FAQs (Frequently Asked Questions) On Sales and Operations planning
Following are some of the frequently asked questions (FAQs) on Sales And Operations Planning that we have encountered in our speeches, workshops, seminars, and other forums. Feel free to ask more questions if your particular question is not answered below.
Why we are qualified to write this list of FAQs on Sales And Operations Planning?
VERY FEW PEOPLE KNOW SUPPLY CHAINS LIKE WE DO - retail, beverages, food, milk, dairy, meat, livestock, explosives, chemicals, cotton, rice, graphite, solar power, natural gas, crude oil, fertilizers, electronics, packaging, glass manufacturing, machine parts, automobiles, industrial goods, mining, etc are just some of the industries where boards and executives have benefited from our proprietary knowledge of the supply chains.
Click on our project methodology above to see how Sales And Operations Planning is an integral step in each and every project that we have undertaken in the last three decades.
Since when no one had heard of supply chain, our co-founder Vivek Sood has been considered one of the most authoritative professionals in the field when it comes to the subject of supply chain analytics in Australia, Asia, North America, South America and Europe.
He has written four seminal books about restructuring supply chains to gain massive advantage in business. He also regularly delivers keynote speeches at business schools and conferences such as University of Technology Sydney, Supply Chain Asia, Asian Bankers Forum, APEC Business Advisory Council.
He has been quoted in the authoritative business press and over 100 academic papers written by supply chain researchers around the world. Vivek and his team have examined thousands of supply chains during their projects over the last three decades and helped hundreds of executives build safe, cost effective and sustainable supply chains and careers.
Sales And Operations Planning - FAQs
What is Sales and Operations Planning (S & OP), and what is its significance in supply chain management?
In any company sales department or function goes about selling whatever it can sell to whosoever is ready and willing to buy (more or less).
On the other hand, simplistically speaking, the production department of function goes about producing whatever it can produce under the constraints it is operating under.
Now imagine what would happen if these two departments never talked to each other.
You would have mountains of goods that no customer wants (because no one told the production department), and you would have hordes of very angry customers who did not get what they were ready to buy (because no one told production what the customers wanted).
Of course this imaginary situation never happens because sooner, or later, someone in sales talks to someone in production and tells them what is hot, and what is not with the customers.
Sales and operations planning (S & OP) is the formal mechanism to make this conversation happen systematically, regularly and effectively. It is also referred to as aggregate planning.
Executive-level management meets regularly to review the projections for demand and supply and financial impact, which results because of it.
Sales and operations planning is a decision-making process, which makes sure that the tactical plans and the business areas are in sync with each other and the overall vision and mission of the company.
When and Where did S & oP start, and why?
Even before supply chain management started as a discipline to integrate various departments of the company and optimise their joint outputs - S & OP was already popular as an integration mechanism between sales and operations. Without this integration all production would grind to halt sooner or later burdened by inventory and debts.
It is difficult to determine with certainty where S &OP originated, and when - but it is reputed to have originated somewhere in the factories of the industrial Britain most likely between the two world wars.
What are some of the other related supply chain plans, and how do they relate to the sales and operations planning?
Supply chain management is all about planning, execution and control. Planning starts well ahead sometimes up to five years in advance when you talk about the long term plans.
Earnest planning starts at lest six months in advance. Besides the plans shown in the diagram below which are part of the same planning hierarchy other related plans are inventory plans, purchasing plans and production plans - as well as their related short term schedules.
Why does S &OP end up being such a frustrating experience in real life?
In a highly acclaimed published article "Demand is From Mars, and Supply is From Venus" we likened the conflict between the demand and supply to the on-going battle between the sexes.
To appreciate the frustration, and the reason for it, it is worth reading the entire article in the link.
Why does initial training in different departments exacerbate the problems of S &OP?
Junior staff in many corporations develop a silo mentality in the first few months they join. If they dare to think of the greater good or company as a whole, they are frequently rapped on their knuckles for not being corporate savvy.
