Sales and Operations Planning (S&OP).
Let’s be very simple in describing this gigantic process at this very beginning because the only way to eat this elephant is piece by piece. There may be a lot of headaches, misses here and there without an automation of this process
Whenever you suddenly cannot find your favorite product in the market, you will discover that something has failed. So also when a distributor finds out that a company is forcefully overstocking him or her with wrong products or product that customers are not buying; something has failed! The big acronym “S&OP” comes to mind. It could be the Demand plan failure, Production, Logistics, Material or Finance failure.
Business is about making money and to be successful in it, business manager must be sensitive to the market or customers. One of the keys is about managing demand and supply. He or She produces the right products, sends them to the right place, at the right time, at the right price. The word “right” simply means “what the customers want”, “where they are”, “when they need it and at a price they are willing to pay”.
When we fail to plan; they say, we have planned to fail. This is true in business. The objective is to eliminate “out of stock” and “overstock” in the stores, to ensure proper inventory management. In other words, for the business manager to keep his game tight, he needs to manage the interplay of demand and supply. Ingredients like historical sales data, statistical forecasts, customer forecasts etc will help your planning.
What is Sales and Operation Planning?
Sales and operations planning (S&OP) is a business management process which aligns all functional areas in respect to demand and supply plan into a single consensus plan, usable by stakeholders from various departments to satisfy customers and to keep the business profitable.
This is about managing and panning for customer demand. To manage this plan, we need to understand the demand from customers. There are insights into this demand plan e.g historical sales data, statistical forecasts, collaboration with customers, making up of some assumptions like x% increase or decrease in demand. The expected x% increase or decrease in customer demand is derived from your next planned promotions/incentives and your competitors activities respectively. You can plan based on business units or territories, customers or products (brand, segment or sku). Consider also buffer stock, stock holding. Alignment meeting with all the stakeholders to seal up the plan is very key.
Considering the input from demand plan, the production plan will kick start it planning. This is the beginning of fulfillment of supply. The questions are: can we meet up with the demand? Do we have the production capacity? The production output will be a function of the capacity and efficiency of equipment in each plant. How should we handle the shortfall?
Based on the Demand and Production requirement, the Logistics planners define the trucking requirements with respect to the Truck Type, agreed Turn Around Time, the transporters, Load Size, Cost, Route mapping, Distance between the Originating Plant and the Destination. Building geo-fences of originating plants and destinations with effective tracking of trucks will make the distance calculation easier, will make significant savings.
Material Requirement Planning:
To meet the specified demand within the planning period, the planners plan for the materials needed by each plant, taking into consideration the Storage Capacity, Stock on Hold requirement, ReOrder value and the time it will take from when the material is requested for and when it will be delivered. An output Purchase Order is used by procurement department to bring in these materials.
This is what everything is all about. The cost of everything, material, logistics, Cost vs Revenue vs Margin.
I know this is compressed but will expand them one after the other in the subsequent post.