One of the most common problems facing manufacturers across all industries is the difficulty of effectively balancing demand with supply. Manufacturers are continually faced with the challenge of determining what to make, how much to make, and when to make it. When companies fail to meet this challenge effectively, they suffer a multitude of consequences.
Failing to balance demand with supply not only affects the entire manufacturing organization, but the complete eBusiness trading network as well. The plant may not have the right raw materials to meet production needs. There may be increased production costs due to unscheduled changeovers to meet unplanned promotional activities. Excessive and costly inventory may be stocked for discontinued or slow-moving items. Conversely, inventory shortages for new and promoted products may inhibit promotional programs. Stockouts may occur because companies failed to have the right product in the right place at the right time. And if there are frequent stockouts, it can lead to increased costs due to expedited orders or, even worse, permanent customer loss. Keeping demand and supply in balance is a constant struggle. The consequences of poor customer service, high inventories, cash flow difficulties, and failure to meet planned business goals lead companies in search of a process to better manage the delicate balance of demand and supply.
Sales and Operations Planning
Sales and operations planning (S&OP) is a business process that helps companies better manage demand against supply. The APICS Dictionary defines the S&OP process as "the function of setting the overall level of manufacturing output and other activities to best satisfy the current planned levels of sales, while meeting general business objectives of profitability, productivity, competitive customer lead times, inventory and/or backlog levels, etc." S&OP enables management to establish the desired levels of customer service, inventory levels, and production plans. More importantly, it guides the organization toward managing their business proactively towards optimal performance.
The S&OP Business Process
The S&OP process is rigorous. Held on a monthly basis, it includes representatives from most functional areas, including top management, sales and marketing, manufacturing, engineering, and finance. The goal is to reach consensus on the current status and future plans for each product family, for both demand and supply. There are four fundamental steps in the S&OP process:
The importance of preparation and information
gathering in the S&OP process often is
underestimated. The decisions made in
the meeting will only be as effective as
the information on which the decisions
The group will then review company performance goals to ensure a clear understanding of the corporate business drivers and goals. The team identifies the performance goals and discusses factors that may impact the goals, ultimately creating a business plan to meet these goals. The team then discusses market conditions that may impact achieving the goal, including economic conditions, seasonal considerations (i.e., flu season for a pharmaceutical company or snow season for a ski apparel manufacturer), competitor activity, and general trends in the industry.
The core of the monthly S&OP meeting is the next step in the process. Specific product families are discussed, including exceptions, specific concerns about meeting the specified goals, potential resolutions, and a projected plan. From a sales perspective, demand considerations are reviewed: What will be the future demand for a particular product family? What new products will be required and when will old products be phased out? What will be the demand for the new products? Do we need to stimulate demand to meet sales goals by increasing displays or promotions?
From an operations perspective, supply issues are reviewed: Are we holding excess/obsolete inventory? Do we need to push inventory (i.e., special promotions to deplete inventory, send inventory to discount store for quick reduction)? What changes do we need to make to our production plan including capacity and material considerations? What costs will be incurred? When should the changes be made? Will we incur increased transportation costs by changing production or distribution locations? What resources and time will be required to design, test, and manufacture the new products?
The last activity is to identify and agree on action items. If possible, the group should strive to resolve existing issues with existing data. Team members in attendance should identify and document new issues, assign responsibilities, and set resolution dates.
Longer-term action items involving analysis
that will take multiple meetings to complete
should be tabled for a later meeting. Finally,
the group will want to review future meeting
dates and the upcoming months' activities,
reiterating the importance of accountability
for the action items.
The meeting minutes are created and distributed.
Lastly, the new plans must be communicated
to other parts of the organization
that are impacted, including procurement,
research & development, engineering, etc.
In Sales and Operations Planning, recently published in APICS magazine, Mike Kremzar, vice president, product supply, customer services worldwide, at Proctor & Gamble, notes the benefits of the S&OP process. Krezmar states "The S&OP processes provide the data, the forum, and the measurement tools that lets these leaders continue to make good decisions for their brands, but now with full team understanding, including cost, inventory, and service impacts. The benefits from sales and operations planning have been significant and con tinue to grow. Some of our business units have experienced a 20 percent improvement in inventory with a 25 percent improvement in customer service levels while costs have decreased!"
The S&OP process improves measurements across functional areas. Following a sales and operations planning process enhances a company's flexibility to respond to customer needs and to ship on time and complete more often. Changes in production schedules can be made less radically, operating with less cost and less negative impact on the work force. Inventories and order backlogs can be managed proactively to support the company's delivery and lead-time objectives. Companies using a S&OP process have a more complete view of the business as forecast, production, inventories, and customer lead times are viewed simultaneously for a given product family and a given set of resources. Consequently, companies have been able to simultaneously improve customer service, reduce inventories, shorten customer lead times, and control costs.
Barriers to Success
Sales & Operations Planning must bring together three critical, interrelated activities: demand forecasting, sales planning, and operations planning - which often poses multiple challenges. To be an effective process, this collaboration must involve communication and negotiation between sales, marketing, purchasing, distribution, manufacturing, and senior management. The challenge is establishing a process to enable informed, collaborative decision- making that results in a balanced demand and supply plan.
