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by Chris Chiappinelli, MA Editorial Staff Posted on Friday, February 02, 2007 11:09:46 AM   | Abstract: | The process of sales and operations planning, developed two decades ago, is starting to take hold among manufacturers looking to better plan for demand. |
When Larry Lapide began giving talks on sales and operations planning at seminars in the early 1990s, his informal audience polls showed that about 30% of companies had enacted the process. Nowadays, the research director at MIT's Supply Chain 2020 program routinely finds that more than 80% of attendees have implemented a sales and operations planning (S&OP) process. While Lapide's data may skew high — a 2006 study by industry analyst firm AMR Research found that 65% of companies have had an S&OP process in place for at least two years — there's no denying the trend. The traditional planning process of hopeful guesses and unexpected constraints is now giving way at most manufacturing firms to a more regimented effort to measure demand and adjust supply. But, while the basic concept behind S&OP is fairly straightforward, implementing an effective sales and operations planning process can be tricky. Manufacturers must first understand the five basic steps of an S&OP process, experts say. And they must find a way to get different functional groups — like production and sales — to work together smoothly. Finally, they must decide where and how technology fits into the S&OP picture. The heightened interest in S&OP owes to several factors, according to AMR. Mergers and acquisitions have forced companies to rationalize planning processes across newly acquired units. Contract manufacturing activities — both offshore and on — have also been a driver for S&OP, since extended supply chains demand longer, more complex forecasts. Other manufacturers cite a desire to improve sales channel response and customer service. In a nutshell, S&OP is an attempt to divine the future of demand and then plan for supply to meet it. A company that is able to predict a 7% surge in demand for its flagship product a few months in advance can avoid lost sales by increasing product volume. Likewise, if that company predicts that a competitor's new offering will steal 4% market share 12 months down the road, it can throttle back on production and pre-empt excess inventory costs. Or, it might choose to accelerate its own new product introduction to stave off the competitive incursion. History as a Guide The sales and operations planning concept was born during the material requirements planning (MRP) era of the mid-1980s. Dick Ling, then a consultant for the Oliver Wight Group, envisioned a process that would help companies align their manufacturing operations and resources planning with the anticipated demand for their products. Chris Turner, a colleague of Ling's who is now vice president of StrataBridge, a UK-based S&OP consultancy, remembers the early days of the discipline as groundbreaking. "In the early '80s, the production plan was separate from the sales plan, which was separate from the finance plan, so getting them together to talk about it was a breakthrough," Turner says. Turner and most other experts view basic sales and operations planning as a five-step process. In most cases it is broken into monthly blocks and capped off by a meeting of higher-level executives who attempt to resolve the main demand and supply issues of the month. In the majority of instances, the focus is on product families, not the individual SKUs that comprise the more granular mix level. In most S&OP processes, demand planning is the first step. This normally occurs just after the close of the preceding month, and involves updating a running file with the previous month's data on units sold, orders placed, etc. A forecasting engine then generates a statistical outlook that, in the words of Steve Hochman of AMR Research, is a "combination of actual sales activity and forecast history combined with other forms of market insight." That insight can come from data as disparate as weather predictions, the competition's plans, and anticipated customer buying patterns. Page : 1 2 3 4 ... NEXT |