S&OP Process with analytical approaches
S&OP stands for the term “Sales and Operations Planning” , where in general the sales and accompanying operations are planned for the upcoming periods. Usually it is a monthly process and as it is understood from the name ;the process needs the participation from sales , marketing, planning and operations teams as minimum (finance management , top management.. etc contribution is also preferrable).
Throughout the process , the teams generally work on the expected sales within the coming periods , the items to be phased in and out , marketing activities which could effect sales , excess / lacking items in the stock, supply plan to cover the expected sales and constraints on the supply which are notable.
In general , the responsibilities of the team can be distributed as follows:
-S&OP Manager facilitates the process rather than taking responsibilities to define the demand or the supply plan. The main responsibility of this person is to keep the process in line with the deadlines , to motivate the people to participate and to keep the focus during process just on the related S&OP issues.
-Sales manager brings the expected sales amounts from the market , market conditions for the items, important customer expectations. In general sales managers are responsible to create the sales estimations as an input to the process.
-Marketing manager provides the campaign plans / prices as an input to the process and it is necessarry to make the consensus sales forecasts with the marketing manager.
-Operation manager checks if the expected demand can be fulfilled by the capacity and arranges the capacity changes where there is flexibility to do.
There are 5 steps through the S&OP process and some analytical methods which can be used during the steps:
All historic sales , delivery data and additionally current orders, prices , campaigns and if possible numeric and valuable competitive analytics to be prepared during this step. Here the most important point is the prepared data should be sufficient to answer the questions regarding the expected demand; however should be precise, unique and short as much as possible.
To have smooth data gathering process , ERP and other reporting tools should be used effectively.
Within this step , the baseline sales forecast is created. For the later stages it is better to do this forecasting on an item level instead of item group level. It would be more effective if you start with a prepared planning strategy (segregate items into groups Make to Order or Stock ..etc) as is defined in the link Make to Order or Stock?.
After the mathematical creation of sales forecasts, it is necessary to review the items by the market information and verify the generated numbers and change where necessary. This step should be done by sales and marketing teams. Please keep in mind this forecast should be unconstrained demand as in the next steps the constraints will take place.
Mathematical sales forecasts can be easily generated and maintained by using anaytical tools. It is important to check if the tool that you are using is able to model based on basic statistics dependant on past sales as well model based on regression or even neural networking models.
2)Supply Calculation :
This step should be handled for each production plant / line . In general many sales units have items on common production lines therefore making the supply plan based on production line is non-trivial. Within this step , the required producton capacity ,manpower and raw materials are calculated and where inadequecies occur , this shoud be conducted in the Supply & Demand Balance meeting.
To be able to calculate the supply , safety stocks and batch sizes should be calculated depending on analytical methods to prevent from excess stock on hand. There are numerous methods to calculate the safety stocks static or dynamic and different algorithms to calculate the production (or ordering) batch sizes to work on minimum costs. The outcomes of optimized batch sizes and safety stocks should be an input to the MRP run.
3)Supply & Demand Balancing :
This step should practically be organised as a face to face meeting where the capacity bottlenecks and/or excess capacities are shared with the sales teams. Possible outcomes of this balancing is product prioritization where capacity bottlenecks occur , information to customers in case of expected late deliveries or additional sales activities to push the sales where excess capacities take place. Therefore it might be valuable for finance people to attend this step as well. As a general output , a Master Supply Plan (or preferable even weekly plans) is signed off.
To balance where supply and demand does not match, pricing algorithms can help to figure out the right sales prices where your company create the highest yield. Additionally , prioritization algorithms to create the production sequence as well , some level of Detailed Production Scheduling methodologies can be used.
4)Executive (Strategy) Meeting:
In this meeting , the top management should be presented with the summary figures showing the estimated sales and production volumes (on business unit,market,plant..etc) and early warnings should be communicated to them clearly. And the top management should precisely comment on the coming period expectations to the team rather than trying to change the already agreed plan. The agreed plan, later stage expectations and up to date figures should be renconciled with the targets and budgets, and tactical level actions should be communicated. It would also be motivating for the S&OP team to hear from the top management about the strategical actions (like running new plants to cover capacity bottlenecks ..etc).