APICS Sales and operations planning: (S and OP) management's control leve

BARRY ELLIOTT

'Sales & operations planning (S&OP) is a process that provides
management the ability to strategically direct their businesses to
competitive advantage on a continual basis by integrating customer-
focused marketing plans for new and existing products with the
management of the supply chain," says the APICS Dictionary (8th
Edition). Readers may recall that we prefer to use the term
"integrated business management" for this process, simply because it
is more apt.

More importantly, we are regularly confronted by people who figure
that their management process, whatever the label, is up to scratch.
However, in most cases, we find that it is not. So, how can one tell?
Perhaps a brief diagnostic checklist may help, based on a white paper
by one of our Oliver Wight colleagues, as follows:

1. Your company's operating plan: Check off the individual plans that
are maintained and used in your business:

- Marketing plans: customer-focused for new and existing products;

- Sales plans: forecast of sales (bookings and/or shipments);

- Development plans: new product and major existing product extension
availability;

- Manufacturing plans: production, capacity and inventory;

- Sourcing plans: capacity, material, and product;

- Financial plans: strategic, annual business, budgets.

These are the components of your operating plan. Are they
synchronised; do the numbers tie out across different plans? Are they
reviewed and updated on a regular cycle? These are important roles of
S&OP.

2. S&OP: S&OP isn't an easy task. Sales, marketing, development,
manufacturing, sourcing, and financial planning cycles and plans
reflect their own levels of detail, cycles and measurements. S&OP
processes can be confounded by conflicting objectives, personalities,
and lack of co-operation across departmental boundaries. Key to
overcoming these obstacles, the top manager provides strong
leadership, a vision for the business, and makes that vision happen
via enthusiastic participation in managing based on facts.

3.Level of detail needed: The S&OP planning horizon must be
sufficient to plan for resources as well as support the annual
business planning process. The plans are developed in terms that
reflect both manufacturing product/process families and marketing
groupings. Each family has an appropriate unit of measure that can be
translated into financial terms.

4. Performance data: Typically, a limited but very valuable three
months of historical planning and performance data is made available
for each family. This data is important for validating and
challenging the commitments made when developing a new plan.

5. Sales plan (forecast): This is a demand forecast. In our example,
the data combine booked orders and a forecast of new sales
(shipments) presented in units. Other expressions of data could
include converting them to average selling price, standard cost,
yards, pounds, whatever facilitates communicating customer demand in
a meaningful way to all participants.

Insist on consistency between aggregate and detail forecasts. There
needs to be a mechanism that adds up detailed item sales plans into
their respective families and compares the two sets of data to agree
within tolerance.

6. Inventory plan or backlog package: In an example of a make-to-
stock family of products, the inventory plan is calculated by taking
the starting inventory position and reconciling the sales and
production plans month by month. The S&OP process is used to review
and approve the resultant inventory plan and/or suggest changes.

For a make-to-order family in our example, the backlog plan would be
calculated from the system taking the starting backlog position and
reconciling the sales and production plans month by month. As with
the inventory plan, the S&OP process is used to review and approve
the resultant backlog plan and/or suggest changes.

7. S&OP process steps: S&OP is typically done on a monthly cycle.
There are a series of steps in a pre-S&OP process where participants
use functional meetings to prepare for the S&OP approval meeting.
These meetings involve management who are concerned with finance,
sales, marketing, product development, and manufacturing to review
alternatives and strive for consensus. All significant changes to
existing plans are communicated and reconciled. Sales, product
development, production, and inventory/backlog plans are updated. The
production plan is balanced to support the sales plan. Rough-cut
capacity planning is used to compare required and demonstrated
capacities for each S&OP family.

The S&OP approval meeting culminates the monthly process. An agreed-
upon sales and production plan with resultant inventory and/or
backlog plans for each S&OP family is the principal outcome of the
process.

We will continue with the balance of our S&OP checklist next week.

Weekly Link is co-ordinated by Barry Elliott and Chris Catto-Smith
CMC of the Institute of Management Consultants Thailand. It is
intended to be an interactive forum for industry professionals