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. Show 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. The Solution: The S&OP Business Process
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. Hitting the Bottom Line 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 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. The Solution: Enabling Stakeholder Collaboration Presenting the Performance Metrics in a Clear,Concise Manner Generating Intelligent,Optimized Data 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 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 What are the key features of implementing an S&OP process?The S&OP process can be broken down into six essential steps: data gathering and forecasting, demand planning, production planning, pre-SOP meeting, executive S&OP meeting, and the S&OP strategy implementation.
What is the key output of the sales and operations planning process?In fact, one of the main outputs of the sales and operations planning process is an inventory plan. But don't think of the inventory plan as a major objective of S&OP; it is more of an output or measurement of the supply-demand plan.
What are the 5 phases of sales and operations process?These include: Innovation and Strategy Review of the impact of new product introductions (NPIs) Demand Review of base-line demand as well as demand sensing and demand shaping activities. Supply Review of inventory levels and production capabilities.
What are the fundamentals elements in sales and operations planning?The chief goal of Sales & Operations Planning is to bring the three most essential but competing company's goals into line: customer satisfaction, inventory optimisation and sales productivity.
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