The Advantages of S&OP article notes that, when corporations embrace S&OP as a business framework, the S&OP process provides multiple benefits that extend throughout the entire organization. Here are the 5 key benefits of S&OP:
1. Improve Business Alignment
First of all, each business unit has a distinct set of Key Performance Indicators (KPIs). Those allow to align the business unit’s team to achieve specific, measurable goals. Sometimes the goals of distinct business units are in conflict with one another. An S&OP plan can reveal conflicting cross-functional KPIs and drive each business unit towards a resolution that supports corporate goals.
2. Reduce Expedite Costs
Secondly, miscommunication can wreak havoc with supply chains. For example, if the Operations Planner, in charge of ordering raw materials, misunderstood the extent of a marketing promotion, then the Operations Planner might order an insufficient quantity of raw materials to meet the increased demand. An S&OP plan that incorporates effective forecasts, including new information from the field regarding fresh sources of demand, will drive production schedules that produce sufficient levels of safety stock throughout the entire supply chain to meet customer demand until the next production run. This can help minimize the need for expedited shipping.
3. Improved Utilization of Capacity and Return on Assets (ROA)
Methodical production scheduling that incorporates customer demand, safety stock requirements, raw material supply, and scheduled downtime to generate the most efficient manufacturing cycles maximizes both production capabilities and ROA. An S&OP plan facilitates gathering the necessary inputs from everyone in the organization. It ensures that the achievable needs of each organizational unit while concurrently maximizing capacity utilization and ROA.
4. Cash Requirements Reduction
Efficient organizations run as lean as possible. A clear understanding of comprehensive demand drives a smooth manufacturing schedule. Organizations order raw materials to meet precise demand requirements. Due to proactively planned scheduled maintenance, they can minimize maintenance costs. Unplanned overtime is not needed to “firefight” unexpected interruptions. Organizations use less cash to manage daily operations. Moreover, they plan all cash that is spent. Finally, they don’t need additional financial resources to compensate for unexpected schedule interruptions.
5. Reduced Supply Chain Risk
Finally, with clear foresight, organizations can anticipate plan deviations and eliminate surprises. S&OP provides a comprehensive framework to identify and mitigate risks. Contingency planning can occur proactively.
Production can occur without interruption. All in all, one of the most key benefits of S&OP is to minimize risk – and help managers sleep better at night.
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