think it is valuable to the company’s success, then don’t bother to implement it.
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