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G1. What is the composition of the customer service metric?

In an environment with many items and many orders, it can be calculated two ways:  First a “line item fill rate” would be the percentage of individual line-items that were shipped complete, and on time within the month, for all items, all orders, etc..  Depending on the industry, some small tolerance may be set in both quantity and days, as long as that matches the expectation of the customers. 

Second, an “order fill rate" would measure the number of customer orders shipped complete, for every line item, within a reasonable date and quantity tolerance.  This second one is a much tougher measurement, since if even one line item was on back order, it could affect many individual customer orders and cause them to be counted as incomplete, late orders.

In environments with relatively few items and few customer orders, typically only the order fill rate is used.


G2. How does S&OP drive innovation?

In several ways.  By monitoring KPI’s, and identifying where targets are not being met, thus triggering management attention to spur innovation to improve performance.  Also, by maintaining an up-to-date rolling plan for the year, and comparing this to financial plans and budgets, shortfalls or problems are identified which can then be addressed.  Finally, for whatever plans are not met, a root cause analysis should be undertaken and discussed in S&OP meetings, which also can lead to management applying its creativity to solve these problems.


G3. What are the key learnings to shape S&OP to specifically drive inventory reduction?

The key learning is that S&OP is the best way to coordinate a company-wide inventory reduction program.  Rather than having individuals make tactical adjustments such as lot size reductions, safety stock reductions, frequency of manufacture, etc., S&OP can monitor the net effect of all activities and ensure that all the functions know what's going on.

In this way, cross-functional input can help identify where inventory can be cut with no impact on customer service, and where lower inventories will present the greatest risk of customer service or cost problems. 

S&OP does not provide any new or different ways to cut inventory, just a process to coordinate the use of each different way.


G4. Is there more to Customer Service Performance than just "on time delivery"?

There is a lot more to "Customer Service" than just "on-time delivery". But generally, when we talk about customer service performance regarding S&OP or KPI 's, the implication is that it is "On-Time-Delivery", because that is what we are able to easily measure. Most companies measure other aspects of customer service, either based on customer surveys, or the subjective feedback coming to and from sales and/or customer service personnel.

Some companies routinely track other measurements such as shipping errors, customer returns, customer complaints, etc. where they have the ability of capturing those numbers, which is an excellent thing to do as part of the S&OP process. It is always more effective if you can find a way to quantify different aspects of how your customer perceives how well you are servicing them.


G5. How do you measure customer service on time delivery?

In the perfect world, it be best to compare when the product was actually received by the customer versus when they wanted it. Though we're getting close, most companies don't currently have the systems to actually capture when the customer receives a product, so they measure it instead, based on when they shipped it. It is particularly critical to measure this delivery, both against the customer's original request date, and against the supplier's latest acknowledgement or confirm date. The first show you how well you're meeting the demands of the marketplace, even if they may be a bit aggressive or unrealistic. The second tells you how well you're in control of your own planning processes and able to give the customers good information, and then deliver to it.


G6. Would like to hear more about how to aggregate and disaggregate supply plan to detail master schedule and inventory plan in a pull system environment. 

It’s really no different in a pull environment or one where Kanbans are not used.  In any pull environment, the detailed master schedules or supply plans need to be periodically compared to the actual pulls, so that the master schedule can be adjusted to the anticipated future pull rate based on the forecast and the actual usage.

In any environment, if you develop a detailed master schedule at an item, product or option level, it needs to be summed up by product family classification, which either becomes your new S&OP family supply plan, or is compared to the pre-existing supply plan with one or both being adjusted so that they are either equal or close enough to each other based on your declared tolerances.

If a separate, family level, S&OP supply plan is developed, it can be disaggregated into a new master schedule, but not by any fixed percent, or historical proportion.  Typically, current finished goods, semi-finished, components, and raw material inventories, individual customer order backlogs and forecasts, manufacturing lot sizes or sequencing rules, etc., need to be considered in developing the detailed master schedule that will reconcile back to the aggregate family plan.  Dealing with these issues is part of the art of detailed master scheduling.