Their objectives and rewards only reinforce this attitude. Over time this silo mentality becomes ingrained and leads to each person defending the position of his own silo and/or attacking the other silos to score points in the game.
By its very nature, S&OP is a collaborative exercise, which cannot be carried out properly with a defensive or offensive attitude. An open, trusting attitude is a must for success.
Every participant has to believe that they all share a common goal, and everyone else is doing their best for the common success of the team.
And every participant has to do their best in this belief.
The way most S&OP meetings begin, however, sets the scene for exactly the opposite. There are few positive stories of shared victories, or of meeting some difficult to achieve outcomes during the past month.
On the contrary, the meetings start with failures of the past month. Any rational discussion is soon high-jacked by emotional self-interest.
Granted that learning from past failures can be useful; however, the timing and manner for that exercise could be vastly improved.
It will be fair to say that we have too much of 'division of labour' and too little of "unity of purpose" in today's organisations.
What kind of teamwork is required for S&OP success?
In traditional S&OP, the focus of participants is on blaming others for the bad outcomes and taking credit for the fortuitous good ones (of which there are a few).
With this distributive focus, no wonder few people can think outside the box to find creative, lateral solutions to the end-to-end supply chain and operational problems besetting their organisation.
S&OP is a collaborative exercise that requires a great deal of teamwork. Most companies pay respect to teamwork – but their definition of team work is generally restricted to teams within a silo.
Cross-functional teams, required for success of S &OP, have a mixed track record. Hidden agendas, inadequate training, lack of understanding of shared goals, and a history of dysfunctional behaviour towards each other sabotages teamwork in most S&OP meetings.
What is the biggest flaw that is common in most S&OP and what is the best way to get over it?
The biggest and most common flaw is that S&OP meetings are oriented in the past.
This is a surprise, because by definition, ‘planning’ (Sales and Operations PLANNING) is for future.
The only reason one needs to refer to the past is for some guidance on the future.
However, the way most S&OP processes are structured, even those certified by the best process certification consultants, result in a majority of the time being spent rationalising what happened and making sure it does not happen again.
This time would be best spent on planning for the future (obviously while taking into consideration what happened in the past). The re-active orientation of most S&OP processes is perhaps its most visible weakness.
What tools are available to help with S &OP? How can they be improved?
Guiding the communication of traditional S&OP process, and setting the tone of the whole event, is a set of archaic check lists and formulistic process charts, designed by the process consultants that certify these processes.
While in the 70’s and 80’s they were a huge step forward when none of these things existed, their newer versions of 90’s and 00’s are barely adequate to guide the supply chain process of a modern global corporation through some of the most important decisions that their executives routinely make every month.
The newer collaborative tools are still being forged, however none of the old guard, who are well set in their ways and are in a way victims of their own success, have the motivation or capacity to provide them.
Dynamic, light, open, collaborative, balancing tools are the way forward. We expect to see a few more of these in the future, but probably not from the existing suppliers of standard supply chain processes.
In a traditional S&OP meeting, each silo sends its most battle hardened corporate warrior to fight it out with the competing interests in the other silos to maximise its chances of getting the glory and resources that it needs to flourish. And they play this role with relish.
However, in the process, the shared goals of the organisation are frequently forgotten. Collaborative, forward looking teamwork requires positive, pragmatic business leaders to jointly sit down together and solve problems by building on each others’ ideas. We find this is frequently missing in the traditional S&OP tools.
What is the measure of success of S &OP, and how does it change the behaviours?
Each silo measures the success of the S&OP process differently.
Sales might believe it is successful if it manages to “hoodwink” the production to produce so much that there is no likelihood of stockouts. On the other hand, production might believe that making sales acknowledge the past forecast inaccuracies was its biggest success in the S&OP.
The logistics department frequently believes it is successful
if its representative walks out of the meeting without too much blame for missed deliveries or stock-outs.
