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John R. Dougherty, Partners for Excellence

 

 

 

Want to improve forecasting and S&OP?  Get closer to your customers.

 

But the information and interaction that every company wants from its customers is exactly what its key suppliers desire from them. The only difference is the direction in which you are looking.  The issues are the same: leadtimes, inventories, capacities, forecasts, customer orders and supply plans. In this increasingly competitive world, these can be best managed collaboratively with the supply chain partners working together to improve the efficiency and effectiveness of the chain in total. 

 

 

S&OP in Supply Chains

 

The objective of S&OP is better customer service, lower costs and inventories, and meeting all the business plans and targets.  To help achieve these, S&OP can provide structured communication and decision-making regarding demand planning and inventory management with customers and distribution partners.  And it can do the same thing for supply chain partners, whether the process is initiated by the supplier or the customer.

 

Benefits can come from using the S&OP process to monitor capacity planning, leadtimes, costs and product quality issues, through standardized planning displays and KPI's.  For optimal collaborative decision-making, this information can be shared on a monthly basis between all key supply chain partners.  It can then be used for making timely decisions on:

 

Ø      demand and supply plan timing and quantity changes

 

Ø      the use of overtime and premium freight

 

Ø      the need to add capacity (people and/or equipment)

 

Ø      the need to temporarily subcontract to other supply chain partners

 

Ø      the need to more permanently outsource some requirements to new supply chain partners

 

Ø      the need (often cost driven) to "offshore" some requirements to new partners in Asia, Eastern Europe, Central America, etc.

 

 

Often S&OP can identify issues early enough so that the least costly and difficult alternatives can be chosen to solve a problem. 

 

 

The Role of the Supplier

 

The inputs and participation of the supply chain partners can vary depending on the situation:

 

Ø      An interactive audience survey conducted during my APICS International Conference presentation in October 2007 in Denver, COshowed that 56% of companies do not involve any of their suppliers in S&OP.  38% review some supplier data as a part of the process.  6% have critical suppliers participate in supply planning, while only 2% involve suppliers in actual S&OP meetings.

 

Ø      suppliers may be simply treated as a capacity constraint in the rough-cut capacity planning validation of the supply plans

 

Ø      the partners may supply information and input through individual communications with those responsible for the supply planning and/or S&OP partnership review meetings

 

Ø      for major partners, there may be a separate S&OP family supply plan for their product line, subfamily or family

 

Ø      some partners may collaborate in decision-making on supply plans, inventory, tactics, leadtimes, etc.

 

Ø      sometimes major partners actually attend supply planning meetings to provide real-time input and participate in the decision-making. 

 

Ø      often, the partners are the recipient of numbers and notes from the S&OP process

 

Ø      sometimes there are separate supply reviews or S&OP partnership meetings that exclusively review products provided by major suppliers

 

 

Case Study:  A Consumer Food Processing Company

 

At this company many baked products are made at two plants from a sister division. The sister division’s S&OP process recognizes the inter-divisional demand that is placed on these plants in two 1.5 to 2 hour S&OP partnership meetings with attendees from both divisions. These meetings are seen as crucial to the proper communication and prioritization of requirements on the plants.

 

Twenty-nine percent of total sales comes from over a thousand different packaging material items produced and shipped directly to select customers from fifteen contract manufacturer plants. The company holds a separate, 30 minute S&OP partnership meeting to solely discuss contract manufacturer demand and supply issues.  It is attended by customer service, demand management, finance, purchasing, and sales personnel.

 

 

Summary

 

Effective supply chain management is all about applying tools and methodologies outside the boundaries of a single company.   It requires timely and usable information in a consistent format.  Its effectiveness is based on the mutual participation in key decision-making processes by the supply chain partners -- in other words, enlightened collaboration.

 

S&OP provides visibility up and down the supply chains, in a level of detail that is appropriate and significant to management, supporting timely decision making on demand, inventory (at the right spot in the chain), and supply plans and resources. 

 

S&OP monitors partner performance, and provides early warnings to the partners where improvement is needed and when it's time to adjust volumes.  And most importantly, S&OP provides a clear framework that identifies when and how decisions need to be made, along with the roles and responsibilities of each supply chain partner. 

 

Linking and collaboration are the keys to successful supply chain management, and S&OP provides the structure to ensure timely and accurate interaction between supply chain partners.

 

 

This article is excerpted from Sales & Operations Planning – Best Practices by John Dougherty and Christopher Gray.

 

John Dougherty is a founding Senior Partner of Partners for Excellence (www.partnersforexcellence.com).   For 30 years he has provided management counseling, education, and hands-on process improvement consulting to manufacturers world wide. He can be reached @ This email address is being protected from spambots. You need JavaScript enabled to view it. or 603-528-0840.