Three common issues make creating an effective S&OP process a challenge. Companies must first overcome unproductive meetings. Many S&OP meetings are largely status updates. Representatives from the business areas use the meeting as a time to discuss general, non-critical information. All information regarding sales and operations that is not in conflict with the current plan should be disseminated and reviewed prior to the meeting.
The S&OP meeting should establish a collaborative environment, creating a forum to discuss and resolve exceptions to the plan. The second common issue is the lack of integrated, flexible planning and measurement tools to support continuous improvement. Often, data is from multiple disparate systems and may be represented in different time buckets and different levels of aggregation. It is not easily and quickly accessed, nor is it easily merged into usable management reports. Participants in the meeting spend an excessive amount of time retrieving the data and developing effective reports to be reviewed in the meeting.
The third common difficulty is a lack of accurate planning information. When a team is setting the overall level of manufacturing output and other activities to best satisfy the current planned levels of sales, it is critical to have particularly accurate forecast and resource capacity projections. Because of limitations in many planning tools, often the forecast and operations plan are unachievable given the available resources.
Manugistics NetWORKS S&OP
Manugistics NetWORKS™ S&OP gives companies the tools to enable effective Sales & Operations Planning. Successful S&OP should be viewed as primarily an organizational process, but essentially supported by a solution that enables stakeholder collaboration to develop a complete, integrated plan; presents the performance metrics in a clear, concise manner; and generates intelligent, optimized data.
Enabling Stakeholder Collaboration
NetWORKS is a web-based, collaborative solution that helps a company overcome the problem of unproductive meetings. According to Gartner Group in their article, Demand Planning in 1999: Context Matters, companies are advised to "seek browser-based interfaces for collecting S&OP feedback from casual users. This will lower the cost of ownership by cutting training and support time." Through a flexible user interface, NetWORKS S&OP provides real-time visibility across the organization to planning data created by NetWORKS S&OP optimization engines. Prior to the S&OP meeting, stakeholders are able to publish information for review, allowing the cross-functional team to focus on high-priority items that have the most impact on business goals. Additionally, modifications to demand and supply plans can be applied directly to the planning system for realtime, actionable results.
Presenting the Performance Metrics in a
Participating in an eBusiness trading network requires proactive decision-making and access to information. Measuring and analyzing network performance is critical to optimizing planning, execution, and collaboration activities. Adopting comprehensive performance measures and metrics is required for effective Sales and Operations Planning. The key to addressing such issues is leveraging an out-of-the-box solution designed specifically to provide quick, intuitive, powerful business metrics - greatly reducing pre-meeting preparation time. NetWORKS S&OP provides a host of analytical tools with extensive pre-defined S&OP measurements that enable decision makers to better understand past performance and leverage intelligence to make better decisions for the future.
Generating Intelligent,Optimized Data
For an effective S&OP process, planning information must be accurate. NetWORKS S&OP's optimization engines enable companies to leverage intelligence for real-time decision-making and to create realistic demand and supply plans to be used as the base data for the S&OP meeting.
The NetWORKS Demand™ component of the solution offers multiple forecasting algorithms in conjunction with advanced causal modeling to help identify critical factors that drive demand. Intelligent modeling accurately predicts future customer demand and allows for management overrides, all avoiding the costly mismatch of demand and supply. By including both market planning and demand planning capabilities, the solution links product mix, promotion, and price analyses with traditional demand forecasting. And, unlike conventional forecasting tools, NetWORKS Demand enables the simultaneous tracking and understanding of demand along multiple dimensions such as sales, marketing, and logistics.
The NetWORKS Master Planning™ component of the solution acts as the trading network 'command center,' simultaneously optimizing the use of constrained resources to improve customer service and profit while reducing asset investment. It also provides simultaneous optimization of materials, capacity, inventory, transportation, and distribution constraints across multi-site manufacturing, distribution, and supplier networks. As the command center of the trading network, NetWORKS Master Planning produces an optimized plan to allocate and coordinate limited resources based upon user-defined strategies. These strategies not only respect customer, item, and location prioritization, but also optimize to predetermined business goals such as increased revenue and improved service.
Better Decisions,Better Results
A key to successful Sales and Operations Planning is making more timely, proactive decisions. The time it takes to realize these benefits is critical to business success. NetWORKS S&OP, empowered by OLAP technology, yields quick, measurable results. In addition, the NetWORKS family of products is extendable over time and configurable, meaning that it can align with specific business processes. And because there are multiple interaction styles and information delivery modes, the solution supports an extended user base throughout any global trading network. NetWORKS S&OP empowers you to have the right information available, from a single source, for an effective S&OP process. Leveraging more than 20 years of experience in helping companies to make better decisions, Manugistics provides an S&OP solution that is reliable and quick to implement. NetWORKS S&OP enables an effective S&OP process by providing management by exception, synchronized, browser-based collaboration, and optimization, measurement, and analysis.
NetWORKS S&OP delivers tangible value, making it critical to a company's success and imperative to remaining competitive. Clients using NetWORKS S&OP to enable the S&OP process are benefiting today with decreased planning cycle time, increased inventory turns, reduced inventory shortages, improvements in customer service, increased gross margin, reduction in customer lead-times, and reduced production costs from making the right product at the right time.
NetWORKS is easy to implement, helps companies to realize near-immediate results, and, most importantly, delivers the power of intelligent decisions to the challenge of profitably balancing demand and supply.Manugistics