A single measure of success, linked to overall performance of the
business – profit for example – is frequently given only superficial consideration by team members.
It is no wonder that under the circumstances, profits are frequently sub-optimised, though each department manages to look good using its own measures. If this rings true in your organisation, there are ways to ensure a better outcome.
What fundamental understanding is essential for a well functioning S&OP?
In a quotation famously and perhaps apocryphally attributed to Intel Corporation founder Andy Grove, he said: “For one brief moment the demand will equal supply and we will have the perfect union. Rest of the time we struggle with either too much supply or too much demand.”
Understanding and acceptance of the fundamental truth in the above quotation is perhaps the start of i-SOP – intelligent sales and operations planning.
No demand forecast is perfect and no supply system is capable of meeting all the demand perfectly all the time.
The result we are seeking is to work collaboratively, in order to create an organisation capable of maximising profitability under every demand and supply condition it could possibly encounter.
That, in itself, is a lofty goal, given we don’t even know the whole range of demand and supply conditions that could possibly be encountered.
So, what does a well functioning i-SOP organisation look like?
Where we show i-SOP within the big picture of most of our strategic consulting work, we have highlighted all the various parts that must come together to create a good i-SOP process.
The goal we are seeking from this i-SOP process is profit maximisation. It is not inventory minimisation - there are numerous IT systems which purport to do this, and many do an adequate job.
It is not cost minimisation. Again there are numerous supply chain systems that do this adequately enough. The goal is not revenue maximisation either; numerous yield management systems do that adequately enough.
The end goal of a successful i-SOP process is profit maximisation, and to our knowledge there is no IT system which does this adequately enough – hence the need for an elaborate process aided by a toolkit.
What Are The Two Disparate Mechanisms Of Sales And Operation Planning Process? In A Well Designed S&OP Process How Are They Melded Together?
S&OP brings together two disparate but essential mechanisms to look at an even bigger picture. On one hand, demand management is the art of maximising revenue achieved out of a pool of customers and products in a given period. The key questions asked are which customers to serve; where; with which products; at what price, and in what way are they to be charged? All these questions are extremely important, and are generally thought to lie in the exclusive domain of sales departments.
S o m e i n d u s t r i e s s u c h a s t h e telecommunications and airlines are renowned for being extremely good at what is euphemistically called ‘yield management’ but is essentially a revenue maximisation exercise.
On the other hand, supply management is the art of minimising the total cost of fulfillment while meeting all the demands placed on the supply systems.
The key questions are where to buy, produce and store; for how long; when and how to move, and where to move in order to keep customers happy.
These questions are thought to lie in the exclusive domain of production and logistics departments. Cost minimisation has been the most popular end goal of traditional supply chain management systems.
This ability - to simultaneously focus on maximising endresults for the customers while minimising costs - is the foundation of the emerging supply eco-systems as a result of i-SOP based thinking.
Starting with the clear purpose of maximising profitability for the company as a whole, it is much easier to create a collaborative process for sales and operations planning.
Technically, every supply chain professional knows that the objective function of profit maximisation embodies inventory minimisation, cost minimisation, revenue maximisation and stock-out minimisation at the same time.
The technical problem is relatively easy enough to define using the operations theory. However, in reality, it is much harder to create and infuse a collaborative process that achieves that purpose into an organisation’s DNA.
That is the aim of i-SOP. Intelligent sales and operations planning relies just enough on tools, formulae and check lists to make it a success.
The key to its success is, however, the collaborative approach built into the process from the beginning. The leadership and participants are selected and trained for their positive, results-oriented attitude to joint problem-solving using lateral thinking.
Open and honest communication is guided by the instruments and tools created especially for this purpose. Finally, a single measure of success is used for all participants in the process.
What are the key differences between the traditional S&OP and a well functioning modern intelligence S&OP (i-SOP)?
The figure below - taken from our article in the Supply Chain Asia magazine - summarises key differences though it might take a book to expound on these points with examples and data:
What is a good start of the i-SOP? How will you make sure that the traditional barriers do not crop up?
