It’s all in the mix!

If you want to meet modern market requirements, you have to use sales and operations planning (SOP) to coordinate all areas of the company relating to production logistics as economically as possible.

Particularly successful SOP management is characterized not only by a high level of methodological competence, but also by the fact that it demands and promotes cooperative collaboration and efficient division of tasks between sales and supply chain management.

Modern production logistics aims to produce in sync with the market: not in advance, but just in time. However, this ideal is hardly economically feasible for any company. Customers and markets are far too “impatient”. They demand high delivery readiness, want short delivery times and on-time deliveries. But how can you deal with such a market environment as economically as possible? There are five strategies for this:

• They increase production flexibility. This requires higher production and more flexible personnel capacities.
• But you can also seal off production from the firestorm of the markets with a firewall of stocks.
• Alternatively, you can reduce the readiness to deliver. Every half percent reduction in delivery readiness can save considerable inventory costs.
• Just as a reduction in delivery readiness reduces the necessary inventory costs, an accepted delay in delivery reduces the necessary flexibility costs in production.
• As a last resort, you can try to educate customers to be patient. But even the automotive industry is losing customers because delivery times are too long.

None of these measures can be used as the sole actuator. It therefore depends on the right mix. The individual boundary conditions of a company and its markets strongly influence the respective interpretation of sales and operations planning. This does not make the work any easier. Nevertheless, certain basic mechanisms can be identified that regularly occur in all SOP processes (see also Fig. 1).

The planning process

The starting point of a sales and operations planning process is often a statistical forecast, which is then adjusted by the sales department. Above all, the sales department must incorporate information about projects, campaigns and competitive developments into the planning process. An initial requirements plan can then be derived from this and, in turn, a market-synchronized production plan.

The next step is to carry out more or less detailed capacity planning. The most important restrictions that may need to be taken into account are plant capacity, personnel capacity and storage capacity. In addition, there may be transport capacity, the unfortunately often neglected supplier capacity and, finally, possible liquidity restrictions.

By incorporating these restrictions, a corrected demand plan is created. This demand plan should now be feasible with the available resources. At the end of the SOP process, the result is a production plan that can be implemented with the available capacities and resources. This must then be realized!

Many areas of the company affected

Many areas of the company are naturally affected by the results of a sales and operations planning process. Sales, marketing, supply chain management, production, purchasing, procurement, logistics, finance and possibly also development all want to see their priorities and needs taken into account. And these are sometimes contradictory. The major management challenge of SOP planning therefore lies in finding a fair and feasible compromise that all parties involved can agree to. Accurate data that is understood and accepted by everyone plays an essential role in this.

In order to ensure the quality of the input information to be used for the sales and operations planning process, it is therefore crucial that sales and supply chain management work together cooperatively. When considering future requirements, sales usually thinks in terms of monetary values and product groups and is interested in the long-term trends of market development. Supply chain management, on the other hand, plans in units of individual products or stock-keeping units (SKUs) and is more interested in short- to medium-term changes in demand that are relevant to planning. These contrasting perspectives need to be synchronized.

Sales forecasts are essential

You are on the right track if you start the sales and operations planning process with statistical default values and do not require the sales department to provide information on all individual products. In this case, it is often sufficient to ask for more detailed sales information only for those items for which the statistics are not sufficient. However, the importance of a good sales forecast for the outcome of the entire SOP process is often underestimated. The drastic figures (see Fig. 2) from a project at a process manufacturer illustrate the true importance of a good sales forecast. With the existing quality of the sales forecast, almost 18 percent more stock would have had to be built up in order to ensure the required delivery capability. On the basis of an improved statistical forecast, however, the required delivery capability could be achieved with 41 percent less stock.

Central procurement management reduces response time

Ideally, the demand forecast for the entire supply chain can be based on point-of-sale data (keyword ‘big data’). This not only makes it possible to achieve significantly lower stock levels at all warehouse levels, but also more flexibility and faster reactions throughout the entire supply chain. Good sales and operations planning therefore requires a great deal of cross-divisional communication, especially between SCM, sales and – as far as possible – ultimately also the customer. An essential tool for this is higher planning frequencies and interim information during the month, which can theoretically even be driven up to real-time calculation by analyzing the ‘big data’ of each transaction. Running SOP processes only on a quarterly basis is not enough, even to begin with, as the route can only be roughly defined. Experience also shows that the jumps in change are already smaller with monthly planning. What’s more, if you recognize developments earlier, you can also react earlier.

Reduce restrictions – don’t cherish them!

It should also be noted that the results of a sales and operations planning process do not improve so much in terms of quality by getting better and better at dealing with the existing restrictions. Rather, it is important to continuously reduce the number of restrictions to be taken into account. In principle, the more restrictions there are, the greater the planning effort and the greater the opportunity costs of potential sales and customer losses, while the quality of the planning result decreases. One strategic task of SOP planning must therefore be to continuously reduce the number of planning restrictions to be taken into account in the SOP process.

Reliable values instead of gut feeling

If you look at the sales and operations planning processes carried out in practice, you can often see that the planning chain is interrupted. For example, requirements planning is overridden at the level of production control and operational procurement or, to put it more drastically, thrown in the bin. Operational planners do not believe the default values and try to work on the basis of their own experience and gut feeling.

However, it is important to avoid such a break in the planning chain. You should tackle the causes and not the symptoms. Often, the cause of overcontrol lies in the poor quality of the SOP planning results. The only thing that can help here is communication and a clean sales and operations planning process so that planners have confidence in the values provided to them. It is important that the demand side and the supply side see themselves as a team. Sometimes one secures the other, sometimes it’s the other way around.

If you manage to take into account the design tips presented in this article, you have already laid the essential foundations for successful SOP management. It is also advisable to use software solutions that support integrated SOP processes. This can certainly be implemented with some ERP systems. However, some advanced planning and scheduling tools (APS) in particular are also recommended as they provide particularly comprehensive support for the scheduling part of the SOP process. For example, APS tools offer much finer, range-oriented forecasting functionalities for improved planning and can therefore predict actual demand much more accurately.

The functional scope of the DISKOVER SCO APS software includes such forecasting procedures as well as functions for portfolio analysis and the integration of sales forecasts. The software can thus map reliable and comprehensible planning processes. But DISKOVER not only helps with such planning processes. It also supports dispatchers in their day-to-day work. Extensive simulation mechanisms that run automatically in the background optimize scheduling recommendations on the basis of constantly updated planning parameters. This can then lead to a recommendation to change the previously selected forecasting method.

With the help of APS software, you can therefore always support both the planning process and daily scheduling with the best methodology – an essential basis for successful SOP management. Nobody should rely on gut feeling and rudimentary experience any longer

Continuous Delivery

The functional scope of the DISKOVER SCO APS software is constantly being expanded through a continuous delivery model. With this rental license model, users receive all new developments automatically and in the shortest possible time. This means that the system is always up to date without the need to purchase a new program version. In addition to update management, the SCT Service Center also takes care of maintenance work. This includes live monitoring of the system functions and system operation as well as regular readjustment of the software functionality if something changes in the user company. This means that the IT department of the user company does not have to provide specialist support for the system or its users.

Specialist article, TextileTechnology , published on 16.06.2014ByAndreas Capellmann