S&OP Horror Story: In One Explainer Video
With Halloween nearly here, I wanted to offer my own version of a ‘horror movie’ for sales and operations planning.
In this short animation, the order for the poor customer is mangled at several points in the planning cycle. Each of these mistakes compounds with the others and results in an order fulfillment that looks nothing like the customer’s original order.
This video highlights the need for defined communication between all participants in the S&OP process (sales team, demand planner, and supply planner). Quite seriously, solid communication is much more important than expensive system architecture.
Problem #1: Salespeople Not Sharing Supply Issues
The salesperson doesn’t tell the customer about a potential supply constraint for their order. This is either because the salesperson is fearful of losing the order, or because they simply aren’t aware of supply constraints.
In an effective S&OP process, the sales team is updated with the availability of each product. In turn, the salespeople ensure their customers are made aware of any potential delay of order fulfillment.
Problem #2: “Ghost Orders”
It is actually quite common for the sales team to artificially increase the size of their customer orders, in an effort to increase their allocation of product. I once worked with an organization in which this was common practice. However, the business leaders didn’t know the extent of the ghost orders, so they staffed up their manufacturing facility to meet perceived demand.
By the time these bogus orders were cancelled, the business was stuck with a bloated manufacturing plant that was very expensive to operate.
Problem #3: Demand Planner Makes Decisions in Silos
The demand planner is the one individual in the planning process that should be focused on being a facilitator. Ideally, this role facilitates regular S&OP meetings, and invites participation from sales, marketing, and supply chain.
Sadly, this role is often treated as an analyst or statistician relegated to his cubicle. Thus, critical planning decisions are made in a silo, with little communication with the sales team or supply chain.
Problem #4: Production Systems not Maintained
This is also a communication problem, as even archaic ERP systems should be updated with current data on each product variant.
I once had a business partner in which its SAP deployment was configured to maintain 100 days of inventory for some product variants, while the shelf life for these products was only 90 days. Thus, the business continued to build product, only to pay to dispose of it in a couple months later.
Problem #5: Customer Communication Non-Existent
Throughout the series of missteps in this video, the customer was never notified of problems with their order. Your customer should have a single point of contact with your business, typically either their salesperson or someone in customer service. Whoever it is, this point of contact should be accountable for contacting the customer with any order exceptions.
Summary: Communication is Critical for S&OP
A reliable planning process depends on consistent communication among all participants:
- The sales team should employ a defined way of communicating customer demand. Ideally, the sales forecast includes a comprehensive sales pipeline, with probabilities assigned to each sales prospect.
- The demand planner is the facilitator for the S&OP process. He/she should host regular meetings with the sales team, supply planner, and business leadership.
- The supply planner converts the demand plan into the production plan. This role should be updating this same working group (demand planner, sales leads, business leads) with any issue affecting product supply
- Lastly, a successful S&OP includes a defined way for sharing fulfillment issues with the customer as soon as possible.