An underlying concept of the What Is S&OP? article is the commonality of an S&OP plan and process. As a structured, repeatable process, S&OP planning provides a common lingo and framework for business practitioners across industries. Also, newly recruited team members will have to understand the S&OP plan and process. Indeed, it is important for every collaborators to understand the many business processes involved in the S&OP plan. Here are the 7-Step Business Process for S&OP.
Gather and Manage Data for your S&OP Business Process
There are many possible sources for collecting data. If market conditions have remained fairly stable, historical sale averages are a good source of data. For instance, seasonal fluctuations, like an increased demand for snow shovels during cold winter months, are another important data point. Data collection should include new product introductions . Changes in the competitive landscape, like a key competitor filing for bankruptcy, is additional market intelligence that should be incorporated into the forecast.
Maintaining data integrity is a critical function of data management. All data should be consistently labeled to keep the database as “clean” as possible. For example, if your production process uses “blue silica”, each time your reference “blue silica” in your data management system, label it “blue silica” – never label it as “navy silica”.
Product Portfolio Management S&OP Business Process
Managing the life cycle of a product set is an important part of S&OP planning. Typical steps include product introduction, product supersession, ABC & XYZ analysis, decommissioning and SKU rationalization.
Develop Demand Plan
Forecasting accuracy is a key component of demand planning. Making sure there is a structured process in place to perpetually gather marketplace intelligence from sales personnel is very important. Promotional activities, like newly launched bulk pricing discounts that might increase demand in the short term, should be considered.
Supply Planning in your S&OP Business Process
Depending on your level of automation, you can link standard Bills of Materials (BOMs) to your production planning system. You can also order Raw materials to fulfill BOM requirements. Determining appropriate levels of raw material safety stock, to protect your production plan from possible raw material shortages, is another important aspect of supply planning.
Maintaining balanced books is important for every organization. Indeed, the Finance Department needs the opportunity to review the S&OP plan to make sure it stays within budget. Therefore, the Finance Department may choose to look at aggregate numbers as well as numbers in particular categories including final stock-keeping units (SKUs), regional volumes, key customer accounts and distribution channels.
Pre-S&OP meetings provides a subset of participants the opportunity to analyze past performance prior to the S&OP meeting. This includes whether there are any inventory shortages from the last production run that need to be compensated for in the upcoming run. Also, discussing any known disruptions for needed raw materials and discussing the impact of current forecasts are other important activities of this step in the process.
Executive S&OP Meeting
Finally, organizational buy-in is critical throughout the entire S&OP planning process – including a formalized, regularly scheduled process to receive approval of the final monthly plan from Executive Management. In that case, proactively providing the Executive Management team with comprehensive solutions for supporting the organization’s strategic objectives, concurrent with meeting all customer demand, is an extremely important component of this process. Indeed, executive Management needs to be confident that all team members are working together in a way that enables the corporation to thrive financially.
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