What exactly is Sales and Operations Planning?
Sales and Operations Planning is widely deployed by an array of consultants and software vendors. The premise is that it is led by senior management, on a monthly basis to evaluate revised, time-phased projections of supply, demand, and the resulting financials. It's a senior management decision-making process that ensures that the tactical plans in all business functions are aligned and support the business plan.
S&OP is a methodology used by manufacturing organizations to execute their business strategy. The specific steps within the plan focus the executive team on:
(1) the forecasted demand for current and new products and
(2) the constraints on the organization’s ability to produce product to meet this demand.
The plan, developed in a monthly S&OP executive meeting, ensures that demand is synchronized with supply, so customers get the product they want, when they want it, while inventory and costs are kept to a minimum. The chief success metric of the process is the accuracy of the monthly forecast. SOP proponents make no apologies the process requires significant time from everyone in the organization on a monthly basis.
Sounds Great! So Seradex ERP supports Sales and Operations Planning, right?
Well actually ... No. The process as defined above would be more accurately named GOS/GOC i.e. Guess our Sales and then Guess our Capacity.
Which of the following choices will make your company more successful:
A) Spending hours on spreadsheets to compile detailed guesses of what sales could be by SKU every month.
-or-
B) Spending time selling your most profitable products to your most profitable customers.
Believe it or not choice B was selected by over 99% of our studio audience! However, SOP proponents would argue that this flood of new business would result in capacity problems, late deliveries and extra chaos for the organization.
Japan has long been known for its manufacturing prowess. You will look far and wide in Japan to find anyone using SOP. The focus is on massive continuous improvement in every area of operations. Japan uses the principle of Takt Time to raise and lower production rates to match customer demand. Takt Time is the rate at which the customer buys your product. If your customers buy 100 units per day than you should manufacture 100 units per day. If demand increases and your customers start to buy 120 per day can you guess what Takt Time would recommend? Thats correct - increase production to 120 per day. If demand drops to 80 per day then decrease production to 80 per day.
What else is wrong with SOP?
The monthly cycle of traditional SOP is a real problem. Todays business needs to operate in real time with accurate information. Your largest customer needs a rush shipment - do you really want to go through a process where you update your spreadsheet with the new requirements and bring it up as an agenda item at next months SOP meeting? Suppose the sales rep at your competitor can instantly run a what if simulation on her laptop and immediately confirm the delivery date? Who will get the order?
Seradex believes that incentives to maximize profitable sales are a more effective approach then incentives directed to achieving forecast accuracy.
So what is the Seradex solution?
Well we do have our own version and approach to SOP. We call it the
SSOP - Seradex Sales and Operations Planning. The SSOP process is:
A) Your sales folks focus all resources to selling your most profitable products to your most profitable customers.
B) Customers receive Accurate Delivery dates in real time as orders are placed. These delivery dates are calculated using existing plant capacity and vendor delivery schedules.
C) Vendors receive updated demand requirements in real time.
D) Operations gets a real time production schedule to adjust and run what if analysis.
E) Operations is continually working to reduce factory lead times.
F) Purchasing is continually working to reduce vendor lead times.
G) Orders lost due to long lead times are measured.
Seradex software has the make to order functionality to really support SSOP and help you grow your business.