Getting the right product to the right place at the right time and in the right quantities is one of the primary goals of any manufacturing organization. This sounds simple. It is, however, one of the most complicated things to do consistently, day in and day out. Since the beginning of the industrial revolution, manufacturers have been trying to devise ways to accomplish this goal while maintaining the integrity of product quality, managing changes in the market and maximizing profits. Due to a variety of disruptions and in some cases, bad luck, producing a product from start to finish successfully and profitably is far from a simple task.
Manufacturers have to balance many things to deliver on this promise. For example, depending on what is being produced and the ingredients and materials needed, one issue that arises is seasonality. Many people just attribute seasonal factors to the finished products. In many cases, seasonality impacts the raw materials and ingredients for products produced, sold and used year round. Again, this is just one example of the many disruptions facing manufacturers today. There are many issues that impact the manufacturer’s ability to deliver and there has to be a core philosophy throughout the entire organization and throughout the entire business ecosystem that includes suppliers and customers and all trading partners.
Keeping Your Manufacturing Operations in Sync with S&OP
In today’s world, the ability to synchronize these areas of operation successfully and efficiently to meet company objectives requires something that for the moment, we will temporarily call a “process”. It is called; Sales and Operations Planning (S&OP). Are you surprised? Wait a minute; you have heard this before haven’t you? In fact, you might actually think you are doing this now, right? Sales and Operations Planning in 2022 and beyond has to be different from the Sales and Operations Planning “process” that was introduced 30 some years ago. It was a method of planning that people tried to fit within a monthly calendar that was capped off with an “S&OP” meeting. It typically began with a historical forecast and was designed with the intention of breaking down the silos of the organization that included departments with conflicting goals and objectives.
Today, this process does not work as well as the original design. There are several reasons for this. First, historical forecasting is now, well, history. Over the last three years, buying habits and consumer behaviors have changed so dramatically, beginning with the pandemic, that historical forecasting simply will not work. Add to it the growth of online shopping and other technological advances and additional disruptions and industry changes to deal with the pandemic, not every type of sales history can be relied upon.
A second reason is because past S&OP processes primarily covered all the internal processes with very slight attention to the areas outside the organization. Yes, distribution was included to cover customer issues and purchasing was included to cover material supply. But today, the entire business ecosystem needs to be involved in this process, totally, due to the degree of disruption inside and outside the organization. The third reason is that if you really think about the whole picture, S&OP needs to be a mindset, a philosophy and not just a “process”. In fact, if you utter the words “Sales and Operation Planning” over and over again, in my opinion, you haven’t adopted it as the core philosophy on how to manage your manufacturing business.
Once this Ecosystem Sales and Operations Planning idea becomes your management philosophy, there are three major areas that need to be included in the day to day philosophy of management.
Value Chain Management
Value chain management is the process of monitoring and managing all the components that comprise manufacturing, procurement, production and distribution. Distribution of products today is complex. To minimize delays and transportation issues (and in the area of food to minimize food spoilage) item location forecasting is critical to having that right product at the right place at the right time. Redeployment costs increase supply chain costs and bury profit margins. Changing production schedules to produce items to go to a location where they should have been in the first place destroys manufacturing efficiencies. Forecast accuracy at each distribution level demand point is critical for success.
Inventory Management
When manufacturers talk about inventory management, the conversation quickly turns to finished products. Going back to our seasonality example, many consumer products and almost all food products are made up of ingredients and materials that themselves are seasonal products. This is what complicates the entire process of a seasonal production or promotional runs. How do you manage to efficiently produce and deliver products for a summer season if the ingredients are not available until the summer? Do you store them for an entire year? What about spoilage? Synchronizing when and where finished goods need to be deployed throughout the procurement process is the most difficult process a producer has to manage.
Capacity Management
The third area that needs to be managed is capacity. Manufacturing capacity is a finite commodity. A balancing act needs to occur between making what is needed and long production runs to maximize efficiencies. Inventory managers look to produce just the right amount of product based on demand. Manufacturing teams look to minimize setups and maximize efficiencies which typically occur with longer production runs. Managing and balancing these conflicting objectives is not easy. Another factor of capacity management is when products require outside processing or when contract manufacturing is a factor. These areas need to be scheduled and balanced as well to get the most efficient use of capacity. The only way to manage capacity effectively and efficiently is to coordinate it through an Ecosystem wide S&OP process.
S&OP in the “New World”
Manufacturing companies are operating in a new world with more disruptions and unpredictability. This is not a trend but a way of life. Producing products is difficult and very complex with the disruptions and expanded value chains of today. The companies that can survive and remain profitable and thus stay in business are those who can manage operations and finance across their entire business ecosystem through collaboration and connected objectives. These include the objectives of your trading partners as well. It is within times of disruption and flux that S&OP becomes more vital than ever. S&OP provides a unique capability to reconcile cross-functional plans, problems, risks, and objectives in a way that provides visibility, stability and alignment with corporate goals and throughout the extended value chain. Competition drives change and technology fuels it. A Sales and Operations Planning philosophy that covers your entire ecosystem allows you to enable new technologies and processes to completely focus on what’s most important; your business.
