S&OP

Tapping unused potential in the analysis and comparison of planning phases vs. final orders

Rolf Winterhoff

In countless planning sessions and reviews I have taken part in over the years, a lot of time has been spent on explaining why plans have to be changed. Why do we assess the market differently than a month or two ago, why do we believe that customers (will) want more of something or something different altogether, which new business potentials have emerged, which business has dried out? We And we must also explain why we can no longer uphold existing commitments due to changes in circumstances, strategies, etc.

We lead over from one plan to the next every month, and in the end, have a waterfall chart spanning the entire period from initial plan to finalized order. And all the while, we continue sourcing, making and delivering to our customers.

Each fixed timeframe is re-planned in S&OP every month. When this timeframe reaches the operational horizon phase, detailed production and delivery are planned and then executed. But by the time this happens, the S&OP ship is already sailing on to new horizons.

There is no such thing as a perfect planning process, and no need to look for the “philosopher’s stone”.  A plan is always “right” when viewed from the present, and always “wrong” when looked back upon. In any case, planning phases are essential for overall business management.

Do the plans “converge”? And if yes, where?

Let’s take a look at a fixed period of time, e.g. June 2017, and compare the plans made for this period over the past year. We expect of course that, as we move closer to this period, uncertainty is reduced and confidence in our planning figures increases. Do we see the figures gradually converging or do we perhaps see “erratic” behavior? If there is no convergence on the product/ customer level, is there an aggregated or elevated level where plans converge? Or at least converge enough to operationally prepare for future demands?

If yes, is it possible to develop a suitable plan that demands less effort than a full-blown S&OP cycle? If the convergence only becomes evident quite late, close to the “operational point of no return”, is the scope of customer orders on hand wide enough to serve as the planning basis for short-term resources? Resources that require medium-term or long-term planning could be assessed on an aggregated level or from a strategic viewpoint (rather than on a finished product level with detailed demand planning).

Surprisingly, it is not yet common practice to compare what has actually been ordered and delivered to the numbers in the various stages of planning – although this would be the best test of the processes in use.

Of course, we cannot expect „mathematical“ convergence; discrepancies due to uncertainty factors, risk taking and changes in company strategy are normal. But that doesn’t mean that we cannot learn anything through variance analyses.

A number of various effects can be identified, such as:

  • Systematic planning errors, that may be caused for example by unaligned or contradicting targets from the parties involved
  • Patterns (e.g. seasonal effects)
  • Customer-specific measures and effects
  • Bullwhip effects, and whether the reactions to them were adequate (also considering the time lag between measures taken and their effects)

The planning process can then be recalibrated or made leaner taking these effects into account. Adding additional structural information to the data (product groups, master manufacturing data) allows for aggregation and analyzation from a different point of view where patterns might become visible.

We don’t completely reinvent ourselves every day. But we are continuously creating and further developing processes and patterns of behavior. And we should routinely check how successful they are.