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LM1. What is your opinion on a question that I am being asked more and more:  

Why do we need S&OP if we are going Lean?  

Why do I find it so difficult convincing my peers (particularly for the purposes of investment) that whenever your supply base is unable to beat the lead-time requirements of your customer base you will need to plan ... 

Heijunka, Pull, Kanban, Takt, Cellularization, SMED are all aimed at improving efficiencies around cost, manufacturing lead-time, quality and inventory but are all so much more effective if you accurately understand your future demand. 

I'm confident that I am preaching to the converted here but have you ever been faced with this question? If so how would you go about explaining it to individuals who sign the top line of capital requests?

Yes I get this question all the time. Often it's even broader - "why do we need to do any resource planning (S&OP, forecasting, master scheduling, material planning, etc.) when we're going lean."

First my answer - which of course parallels yours: I'm a huge advocate of  lean. Creating a flow environment and pulling to the customer's demand is  something everyone should be trying to move to. But the value stream and  supply chain need to be engineered in advance to be able to flow.   Unfortunately the weakness of lean is that it is shortsighted. It has no  ability to see or predict an upturn (or downturn) in volume or to demonstrate the impact on capacity when that kind of change is happening in the future. It's almost  totally focused on execution - pulling to the drumbeat of the customer.  But  what process ensures that the value stream (pacemaker processes in  particular) have been engineered to support that change in takt time? And  more generally what process ensures that the capacity is in place in advance of its need. What process helps establish the average demand used to size supermarkets and loops so that the inventory is in place to support a  consumption based pull system? What process ensures that the vendors are not surprised by a sudden change in demand? What process establishes the finished goods inventory (finished goods supermarket) levels that will satisfy sales and marketing's objectives as well as the need to have smooth flow through the plant and supply chain?

I think the answer is S&OP and related processes. S&OP is the process to predict changes in volume and in takt time. S&OP along with rough cut capacity planning is the process to predict and respond to capacity needs in advance of a crisis. It's forward planning processes (S&OP and forecasting and MPS) that are the best mechanisms for establishing average daily demand for supermarket and loop sizing (yes I hear all the time about just using past usage to do this but unless you have a static business this just isn't adequate - the one Japanese company that I deal with, part of the Toyota keiretsu, who gets about 75 turns on their inventory uses demand calculated from the MPS not historical usage). Supplier scheduling - a technique that both the lean people and the resource planning people claim they  invented - is the mechanism for showing future demand to the suppliers. In the most lean environment you can imagine, this would be driven directly from S&OP (rough cut material planning). In other lean environments this projection will probably be driving by the MPS and a material planning process. (Just as an aside here, the material planning process will most likely be a gross explosion NOT MRP since MRP is trying to drive the inventory to zero while kanban is trying to maintain it at some fixed level). Finally the way to engage sales and marketing and get them to participate in setting inventory levels is through S&OP.  

What's always amazing to me is that some of the leading lean advocates are in denial about any need to plan in advance. This directly contradicts the documented experience at Toyota (Professor Monden's study of the Toyota Production System talks extensively about their production planning and master scheduling processes and even mentions their MRP system. I wonder how much of this is either the "true believer" phenomenon that Eric Hoffer writes about - the true believer has to deny that there is any value in any of the prior beliefs - or some of the lean zealots pushing their own agenda.

LM2. How would you show the Production line on an S&OP supply & demand spreadsheet for a lean pull production line?

The title and definition of a production plan would not vary between a lean or not lean environment.  A lean environment does not preclude making some product to stock (or to a “finished goods supermarket" as it is often called).  And it does not require that a product be made-to-order. 

In a pure make-to-order environment, when the finished product is never made without a customer order, the monthly production plan would be equal to the monthly sales (bookings) plan less any adjustments to the order backlog.  In other words, in situations where you are taking orders today, and promising them 6 weeks in the future but want to be promising them for delivery in 4 weeks, then the monthly production plan will have to be greater than the sales plan for the current month by the amount you want the backlog to decrease (in this case 2 weeks).

And of course the opposite can be true too.  If you want the order backlog to increase, the production plan will have to be less than the sales plan.   

What is always true in a pure make-to-order environment is that the monthly production plan is equal to the monthly shipping plan since the production plan is what will be made and shipped that month. 

But make no mistake, the purpose of sales and operations planning is the same in the lean environment as in any other:  to establish a rate at which a master schedule would be set to drive future material and resource requirements, that can be then communicated to the suppliers and manufacturing, so they can set up the resources in a way that will allow them to respond to a lean pull signal.

 

LM2. How would you measure and report monthly production attainment for a lean production line?

Again this doesn't really vary based on whether the environment is lean or not.  At the end of the month, the amount of the product family actually produced would be compared to the latest production plan for that family.  If the production plan (for a pure make-to-order product family) is not attained due to a lack of customer orders available to ship, then the production plan should be adjusted down to equal the quantity scheduled to ship, and then compared to the actual production for the month.

 

LM3. Can you get by without an S&OP process if you’re running in a Lean Manufacturing environment based on a pull process?

Only if the demand is very level, constant and predictable, such that every manufacturing resource and supplier could count on future demand that was pretty much equal to past demand.  We've never seen this to be the case, except in the rare situation where a specific plant or division may be producing product for a few captive customers, perhaps their parent corporation, who kept the demand on that plant level to optimize its performance.

 

LM4. Are global companies implementing S&OP and Lean for all products, or only their A&B items?

S&OP by its very nature generally should be implemented for all products, so the total sales, production and inventory can be reconciled against financial plans. Therefore global companies include all their products, but often times pay special attention to A & B items to the degree that they might have a bigger impact in the overall performance in achieving sales and supply plans for their families.

 

LM5. What books could you recommend on S&OP/Lean?

Our book, Sales & Operations Planning – Best Practices has a chapter on S&OP and Lean.  It’s the only book that addresses the integration in any significant detail that I’m aware of.  You can learn more about the book at the Gray Research website: 

S&OP Best Practices

The only other book dealing with specific lean/S&OP issues is Sales and Operations Planning Standard System, my co-author Chris Gray's new book.  It discusses how the lean calculations (specifically takt time and operational takt time) can be driven by S&OP and how they are typically performed.  Check his website for more information: 

Lean Standard System  

 

LM6. Would you say some more about what kind of lean opportunities are uncovered in the S&OP process and when that takes place? 

A good S&OP process would highlight families (often produced in value streams they could be addressed by lean) that have problems due to unreliable demand or supply plans, thus leading to excessive inventories, and/or costs to adjust plans at the last minute, and in some cases, unreliable deliveries to customers and excessive lead times.  These would be noticeable by the poor performance is measured by KPI’s, and/or the need to constantly adjust or alter the plans.  

In other cases, the opportunities may arise as part of the cross-functional discussion and decision-making that occurs in S&OP.  For instance, sales and marketing, may point out, missed sales opportunities due to price, cost, lead time or other considerations. 

Situations such as these could then lead management to decide to implement lean improvements in the respective product family areas to either solve the problems, or to better take advantage of customer or market place opportunities.

 

 

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