There has always been a missing link between the demand side and operational and production side of most manufacturing companies. The symptoms of a company without a strong link between supply and demand include over-producing products that end up sitting on the shelf, failure to deliver products that are in high demand, poor customer service, and the inevitable finger pointing between the sales and operations.
Sales and Operations Planning (S&OP) is the missing link that puts operations in sync with market demand and drives down inventories and lead-times while improving customer service.
The S&OP process brings together all known market information, translates it into product families relevant to manufacturing, compares that demand to planned production and creates a clear picture of how these two factors will ultimately drive inventory and/or backlog. The process presents this information in a concise, user-friendly format to enable company executive management to make informed decisions about production levels. Companies utilize this tool to manage and control how middle management allocates resources such as materials, capacity and personnel to best meet demand, thus bridging the gap between what the market wants and what manufacturing is producing.
S&OP is an ongoing process that drives a monthly meeting where executive management teams use the information to make decisions about the next month’s production levels and resulting inventory and/or backlog. The result is a production plan that provides specific guidelines for the company’s master planners, schedulers, etc. and ensures that everyone is working with the same plan.
One of the main advantages of S&OP is that it doesn’t require a sophisticated computer system or special software. S&OP utilizes data and information that already exists at most companies. Taking this information and compiling it in a spreadsheet is all that is needed from a technical standpoint. S&OP is 90% business process and methodology, and only 10% information systems technology.
The process eliminates the usual month-end postmortem of finding out what went wrong and why the results didn’t meet the plan. S&OP enables management to be proactive in adapting to changing markets and demand and enables everyone in the company to actively adapt to these changes. Companies that practice Sales and Operations Planning have much better control over their resources and how they service their customers. Inventories are lower, backlogs are managed to meet the customer’s needs, customer service excels, and the company spends far less time in crisis mode.