We'd like to again thank Tom Wallace for serving as an S&OP Expert of the Week here on the Supply Chain Expert Community. With a notable career as a writer and educator specializing in sales and operations planning, Tom is currently a Distinguished Fellow of The Ohio State University's Center for Operational Excellence. Tom generously agreed to answer your questions on S&OP, and we selected a few of the best of the submissions from the community. Here are those questions and Tom's responses:
1. (Multi-part query)
There is a great deal on which we agree, and I really like your observation that cross-functional collaboration is a result of a successful S&OP implementation, not a precursor. I have no doubt that this is true for very early adopters of S&OP. And of course process change is never ending, which is why someone came up with the term “continuous improvement,” so your observation also has relevance to more mature stages of S&OP where cross-organizational collaboration comes into play.
I do not have your long term investment in S&OP, so I have a slightly different take in the whole volume versus mix discussion. Isn’t the confusion between volume and mix really a question of reporting versus plan generation?
Not at all. The fundamental issue is that plans 6 or 12 or 18 months into the future generated from mix data are less reliable than ones taken from a volume forecast. Why? Because if we're addressing a problem 8 months into the future, we can be sure that the mix picture for that time period will change many times before we get there.
Plus, dealing with mix far out into the future is more work. Thus to do everything via mix is more work and less valid—not a good thing. So, you might be thinking, how can we determine workloads etc., off of volume? It's simple: we use a process called Resource Requirements Planning or Rough-Cut Capacity Planning, which has been in the APICS Body of Knowledge for decades. It's proven and it's worked for legions of successful S&OP users, many of whom are in complex environments.
Keep in mind that I'm talking about outside the Planning Time Fence (PTF - also in the APICS Body of Knowledge), that point inside of which we need granular detail to know what we have to purchase and make; inside that fence, mix must be employed. For a typical company, the Planning Time Fence might be 4 to 8 weeks, compared to a total S&OP planning horizon of 18 months.
There is no doubt in my mind that the executives need to have the issues and resolutions presented to them at the so-called volume level, preferably in currency units.
Not necessarily; currency might be preferable for some issues, and units for others. Frequently, however, it's both.
But how are the alternatives and resolutions tested for feasibility and efficacy at the volume level when the issue exists at the mix level?
If the issue is inside the PTF, mix is essential. Otherwise, it's not necessary. For an issue outside the PTF, superior answers come from Resource Requirements Planning; mix gives the illusion of precision -- but not the reality. And in my experience usually the resolution to an issue, let alone the root cause of the issue, can only be identified at the mix level. I don't agree; my experience over the last 25 years is otherwise.
Put differently, if the issue is blatantly obvious at the volume level, why has no one done anything about it before?
If the issue is blatantly obvious, I suspect it's no longer an issue.
In this day and age can we really afford the excess capacity and inventory levels that make a problem visible at the volume level?
No, and that's not necessary. See above.
In the interest of reducing working capital while satisfying maximum customer demand, shouldn’t we be “sailing so close to the wind” that the resolutions to issues are only visible at the mix level?
Ditto. For more on this, I suggest that you check Bob Stahl's and my book: Sales & Operations Planning: The How-To Handbook, 3rd Edition.
2. What are the key differentiating S&OP practices of market leaders versus the average enterprise?
The most important practice is that of dedicated, hands-on top management participation up to and including the leader of the business. This is a pre-requisite. Others are enhanced teamwork, sharply improved communications, and a willingness to compromise—these are not pre-requisites but rather results of operating the S&OP process well.
3. How can companies successfully manage increasingly shorter reaction cycles, which present a significant challenge to successful S&OP?
I'm not sure that shorter reaction cycles always present a significant challenge to S&OP. What I am sure of is that I would rather be experiencing shorter reactions cycles with S&OP rather than without it.