The term ‘Sales and Operations Planning’, usually abbreviated to S&OP refers to the practice of taking an integrated approach to production planning and sales forecasting, which helps businesses to balance supply and demand efficiently, and provide good customer service with minimum levels of wastage. As a term, S&OP came to prominence in the 1980s, when it was developed by the consultancy Oliver Wight, and popularised by proponents, such as Tom Wallace and Bob Stahl, who advised many highly successful businesses on how to implement it.
As with other ‘named’ management techniques we have discussed, such as Enterprise Performance Management (EPM), and Enterprise Resource Planning (ERP) (and many others…), S&OP emphasises the value of breaking down barriers between departments, and taking data out of silos and making it freely available to all who need it. In today’s world of shared databases and cross-functional teams, this should be a given, yet it is in people’s nature to want to keep control of their own data, and to be wary of sharing it with others who might misinterpret it. Furthermore, many people keep their data in spreadsheets, a platform they understand and can easily control, but which does not facilitate data-sharing.
Close and effective collaboration between departments is really the key to operating efficiently, as the output of one department’s planning is so often the input to another’s. If manufacturing doesn’t have access to up to date and accurate sales forecasts, then it will be unable to build the correct quantities, resulting in either costly surplus stock, or the need to run inefficient short production runs to make up a shortfall. If the supply chain does not have good visibility of the needs of manufacturing, then it, too, will have problems sourcing the correct volumes of supplies without creating large surpluses, or causing stoppages. Because S&OP requires the sharing of data and planning, it fosters a collaborative atmosphere between different departments. As a leading proponent of S&OP, Tom Wallace, put it:
Cross-functional collaboration is not a pre-requisite for successful S&OP; it’s a result. Improved teamwork is a natural by-product of S&OP. I tell people that if they’ve implemented S&OP and have not seen an improvement in teamwork, they didn’t do it right. It’s that simple. Enhanced teamwork follows successful S&OP just as day follows night.
Practitioners of S&OP typically talk about a formal 5 or 6-step process, encompassing forecasting/demand planning, supply planning and one or more steps to reconcile the two where there are mismatches.
For a smaller business, this is unlikely to be a rigid process and may well carried out by just one or two people. Nevertheless, the steps are still relevant: everything generally starts with identifying the demand for goods or services, followed by an assessment of the organisation’s ability to meet that demand, and finally a process to reconcile the two and address any mismatches. As Tom Wallace memorably put it: “Good S&OP puts the moose on the table”, by which we understand that it doesn’t necessarily remove all supply problems, but it does get them out into the open at an early stage in the planning process, giving the business as much time as possible to respond.
The data required for good Sales and Operations planning is no different from that which is in use in the organisation now. As with almost every other aspect of business though, more accurate, detailed and timely data leads to better decisions. Dirty data is a the enemy of good decision making - at best clouding maangement’s view of what is going on, and at worst leading to bad decisions.
To help with the supply of good data, automatic, systematic capture of information on a timely basis helps a lot. When a process relies on the manual input of information - e.g. copied from paper forms at the end of a shift - then you will have to assume a certain error rate. The design of input screens is also important: selecting from choice lists enforces consistency, whereas over-use of free text fields makes the data much less easy to analyse down the line. A widely-quoted rule of thumb assumes an error rate of 1%, but this masks wide variation, depending on the complexity and design of the process.
When data is stored, it is best to try to retain as much of the original detail as possible in the main system of record. Once information is lost, e.g. by aggregating to a daily or weekly total before storing, the original detail cannot be recovered. Better to record in full detail and then aggregate when reporting or analysing the data.
Finally, collaboration between departments makes for better decisions overall, but that does require them to use the same data: sharing what they are responsible for and trusting what has been provided by others. Of course, trust is a two-way street: those providing data need to have the systems and processes to ensure that the data they provide is trustworthy.
As discussed, spreadsheets are generally the ‘baseline’ tool of choice and, of course, are widely used. However, they generally cannot store information in full detail, and are poorly designed for collaboration. A properly specified tool based on a shared database (like Compas) makes all of these things easier.
Compas was not specifically conceived as an S&OP tool, any more than as an ERP tool or an EPM tool. It was designed and built from the ground up to meet a specific need: for a lightweight platform encompassing both planning and reporting, that can integrate with company systems and update forecasts dynamically in the light of the latest actuals. Compas encompasses forecasting, demand planning, supply planning and finance because that is the natural consequence of how it operates. It provides powerful analytics because that is what its users require. It can be used for things like S&OP, EPM and ERP, because ultimately these techniques are all aimed at delivering the same goal: enabling a business to operate efficiently and resiliently, which cannot be achieved without an integrated approach.
For large multinational corporations, there are complex (and expensive) tools on the market to deliver a tool specifically branded as an ‘S&OP’ or ‘EPM’ solution. However, for the majority of slightly smaller businesses, that might currently be relying on spreadsheets for large parts of their process, Compas represents the perfect solution: robust enough to handle all the detail and data required, but flexible enough to be easily tailored to their requirements. It is perfect for businesses that have outgrown their spreadsheet-based tools, but don’t want to spend a fortune, and thousands of man-hours, implementing an ‘enterprise-level’ solution from the likes of SAP or Oracle.
To understand more about how Compas can help you to implement an efficient Sales and Operations Planning (S&OP) process, contact us now for a free demonstration.