Article from IT Magazine on S&OP and Lean

Without doubt two of the hottest business practices around at the moment are:

  • “Class A” Sales & Operations Planning (S&OP) and
  • Lean Manufacturing

A simple “yahoo” search reveals the enormous number of companies implementing S&OP and Lean, and the benefits they are actually obtaining.  There is even an S&OP specific “self-assessment” checklist for companies to do their own evaluation.  Let’s discuss Lean in a future article and focus on S&OP for this article.

Sales & Operations Planning (S&OP) started out its life as Master Planning in the 1970s; evolving to Production Planning in the 1980s; and progressing to Sales and Operations Planning in the 1990s.  Nowadays, S&OP is increasingly being used to describe the all encompassing description given to the whole integrated business management concept that used to be called the following:

• Closed Loop Material Requirements Planning (no financials) – 1970s
• Manufacturing Resource Planning/MRP II (financial integration & simulations) – 1980s
• Enterprise Resource Planning(no change to the process) – 1990s
• Integrated Business Management (now also called S&OP) – 2000s

So what is Sales & Operations Planning?

“S&OP is a superior decision-making process that helps people in companies to provide excellent customer service and to run the business better.  It is a cross-functional process calling for Sales & Marketing, Operations, Finance, and Product Development to work together to develop an integrated set of plans that all of these departments can support”.

What are its ultimate goals?  Exceptionally high levels of customer service as well as profitable business results.

So how do you know if you are doing S&OP correctly?

The APICS Body of Knowledge (see diagram) may, in a pictorial sense, be summarised in the attached “plumbing chart”.  Why is it called a plumbing chart?  Well, like a plumbing system if the connections are not in place, the system either doesn’t work at all, or it works but it is a mess.

How does this relate to an effective S&OP process?  Well, the key is really in three areas:

• Each process illustrated on the Integrated management chart must be operating at a Class A level of performance
• Each process must be integrated to the correct process
• Software Tools must be in place to support the people and the process

The double headed arrows in the APICS “plumbing chart” represent; communication, feedback and performance measurement.  And, if we did an “ABC” analysis on what makes a successful S&OP project it would be:

• C Class item is the Computer and Software
• B Class item is Believable Data
• A Class item is the Attitude of the People

So the success of your S&OP process, and the supporting areas that make up a truly integrated business management approach, rests with educated, knowledgeable people who understand basic S&OP principles and determine where the software, can best support these critical processes.  This is the key differentiator today with S&OP processes not the software which most companies have in place anyway.

So if you have been struggling with S&OP, or are wondering why you are not getting benefits from your installed Enterprise Software, maybe you should benchmark yourself against world class standards and see how your S&OP process compares against the APICS body of knowledge.  You may come to the conclusion that you have simply installed software, rather than implemented a business philosophy.