S&OP often ends with the sales forecast – what’s missing?
As an introduction to this article, I asked ChatGPT what is meant by S&OP:
“Sales and Operations Planning (S&OP) is an indispensable tool for modern companies to optimize their operational processes and strategic direction. It promotes integration and alignment between sales, production and other areas of the business, ultimately leading to improved customer satisfaction and increased economic efficiency. Successfully implemented, S&OP helps companies to thrive in an increasingly complex and competitive market environment and make the best use of their resources.” (end of quote)
You can immediately subscribe to this statement.
But in practice, the S&OP processes do not work as elegantly and smartly as the AI would have us believe.
The last few years of crisis in particular have shown the importance of a functioning S&OP process for a company’s profitability.
It was important to be able to react quickly to market changes and to reduce or increase production and procurement through end-to-end planning.
Companies that did not have an end-to-end S&OP process found it difficult to make short-term decisions and implement them quickly.
They lost a lot of time and therefore a lot of money.
For the majority of companies, the main focus of S&OP is on sales planning, while operations planning is neglected.
There are many reasons for this:
The necessary data on resources and processes is not available or is of poor quality.
System support for operations planning is only rudimentary, if at all.
ERP systems only provide the necessary data at most, they do not have much to offer in terms of functionality.There are hardly any qualified personnel who can meet the requirements of operations planning.
Without integrated operations planning, it is not possible to assess whether the results of sales planning are feasible or not.
It is not enough to look at production capacity and eliminate bottlenecks or react to overcapacity.
It is just as important to examine the effects on logistics and personnel management.
Is sufficient storage capacity available to store pre-produced material, for example?
Is there enough staff available to handle the material flow?
Is it possible to procure the necessary material from suppliers in good time?
When analyzing the capacity of the required production resources, bottleneck situations are identified which should be eliminated if possible.
This is achieved by increasing the available capacity, e.g. by adding additional shifts, procuring additional production resources or switching to external capacities.
Another method is capacity balancing.
This involves using excess capacity in times of low demand and producing assemblies and products in advance.
Some of our customers with highly seasonal business bring forward their production by up to 8 months in order to be able to deliver during the peak season.
This bringing forward of production results in further measures that need to be taken.
Firstly, the production material must be procured earlier in order to be able to produce at all.
It is therefore necessary to determine exactly which materials are needed and when, in order to be able to use them with the to coordinate and negotiate with suppliers.
A good S&OP system helps to identify these surplus quantities and provide the data for the next steps.
Another point that must be taken into account is the analysis of storage capacities.
The pre-produced products and components naturally require appropriate storage space.
Here too, a good system can provide support and identify bottlenecks.
If the available storage space is not sufficient, external storage capacity must be sought in good time or existing warehouses must be expanded.
If you are of the opinion that an S&OP process can only be managed efficiently with manpower and Excel spreadsheets, I invite you to question this assumption – I would be happy to discuss this important topic with you!
