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Sales and Operations Planning

The Hidden Supply-Chain Engine
August 15, 2011 by Sri Aparajithan, Phil Berk, Marc Gilbert, and Pierre Mercier
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In This Article
  • Poor planning typically leads to excess inventory, higher costs, and suboptimal utilization of resources.

  • A key management process, S&OP planning determines how much of which products to make, where to make them, and which markets to send them to.

  • Demand can be forecast more accurately by segmenting products, channels, and customers on the basis of such factors as volume and demand volatility.

  • Information must be transparent and available to support decisions at the strategic, operational, and transactional levels.

 

When the right products aren’t in the right place at the right time, things can get ugly: stockouts and lost sales; inventory pileups, markdowns, and write-offs; poor capacity utilization and declining service levels. These costly problems are often symptoms of a broken sales and operations planning (S&OP) process. This key management process determines how much of which products to make, where to make them, and which markets to send them to on the basis of demand forecasts, cost factors, risk profile, and strategic objectives.

Decisions on how to allocate supply chain capacity tend to be hotly debated among the management team, especially when resources are tightly constrained. Often, a fundamental distrust between sales and production leads to padded forecasts, sandbagging, and other counterproductive behaviors—and heightened tension. These obstacles hinder the ultimate goals of the S&OP process: optimal use of the company’s resources and better customer service. If your company has ever experienced the frustration of product stockouts in key markets while inventory builds up in other markets—or on warehouse shelves—a dysfunctional S&OP process is usually to blame.

At its core, S&OP planning is about managing supply and demand. Doing this effectively requires three things: better information flow; segmentation of products, channels, and customers on the basis of demand patterns; and leaders’ commitment to encouraging and modeling the right behaviors.