Author : Vatcharapol Sukhotu, PhD
Ref: Bangkok Post Published 27/02/2013 section: Business

Sales & Operations Planning (S&OP) has become mainstream these days but many organisations still do not execute it very well. In the beverage company with which I am working, we have found much room for improvement. We thought that sharing some of our observations might help other readers to think about their own processes.

For S&OP to be effective, we first need to recognise that it is a process, not just a single meeting, and it must be sponsored by top management, who must also attend the S&OP meeting. If carried out properly, S&OP should provide the agreed plan that helps ensure that supply meets demand.

In our case, the process simply was not what it should have been. Although there was an S&OP meeting, it was really just a pre-S&OP meeting, where Marketing and Sales simply asked Production whether it could support the adjusted plan prepared by the marketing and sales people.

While the team that prepared the plan might have taken production constraints into account, it did so without full collaboration with Production.

Papers to be read in preparation for the S&OP meeting normally are sent to the functions involved ahead of time. However, there is no clear expected output or action. Therefore, the whole process is really just one team generating an adjusted plan according to the inputs from demand and supply sides, and then presenting it at a meeting to determine whether or not the plan can be followed.

Many times in the meetings, disagreements or issues arise about which decisions cannot be made. This is because the top management from each side does not attend. Unresolved issues are then taken to the respective top management afterward; some issues get resolved but many times there is no resolution and each side just ends up following its own plan.

We do have a capable team responsible for preparing the adjusted plan. It understands the concept of supply chain planning and how to balance supply and demand. It simulates the plan with different what-if scenarios _ how much of each group of products at the aggregate level will be produced, where, and for what market _ with the objective to select the minimum-cost plan.

There is a process in place to adjust the aggregate plan monthly, starting from the beginning of every month when the responsible team will canvas related parties to first adjust the demand plan, and then gather information about any supply and production constraints. Then the team goes about its normal business of simulating the plan. It is then shared among the involved parties leading to the monthly meeting.

So what is missing and can be improved?

Although it seems like there is collaboration, in fact the responsible team can only gather information from each side and then generate the adjusted plan. There is no real participation or sense of ownership for this monthly process from the involved parties. For example, Sales and Marketing provide information about any marketing plan or change in demand, and Production provides information about supply and production constraints. However, do they really feel that it is also their job to have to try to work together to come up with the plan that will work for both sides? Basically, they wait for the responsible team to work out the adjusted plan and they attend the monthly meeting just to seewhether it will work. There is no clear expectation from each side participating in the process.

The top management from both the Sales and Operations sides do not participate in the monthly meeting. They just ask their managers afterward if there were any problems. In addition, apart from the president, there is no clear management position who can make a call if there is an unresolved issue. The result? Many times unresolved issues remain unresolved.

There is no company policy to support the S&OP process. Often there is an agreed plan, but each side does not necessarily honour that agreement. For example, a plant keeps producing the goods that marketing already has in ample supply in the warehouses. Why? Slowing down or switching production impedes efficiency. Clearly there is a need for incentives, such as the right key performance indicators, to be aligned within the company’s supply chain.

 

One reason why collaboration is still limited is the time it takes to update the forecast and the demand plan. The responsible team needs days just to gather sales data from various sources. The company has an enterprise resource planning (ERP) system but it is not the only data source; all data from ERP has to be run through another program just to generate the first-cut forecast. The resulting information is exported to yet another program to perform a simulation of the production plan. Finally it is exported to a spreadsheet program for others to look at. This is a burden on the team which discourages it from making monthly adjustments and hence hinders collaboration.

Therefore, enabling information technology will help improve the S&OP process. In the future we will discuss the IT and other changes needed to make the S&OP process in this case better.

 

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