“You don’t want to have to wait until the monthly S&OP meeting.”
sion-making process. “It’s about ensuring that the various disciplines take a joint approach to making the best decisions for the company,” explains Willemsen. “The whole supply chain is teeming with trade-offs, and there’s often more than one right answer. That’s why it’s so important to make the right choices together.” Asked to give an example of a trade-off, Wil- lemsen names having to choose between optimising profit and reducing stocks: “If you choose to optimise profit, you can run your manufacturing operations at full capacity but with the consequence that stock levels will rise along with profit. If you choose to reduce stocks, on the other hand, you can restrict production levels, but that will also generate lower profits. These are fundamental decisions which can only be made by senior management.” According to the Oliver Wight integrated business model, S&OP is a monthly pro- cess consisting of a total of five sessions in which several disciplines come together to make decisions (see box). However, one
FIVE STAGES OF IBP
As Oliver Wight envisions it, Integrated Business Plan- ning (IBP) can be divided into five stages or ‘reviews’. The purpose of each review is to identify and evaluate any changes that have occurred in the past month. The purpose of each related session is to make decisions.
1 Product management review The product management review is all about the product portfolio. Are new products in development? Are there any products we can say goodbye to? What marketing campaigns are lined up? Typically, a product management review session will be chaired by the head of the product management department, with R&D and marketing managers in attendance. Examples of gaps could be that the new product development pipeline is insufficiently filled with innovations to meet the strategic objectives, or that new product launches are facing delays.
2 Demand review In the demand review, the focus is on the expected level of demand. Which regions are lagging behind? Which customers are likely to order more? What impact are economic developments having? Chaired by the head of sales, people from product management
should be among the attendees – if the expected level of demand falls short of the objectives, it could make sense to bring certain product launches forward, for example.
3 Supply review
What is the status of capacity at the manufacturing and distribution facilities? That’s the key question in the supply review. The purpose of this review is to align manufacturing and distribution capacity with the expected level of demand (demand review). The ques- tion is, what can the supply chain department do to close any gaps? Which product groups do we need to manufacture more, or less, of? Should we switch from three to five shifts? Do we need to hire extra storage capacity? This session is chaired by the head of opera- tions or supply chain management.
4 Financial review
This review produces the overall picture: the volumes discussed in the demand and supply reviews are translated into financial terms. Are we still on track to meet the sales and profit targets? And if not, what can we do about it? Can we stimulate demand? Can we reduce costs in the supply chain? This process could
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be chaired by the financial controller. 5 Strategic review
This final session is joined by the entire senior manage- ment team. Their role is to check that things are moving in line with the corporate strategy. This is also the time and the place for decisions to be made on matters which fall beyond the remit of the managers who have been involved in the review process so far – decisions about entering new markets, closing manufacturing plants, etc. Needless to say, this session is chaired by the CEO.
of the most common mistakes is to regard S&OP merely as a monthly cycle of meet- ings. In reality, it is a continual process that runs 24 hours a day, 7 days a week. The meeting sessions should merely func- tion as a framework within which to make the decisions that employees have been preparing the groundwork for in the days in between – by generating and consoli- dating forecasts, determining stock levels and such like. “Another pitfall is to del- egate attendance of the meeting to mem- bers of lower management who do not have decision-making authority. Rather than being about sharing information, such sessions are about actually making decisions,” says Manning.
Commitment
Thorough preparation between review sessions should also succeed in prevent- ing the meetings descending into endless discussions about the validity and reliabil- ity of the figures. If participants do find themselves caught up in such discussions
during an S&OP session, that is often the sign of a different problem altogether: lack of mutual trust and lack of commitment from the disciplines in question. “Any time and energy spent discussing figures is counter-productive. You need to put a stop to it as quickly as possible,” states Willemsen.
This highlights the importance of com- mitment from all the disciplines involved. S&OP must not come to be regarded as a project of the supply chain department, that simply wants to know what order level it will have to deal with. “After all, it’s a management process, not a supply chain process,” says Manning.
Commitment also means that those involved not only need to agree to a plan, but also need to execute it. Following a session, it has been known for something unexpected to happen in the market or in the chain, and for the various disci- plines to respond differently than agreed. Any mutual alignment has then gone out of the window. “Commitment is all
SUPPLY CHAIN MOVEMENT, No. 1, Q1 2012
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