If you are like me, when you first started really looking into S&OP, you realized very quickly that you were headed towards what felt more like studying to get your PhD versus getting practical advice on how to improve your planning and operations. It’s so easy to get caught up in the various levels of detail that CAN be associated with each step of S&OP. The truth is that S&OP can get that complex in some very large organizations, but it doesn’t have to be for the rest of us, and especially not in the beginning.

There is a large spectrum of manufacturers in the world, spanning the types of products they produce, their size, their revenue model, as well as their maturity as it relates to their processes and procedures. Due to the immense amount of variability, there is no “one size fits all” way of implementing S&OP. You need to evaluate where you are at with your planning maturity, start there, and then iterate on your capabilities with a process of continuous improvement.

No doubt you’ve heard of the Pareto principle (80/20 rule) which states that in many events, 80% of the benefit comes from 20% of the effort. The terms “benefit” and “effort” are often replaced with other terms to fit other contexts, but they work well for us in this case. The good news for SME’s on the lower end of the maturity or adoption scale is that they are on “good” end of the 80/20 rule at the moment and can likely make some simple and achievable changes now that will yield a relatively high amount of benefit. This is where the low hanging fruit comes from.

S&OP for seekers of “low hanging fruit”

There are three things that are table stakes for S&OP

1. Do Demand planning. Already doing demand planning? Do it better!
2. Do Capacity planning. Already doing capacity planning? Do it better!
3. COLLABORATE way more between sales, planning, and finance.

The low hanging fruit in “Demand” planning

Sales forecasts are the core of demand planning and should absolutely be the place to start if you are not already creating forecasts.

The sales forecast is the lynchpin of all other planning that occurs in the S&OP process. It is the plan that all other plans are morphed around to ensure that they can be executed if the sales are closed. Create a basic sales forecast that projects the quantity of products to be sold on a month by month basis. It doesn’t have to be complex, just products and how many of each you project to sell each month.

This can be in pretty much any type of tool that you have available to you, from a basic spreadsheet program all the way up to a purpose-built dedicated planning tool. If you are just starting out, something like excel is perfectly fine, although as you grow you in your maturity, you’ll want something a little more robust that allows for greater collaboration and documentation around the process.

One key but often overlooked aspect of accelerating your maturity in demand planning is documenting your assumptions. When you create or revise your sales forecast, it is good practice to accompany it with some form of documentation of the assumptions that you have baked into the forecast. This allows you to capture this valuable information so that when you review the forecast’s accuracy later, you can also review the assumptions that drove it and make adjustments on how those assumptions should be modified to improve future forecasts.

Once you have a basic forecast in place, you’re ready to see if operations can execute it and what changes they may need to make in their plans to accommodate.

However, a final way to quickly improve forecasts is to setup a recurring meeting as part of your S&OP process to review the previous month’s forecast, validate/invalidate assumptions, document learnings, and use this collective information to improve the next period’s updated forecast. This is a process of “continuous improvement” which I could and probably will write an entire article on, because it is critical to helping you improve you maturity with not only S&OP but your entire organization and represents the “low hanging fruit” of general operational improvement.

The low hanging fruit in “Capacity” planning

The forecast you created in the previous step is used for the main input for this collaborative planning with operations. Your planning/operations folks likely have a good idea as to what their capacity is on a daily, weekly, or monthly basis based on current labor and machine utilization. If not, it’s probably a good exercise at this point to put together some basic information around this. Once again, it doesn’t have to be complex, but you need to know how many of Widget A and Widget B you can produce on a daily, weekly, or monthly basis with some basic assumptions in place of how you work the mix between the widgets into the production schedule.

For each forecast period for the Sales forecast, your Operations planners should be able to figure out and jot down basic production plans to confirm whether they are able to satisfy the forecast with current labor and machine levels, how much additional capacity they may have, or if they would need to make some adjustments in the form of adding labor, extra shifts, or machinery to accommodate the forecast. Since we are talking low hanging fruit here, we’re going to assume that you are able to procure the raw materials you need to produce the forecasted quantities and won’t get into trying to optimize procurement schedules to reduce raw material inventory. However, as you mature with S&OP, this is another area that’s advantageous as it lowers overall cash usage and increases profitability.

At this point you’ve accomplished the following:

• You know roughly what we expect to sell month over month by product/family
• You confirmed one of the following
  • You can meet demand and still have extra capacity
  • You can meet demand and are at capacity
  • You cannot meet demand with current setup and need to plan on adding capacity or heaven forbid tell sales to stop selling so much

 

You now have options

If you have additional capacity, perhaps the next step for you is to get Sales and Marketing more involved to see if there are any actions that can be taken to fill the unused capacity. This can be building up inventory in advance of orders expected to come in later based on the forecast, creating promotions for specific high-margin products that you’d ultimately like to produce with your extra capacity, etc.

If you cannot meet demand with current capacity, then you should work together as a group to get creative in how you can add additional capacity. It’s at this point where you should be involving Finance as well to ensure that any plans made to add capacity fit into the Financial plan for the company.

There are many other ways you can use this information, but the important thing to point out here is that now you are being equipped with better information for demand and capacity, and this allows you to be more strategic/proactive in figuring out how to fill the gaps on either side instead of being tactical/reactive.

The low hanging fruit in “Collaboration”

Quite simply, plan collaboratively! People are the main component of making S&OP successful, and it is the collaboration of people from different parts of the organization that underpin its success. Simply bringing these people together to collaborate on sales vs production plans will drive a large portion of the benefit of S&OP, and especially help you grab the low hanging fruit that you are seeking.

Sales and Planners should be meeting regularly to ensure planners get a heads up from sales on opportunities and possible impact to demand. Planners should be talking to sales about unfilled capacity so that sales has the ability to improve the situation. Sales should be working with planners to come up with collaborative ideas of how to best fill up unused capacity and seek opportunities that represent higher margin.

Basic S&OP “Low hanging fruit” process

• Create a basic forecast of sales on a month by month basis (demand plan)
• Review sales forecast with operations to see how it aligns with capacity plan (supply plan)
• Determine adjustments that can be made either in Sales or Planning to better align the two plans
• Document plan and assumptions that went into creating the plan

Do this on a monthly cycle with regularly scheduled meetings where each month you review the previous month’s plan and document areas where the plan was inaccurate and incorporate learnings into the next month’s revision of the plan.

You can start an S&OP process with these simple activities, utilizing something as simple as excel. As you begin to realize some of the benefits, you will want to delve a little deeper and improve your capabilities to make forecasting more efficient and accurate, bring procurement and inventory management into the mix, and be able to slowly tighten up other areas of your business as you gain confidence in the accuracy of your plans.

How to mature

1. Document the process you implement and ensure all parties know how to access the documentation.
2. Setup recurring meetings so that all parties required can know when activities are occurring and can ensure availability.
3. Standardize the formats for sales forecasts and capacity plans so that they are easily digested by sales, planners and finance.
4. Streamline and automate data capture and forecast generation. Invest in tooling to make the process repeatable and automated to minimize time required to execute the process.

S&OP can be complex, but it doesn’t have to be. There is low hanging fruit out there for the plucking. Start small, get some wins, create a culture of continuous improvement and iterate from there. One day you may just wake up and wonder how you ever operated without it.