KCMN’s May meeting featured John Boyer, President of J.E. Boyer Company, and Eric Krichbaum, Vice President of Operations for Milbank Manufacturing discussing the benefits and process of Sales and Operations Planning.
John described Sales and Operations Planning (S&OP) as:
The activity for effectively balancing demand and supply on a regular and formal basis.
It can also be referred to as:
Top Management’s handle on the business.
While the discipline of Lean focuses on the business’s execution, the effectiveness of the execution is limited by the effectiveness of the planning process. Plans for both the supply and demand side of the business require a balance to avoid too much inventory vs. too many out of stocks. The primary problem with accurate plans is the lack of the right data needed and communicated across functional areas.
The Eight Steps To Sales and Operations Planning Are:
- Day 1 – collect actual data – orders shipped, inventory, production, etc. by demand manager
- Day 1 – sales demand/forecast by sales force submitted
- Day 1 – sales data aggregated
- Day 2 – corporate sales review by VP of Sales
- Day 3-4 – sales and operations analysis by the demand manager
- Day 4 – Pre- S&OP meeting by VP of Operations
- Day 5 – S&OP meeting by President
- Daily/weekly – communication and feedback with the demand manager
The expected and/or realized benefits of the S&OP process were measured in a survey of manufacturing companies across the US. Among the benefits were improved cross-functional communication, fact-based management decision processes and better labor and capacity planning. The survey results are downloadable at www.jeboyer.com
Eric Krichbaum shared Milbank’s impetus for undertaking a better S&OP process:
The old process was labor intensive, elements were disconnected, and the company viewed planning as an important business process. Their goals focused on reduction in inventory, increased stock availability and process efficiency. The process took a little over a year to implement, beginning in January 2010; the first full S&OP review took place in February 2011.
The benefits Milbank has realized from their improved S&OP process included:
- Improvement in the level and accuracy of information for both sales and operations (“VP is learning things they didn’t know before”)
- The monthly load plan that used to take 2 days to prepare now takes 2 hours.
- Production plans are aligned with sales forecasts.
- Improved communication between the demand and supply side of the business.
Eric also shared Milbank’s ‘lessons learned’ from the process, which were tied closely to John Boyer’s four keys to success:
You must have active and visible participation from the executive team – this is key for keeping people engaged and on timeline
Get knowledgeable expert help – if you are self-taught you don’t always know what you don’t know
Change management is important (The only person who likes change is a baby with a wet diaper)
Create a cross-functional design team
Don’t short-change the IT resource – you will likely need IT resources to improve data quality
Publish an annual calendar – a rolling 12 month S&OP meeting schedule ensures that key participants are at the meetings
While Eric acknowledged that the process was neither cheap nor easy, he was a strong advocate for the process as a way to stay competitive in what is an increasingly competitive and demanding marketplace.