As Einstein pointed out, no problem can be solved at the same level of thinking at which it is experienced. Following key principles (shown in figure 2) underlying i-SOP rely on raising the level of thinking to that required for the purpose of achieving S&OP’s fundamental goals.
Start with the end in mind
The end goal of S&OP is always profit maximisation. This should sit on top of everyone’s mind from beginning to end during the process.
The S&OP leader should make it a priority to make sure that this end goal is clearly articulated and how sub-goals in areas such as delivery performance and inventory contribute to and support the end goal. This step alone will go a long way to ensure the success of this process.
How will you foster the forward looking team work that is forgiving and forgets the mistakes of the past after taking the lessons?
Get the right leadership and right team
Second most important principal in creating an i-SOP system is to get the right leadership and team on board. This is easier said than done.
In current circumstances, demand for good supply chain professionals far outstrips supply. Pragmatic thought leaders in this field are writing their own salary tickets.
Finding the right people is hard. Still harder is to retrain current staff. However, we believe it is possible and necessary to do both. Generally, a few strong leaders in the team are enough to create the momentum and critical mass needed to develop the right culture.
How will you break the silos and achieve collaboration?
We have written multiple blogs on this website and other magazines covering this issue. That is why we have also created multiple supply chain games to bring home the value of collaboration, mechanisms to achieve collaboration and ways of identifying the team players. Sometimes, after playing these supply chain games, in the middle of the night the penny drops and people change their thinking and their attitudes.
Ask for our quick guide on supply chain gamification in case you are interested in the topic.
Foster collaborative teamwork through open, pro-active attitude
With the right team and leadership in place, it is important to create a collaborative team environment. The team should share the responsibility of maximising profit through dynamic decision-making to balance supply with demand. There should be no bigger agenda than the end goal. There are many ways of achieving collaborative team work – most of them pertaining to team-building workshops. While in our experience some are better than others, we will not go into these in too much detail here because most readers will already be familiar with these methods.
What kind of tools are available today for a collaborative S&OP?
Get the right tools
All the above steps are necessary preconditions before we can discuss the right Dynamic, light, open, collaborative, balancing tools are required to support the above three steps. i-SOP incorporates some of the most effective, yet easiest to use tools that dynamically match demand and supply in order to highlight excess and/or deficits in the facilitation of collaborative decision making. These tools are not resource or data hungry, and not clunky. Most important, they do not take over the whole process, but are merely an aid to collaborative decision-making.
Why is it necessary to get the right external help at the right time?
This advice will sound slightly self-serving coming from external consultants.
However, after significant strategic experience in operations, supply chains and effectiveness, we have come to a strong belief that the right external help at the right time can save a lot of heartache and time.
Just like the way top golfers regularly get coached by a swing coach (who might be a much more ordinary player than the player himself), it helps to get objective, external view points on a periodic basis.
Most internal consultants find it hard to make effective change as they themselves are too entrenched in the organisation’s culture and processes to break away from them.
The i-SOP process has been designed to parachute a highly trained professional into the organisation for two days every month to collect data, process information and make preparations for collaborative decision making during the actual meeting.
However, this is not the only way to use external help. The leader in each case is in a good position to think and decide on what is the most appropriate time and manner in which the external help can best be utilised.
The above five steps, if carried out in proper order and spirit, will go a long way to ensure success of the sales and operations planning process. This process is at the core of every organisation, and needs to move with time.
How can better S&OP boost the current trend towards reshoring manufacturing from Asia/China back to the western world?
Notes on FAQs
Clearly, any such list of frequently asked questions (FAQs) about supply chain can never be fully exhaustive. Neither is anyone, including us, the final authority and arbitrator on this or any other topic.
You will have your own opinions on many of these topics, and will have many other questions.
We throw open the comments section to you for your opinions and questions. We will try to address all of these, and the best ones will attract a reward in the form of one of our books, or publications.