When talking about Sales and Operations Planning or simply S&OP, there are a couple things being considered. First is something called as the old school approach. Here, this involves plan development to be able to match the demand both for existing and new products with current supply chain. Majority of the organizations are actually taking this approach since it’s a traditional model that’s been quite a success in the past.
Due to more volatile market, taking this route could be dangerous. This can result to inventory issues as well as missed opportunities. When you are in the process of developing S&OP, there are several possible negative outcomes. The first thing happens when sales and marketing are so conservative. Sales opportunities will be missed due to production planned for a particular level of demand that’s now exceeded. Production cannot ramp up that fast just to meet the requests of customers. Yet another probable scenario could take place when sales and marketing are so optimistic. They say that, sales are going to be at one level however, it would fall short. The production delivers output that’s meeting the original level of demand being projected. Now, it gives you a warehouse that’s full of inventory tying up cash. The inventory additionally runs the risks to become obsolete. Sooner or later, you’ll find yourself to put reserves on books in protecting your financial status.
Let us take a look at moving to the process of sales and operation planning that is providing agility. In this case, production will be at the same level as with marketing and sales and vice versa. Neither side has more influence than the other .For instance, manufacturing cannot dictate to marketing and sales what could be sold as per limitations on manufacturing. When there’s balance between these two, that’s when agility kicks in. Agility is basically the ability of internally switching gears in the face of supply volatility and market. Together with the recalibration, your business still has that ability of delivering products at the right time, high quality, right cost while still meeting the expectations in customer service.
With new S&OP model, it does not indicate that you could make widgets faster compared to what you did before. New model will require you to do planning for unexpected things. In other words, that will happen. You need to understand tradeoffs and put together plans that let you move easily and quickly to be able to meet these changes. Creating contingency plans for catastrophes or supplier hiccups is a must. If your into assembling syringes and it happens that your barrel supplier has gone out, what would you do then? Do you have a backup plan for your supplier?
You will not become an expert in sales and operations planning overnight. It is something that does take practice and time to build models. At the same time, it is requiring strong partnership with internal customers and suppliers. Above all, you must understand the supply chain tradeoffs to become agile.