(1) Backlog: Too much of something
We have a backlog of steel frames. It’s a waste of space and money. What happened?
(2) To control: To make sure something is at the right level
Inventory levels are carefully controlled. If they get too high, we lose money. If they get too low, we can be short of what we need.
(3) Planning horizon: A horizon is the farthest you can see. It comes from the earth. The horizon is the place where you can’t see further, the place where the sun sets.
Our planning horizon is four quarters. Beyond that, it’s more strategic plans than a careful process.
1. What does it mean to create a production plan in the context of sales?
a. Sales and production influence each other
b. Sales influences the production plan
c. The production plan influences sales
2. What is an especially nice benefit of S&OP?
a. Everyone sees how their decisions influence the company’s other departments
b. Everyone sees how planning influences finance
c. Everyone sees how they can contribute to financial decisions
3. What’s the tone of “we need to involve marketing in this”?
By Jeremy Schaar
Today on the blog you’ll learn about S&OP. You’ll also learn about some great links for further study. Finally, you’ll learn some real life expressions that you can use on the job.
S&OP means Sales and Operation Planning. What does it mean? Basically, a company decides how much they want to sell and how much they need to produce. S&OP is a process companies use to decide their manufacturing output and other activities in the context of the sales plan. Manufacturing output can also be called production plan. It decides production rates, controls inventories, and deals with backlogs. And everything should be done without too much hiring or firing. The planning horizon for the process is how far into the future the plan goes. To create a plan, companies use information from many departments: marketing, manufacturing, finance, etc.
Note two things. First, Enchange divides the processes between demand and supply. Second, everything influences everything else. This is key. S&OP is wonderful because it forces everyone in the company to consider all the parts. They’ll see how their decisions affect different parts of the company. For example, demand for a product influences finance decisions, but so does the actual production. It’s a big circle with everything influencing everything else.
For a successful S&OP, check out John Westerveld’s blog post at Kinaxis. He writes about six key elements.
1. Executive Commitment and involvement
2. S&OP is used to run the business
3. Accurate S&OP data
4. Solutions – not just problems
5. Scenario driven
6. Run effective meetings and keep meticulous minutes
On The Job
“ I am responsible for preparing our divisional S&OP plans.”
Use this sentence to describe your job. It’s a good one to use at a conference where you’re meeting new people.
“Our major suppliers and customers need to be a big part of the S&OP process.”
Here I wrote “major suppliers and customers”, but it could be anyone you think needs to be part of the process. This is a strong, clear sentence. It’s not polite, but it is very direct and people will listen if you speak like this.