G7. Each month what is the time span of the S&OP process, does it start on day one and end on day 31 or should it be completed (all stages) in week 1of the month?

Most companies start the S&OP process on day one of the month gathering and reviewing data to support demand and supply planning. Generally developing and reconciling the new demand and supply plans, and reviewing them in partnership meetings, and then finally approving them in executive meetings takes two to three weeks within the month to complete. 

Some companies with many captive or intra-company customers can actually start the process before the end of the prior month, using customer orders, and committed customer delivery schedules. Coca-Cola Midi (a division producing concentrates and beverage bases for Europe and Africa) is able to do this, which then allows them to complete the entire S&OP process by the end of the first week of the new month. Its story is described in greater detail in chapter 16 of my book, Sales & Operations Planning - Best Practices.


G8. What is the difference between rough-cut capacity planning and master scheduling?

Master scheduling is the process of maintaining anticipated build schedules that define the mix and timing of all supply plans at the item level. It produces a series of quantity, due date combinations for each item in the future. Rough-cut capacity planning calculates and analyzes the critical resources required to support the master schedule, and/or the family supply plan in S&OP.  


G9. Do you include process engineering resources in the capacity planning process?  

If the requirements for process engineering resources are greatly affected by the S&OP supply plans, and/or if those plans need to be set in light of process engineering resources, then they should be reviewed in capacity planning.


G10. In order to hit Business Plan dollar objectives, should the sales unit forecast be higher than the Business Plan unit forecast to  trigger bigger supply plans to accommodate mix inaccuracies in the forecast?

 It's important and useful to keep your objectives, plans and tactics separate and clear so each can be tracked and adjusted as needed.

 This would include:

 Business or financial plans: these are typically the targets or objectives of the business that are set annually and usually held  constant as you work during the year to manage the actual demands and supplies to meet your objective. (see Chapter 11 of our S&OP Best  Practices book for a detailed description of how S&OP helps monitor and meet these objectives).

Sales plans and detailed forecasts: the latest "best estimate" of  what your Sales and marketing people feel the customers will be  actually buying. Each month in the S&OP process these new #'s are  compared to the financial targets, so that appropriate tactical adjustments can be made get back on plan, at least in total $$. These numbers should be used to set and possibly adjust master schedules and purchasing plans to the latest demands. These numbers are also the ones used to measure forecast accuracy, which can help focus management attention on the biggest variations, and be used by supply planning personnel to develop hedge plans to optimize customer service and sales revenues.

Supply plans and detailed master schedules: the latest set of supply plans, based on the latest sales forecasts and accuracy  measurements, that also reflect the capacity and material constraints of manufacturing and the suppliers. It is here where the hedge planning should be applied to accommodate actual sales mix variations, on the items that need it. This can be done in several ways: Set safety stock levels on the items subject to the greatest variation to hold larger inventories; set safety time factors to trigger earlier purchase deliveries or manufacturing schedules to build hedge inventories; or  selectively over plan by scheduling one or two deliveries or batches for a quantity greater than the forecast to build a hedge into the inventory pipeline (overplanning is done not across the entire  planning horizon, but just around the item's replenishment lead time, and then the hedge amount can either be increased, decreased, moved in or moved out as the actual sales patterns become clearer). 

Any of these techniques can be used at the finished, component or raw material level depending on where the final packaging, finishing or assembly is performed.

 By keeping the hedge planning at the master schedule or material planning level, it can be clearly and constantly monitored by the master scheduler in the supply planning process which constantly compares actual demands and forecasts to current inventories and schedules.

 Obviously the implementation of these techniques is no small task, and must be carefully and deliberately implemented. It's also important to insure that management and planning personnel are properly educated and trained in the use of these approaches.




If you have specific questions about these questions and answer or want to discuss it with us, call John Dougherty at 1 978-375-7808.

The Partners for Excellence specialize in helping companies set up comprehensive measurement programs and improving overall resource management performance.  Contact us at 1 978-375-7808 or email This email address is being protected from spambots. You need JavaScript enabled to view it..