Article by Stephen Cherlet, FarStar Consulting
A properly implemented S&OP process achieves this alignment through routine reviews and conflict resolution dealing with market demand and supply resources, keeping them in balance by re-planning quantitatively across an extended rolling horizon. Originally the term S&OP was used to identify aggregate planning (i.e. volume). A lot of people, and a lot of literature, still retain this perspective. Many, however, have blurred the distinction between volume and mix. Both short- and long-term horizons have come to be considered simultaneously in one discussion. I will tackle this major issue in a future column.
In this broader perspective, the process includes executive S&OP, Material Requirements Planning, Master Scheduling, Plant and Supplier Scheduling, Manufacturing Capacity, Outsourcing, Distribution and other detailed planning/ coordination1.
To eliminate confusion between past and current definitions, the term executive Sales and Operations Planning, or eS&OP, was coined by Thomas F. Wallace and Robert A. Stahl. The word ‘executive or e’ is an adjective, not part of the actual term. Its intent is to add clarity, referring to the executive or volume part of the morphed definition. The term first appeared in print in the 3rd Edition of their book “Sales & Operations Planning – The How-To Handbook” (T.F. Wallace and Co., 2008). This is now a generally accepted definition that appears in the APICS Dictionary 13th Edition (October 2010) and onward. The executive component to Sales and Operations Planning is top management’s portion of the overall S&OP process. It is a decision-making activity involving the leader of the business (President, General Manager, COO or Managing Director), his/her staff, a number of middle managers and specialists. The mission2 of eS&OP is to balance supply and demand at the aggregate level, align operational planning with financial planning, link strategic planning with day-to-day sales and operational activities and act as a forum for disciplined discussion around setting policy, strategy, risk and budget changes.
It is a multi-step process involving demand planning, supply planning, middle and top management meetings resulting in decisionmaking and authorization. This process occurs on a monthly schedule, displaying information in terms of both production units and revenue ($). The time horizon starts at the cumulative material lead time (demand time fence) across a horizon typically not shorter than 18 months. Now you know what eS&OP is, why should you care? You should because it is one of the most critical business processes used to achieve best in class performance to consistently outperform competitors. Key outcomes of the successfully implemented eS&OP process are: a higher customer service, a lower finished goods inventories, more stable production rates, shorter customer lead times for make-to-order products, a better visibility into future resource problems, greater accountability regarding actual performance to plan, enhanced teamwork among all functions of middle management and a monthly update to the annual business plan providing better forward visibility, leading to fewer surprises later in the fiscal year.
It is important to note that these hard benefits are the direct result and consequence of the soft benefits, namely the alignment of human energy. In a recent conversation I had with Bob Stahl, he summed it all up nicely: “The goal of eS&OP is to create a defined process to bring people together, working collaboratively to achieve a consensus across differing opinions. When this happens, a company can do things not before possible.”
1. Sales & Operations Planning – The How-To Handbook”, Thomas F. Wallace and Robert A. Stahl (T.F. Wallace and Co., 2008)
2. S&OP Management’s Handle on the Business – Presentation to APICS El Paso Chapter by Bob Stahl (2013-10-09)
About the Author
Stephen Cherlet is a senior management professional with 35+ years of experience across engineering, manufacturing, quality assurance, material, information and production technology, project management, and lean transformation. Industry experience includes aerospace, defense, and industrial products. His last role was COO at Velan Inc (TSE:VLN) responsible for global operations, supply chain and information technology. Stephen founded FarStar S.A.C. Consulting to help companies improve their business systems, operations, and supply chains.
+1-438-800-4904 ext 101