10 Feb Sales and Operations Planning: Aligning Strategy to Execution
All too often, Sales and Operations Planning is implemented with a narrow vision: “Keeping Focus on the Big Picture and letting the details sort themselves out”. After all, the key players in the S&OP process should be focused on determining the overarching company strategy, priorities, objectives and vision. The goal at that level is to ignore the “Hot Issue” of the day, week or month and focus on the long term to mitigate the impact of any short terms concerns. In theory, this works out, because a better long term plan transitions into a better short term plan. In practice, this is rarely the case.
So how does a good long term plan become a lousy short term plan? Why does capacity look great in the long term, but is always constrained in the short term? Why are inventory levels so high in the locations with the lowest sales volumes? Why are we always producing exactly the wrong product and filling our warehouses, but shorting our customers? Now, obviously, there are a multitude of reasons these things happen and a solid S&OP process will never solve all planning and execution issues – it’s just the nature of the beast. However, many companies with good long terms plans consistently find that they can’t execute to those plans. They just can’t seem to effectively transition their long term strategy and objectives into an efficient short term plan that’s attainable.
One thing that we consistently see at clients is that the S&OP process is executed in a non-integrated fashion and that the Company’s strategy, priorities, objectives and vision are not communicated effectively, if at all. The result is that all of the hard work and effort that leadership has put into the long range plan, falls apart in the short term Without a clear understanding of the companies objectives, the person making the decisions in the warehouse or on the shop floor will do what’s best for them or their department (and really, why shouldn’t they).
So what’s the answer?
The first question we ask when we review a client’s S&OP process is “How does the person doing the work know what the company’s strategy is?” How do they know that because of corporate initiatives to penetrate new markets, one product group takes priority over another? How do they know that certain customers have priority over others? Does profitability and margin trump volume? Most often the answer is “Well it’s what we decided in S&OP” which doesn’t help the person on the floor much.
We then look at the tools they use to distribute the S&OP plan out to the company. Often it’s published in meeting minutes and pushed out to the interested parties. While this is better than no communication, it’s often just ignored or is so vague that the users can’t digest the information in a meaningful way.
Utilize APO to communicate priorities.
The approach we recommend is to translate the strategic outputs of the S&OP plan directly into APO so that the users of the system can quickly and consistently make decisions that align directly with the long term plan. In this case we’re not just talking about demands, capacity and production volumes, but rather the strategic priorities of customers, product lines, markets, volumes, profitability or any other corporate objective. This takes an integrated approach that is aligned across all planning functions, Demand Planning, Distribution Planning, Production Planning and Detailed Scheduling and Deployment. The Detailed Scheduler should be able to quickly understand where each order stands in relative priority based on corporate strategy, and they should be able to see it directly in APO. They can then make decisions about inventory, capacity and schedule adherence based on those priorities. The same thing applies to the Distribution Planner, the Deployment Planners and the Demand Planners. The overall objective is for planning to be consistently executed across planning functions and priorities consistently adhered to.
So this is easy to do in APO, right? Well the answer to that question is “not really.” Although APO does provide a master data structure to stratify a product or customer that allows for prioritization, it is often not comprehensive enough for a modern supply chain. Production, Inventory and Deployment decisions are usually more complex than a simple matter of defining a single priority – when multiple conflicting priorities are the norm and not the exception.
What’s really needed is for the strategic initiatives to be presented in a way that follows the strategic initiatives of the S&OP plan. Normally this means additional master data for product groups, customer groups, product lines, markets and other groupings. These groupings need to align with those utilized in S&OP and support the business and industry. Once the data structure is in place, there will be developments and configurations to insure that the data’s presented to the planners in a timely and effective manner to facilitate consistently aligned decision making at all levels. Finally, the process must be put in place to maintain and support ongoing shifting business objectives in alignment with S&OP.
This is not an easy process to implement and maintain, it takes commitment and resources at all levels of the organization and ownership by senior leadership is critical. However when done correctly, the results are a more cohesive supply chain, lower costs and better service to your customers.