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Lean can simplify and empower the S&OP process.

 

John Dougherty

 

For almost three decades, leading companies have been implementing effective sales and operations planning (S&OP) processes to plan and execute strategy, prioritize market and plant improvement opportunities, and monitor results.

 

At the same time, much of Western manufacturing has “gone lean,” using the tools of lean manufacturing to drive continuous improvement—reducing defects and obsolescence; cutting setup times, order quantities and cost; slashing lead times, and increasing productivity. 

 

S&OP and lean manufacturing go hand in hand.  They do different—and very necessary things—and both are needed.

 

A principal objective of lean manufacturing is to create the physical environment that will enable material to flow from raw material to finished product to the customer. Doing this means eliminating waste and wasteful practices, reducing costs and cutting lead times while synchronizing all production and purchasing activities. S&OP, integrated with the other detailed tools of resource planning, is a set of forward-planning tools to help balance future demand and supply, predict capacity and material problems with enough time to do something about them, and understand the financial consequences of production and purchasing decisions. 

 

If you create a manufacturing environment where material flows with minimum waste (lean), but you can’t predict capacity and material availability problems in enough time to avoid them (S&OP), you will inevitably revert to fire fighting, finger-pointing, and poor results. Similarly, if you do an excellent job of future planning but have poor flows, you can almost count on high inventory levels, long lead times, and poor profitability. 

 

Let’s take a look at the areas where lean and S&OP complement each other.

 

--Takt time is the key lean concept for synchronizing production rates with customer demand, and as such is arguably the most important idea in lean. Takt times drive cell designs and operator balancing processes and are used for leveling production, scheduling finishing processes, and monitoring production performance in time increments small enough for rapid response to problems.

 

Since S&OP also tries to synchronize the plant (supply) with customer requirements (demand), it shouldn’t be surprising to hear that in many lean companies, the demand and supply plans from S&OP set the build rates and establish the takt times. 

 

--Value stream mapping and improvement is a very specific kind of process mapping, documenting every value-adding and non-value-adding activity for each product—start

to finish, raw material to finished product. The current value stream map shows what the overall flow is today. Future value stream maps show what the desired future state should be. 

 

Comparing current and future value stream maps drives improvement projects

 to streamline and simplify the manufacturing environment by reducing setups,

 improving yield rates, cutting unplanned downtime, and so forth. 

 

Value stream mapping identifies distinct product families and then, as much as possible, disentangles any shared manufacturing processes to make the simplest, most streamlined production environment. Distinct value streams typically correspond to distinct product families in S&OP.

 

--Streamlined production means simplified planning processes and that certainly holds true for S&OP.  Shorter lead times mean improved flexibility to respond to changes, the possibility of reduced planning horizons, less inventory with the same or better customer service—all benefits to S&OP. And in a simplified environment, S&OP can be used to communicate future detailed requirements to suppliers and partners. This might come directly out of rough-cut planning calculations instead of the traditional method of deriving it from a detailed material planning technique such material requirements planning. Overall, S&OP is seen as easier and more powerful.

 

--Equally important from a lean perspective is a balanced and managed capacity plan.   Key managers at some lean companies feel lean manufacturing is somewhat shortsighted when it comes to future demand shifts and capacity concerns. Rough-cut capacity planning (performed during the supply planning step of S&OP) provides distance vision to lean. Imbalances between supply and demand and between planned capacity and required capacity can be predicted and fixed long before they become a problem for the lean execution systems.

 

--Another important advantage of implementing lean guided by an S&OP process is the integration of sales and marketing people into the improvement process. Instead of having manufacturing people deciding which improvements to make, sales and marketing people (through their participation in S&OP) have a chance to help set priorities for  these efforts based on clearer customer information. 

 

S&OP and lean work best together. Overall, S&OP facilitates lean by providing information and a management communication and decision-making structure guiding everyone's participation, while lean can simplify and empower the S&OP process.

 

S&OP is a very effective way to monitor company performance coming from lean manufacturing improvements—customer service levels, demand variability, supply flexibility, on-time performance, lead-time reductions, and capacity availability in key resources, using this information to build competitive advantage. 

 

--John Dougherty, CFPIM, founding senior partner, Partners for Excellence, and coauthor with Christopher Gray of “Sales & Operations Planning Best Practices,” can be reached at (603) 528-0840 or via e-mail at This email address is being protected from spambots. You need JavaScript enabled to view it..