If your business includes manufacturing products to sell to customers, you must have a sales and operations planning process in place.
Sales and Operations planning, often called S&OP is a cross-functional process that involves various departments in your company, including sales, operations, finance, and supply chain management. The goal is to create a comprehensive plan that integrates all these functions to ensure that your company can supply products to your customers on time, while not carrying too much inventory and ultimately meeting your financial goals.
The first step is Demand Planning which means you must forecast customer demand. Ideally you have a good understanding of the demand based on historical data and more importantly firm orders. I’ve seen many startups get overzealous in their assumptions about demand and buy way too much material inventory and produce way too much product that ultimately sits on the shelf or in the warehouse.
The second step is Supply Planning which means determining the organization production capacity and available inventory to meet the forecasted demand in step one. It’s important that you understand the lead times from order to delivery of materials as well as the production time for each product and total manufacturing capacity. This is where a good manufacturing engineer can determine how much time it takes to set up and produce each product on the machinery and equipment available. This will also help with understanding total capacity. Note in some cases, organizations can use multiple shifts to utilize machinery 24 hours to increase capacity.
The third step is Integrating the Demand and Supply Plans to identify gaps and opportunities and create a balanced plan. Ideally you will understand your customer demand in detail including expected delivery dates based on your promises. Integrating production output with customer expected delivery dates is critical. Understanding the timing of material delivery to production scheduling to finished product ready to ship is crucial. A balanced plan will provide production schedules by quarter, month, week and day including their resulting output.
The fourth step is Execution and Control which includes implementing the S&OP plan, monitoring performance to ensure the plan is on track and making necessary adjustments as needed. Identifying the data needed and actions required for each step in the S&OP process is important as well as roles and responsibilities for each department in the process. Ideally an Executive S&OP meeting is held monthly so that Senior Leadership is very involved in the analysis and decision making. There are many metrics to consider but my favorites are on time delivery to customers, forecast accuracy and adherence to plan.
The bottom line is every company is in business to satisfy customers and if you are in the manufacturing business, making good on your promise for on-time delivery is key.
Get more advice on Sales and Operations Planning from Marylean Abney