A definition of S&OP

Posted on December 7, 2015

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cashchain combined

This definition was written to assist with Neils Van Hovs Blog post on a new definition of S&OP vs. IBP

I would suggest it is a useful definition to structure your business improvement efforts.  Will continue to add a few simple diagrams and descriptive examples to assist in business understanding !

If defined by academics I would suggest really needs to be defined from a finance / cashflow / working capital management perspective first –  and then the S&OP planning process tied back to finance and operations.

For example to continue discussion something like the following.  I will post a more detailed examples, user manuals, job guides on our blog soptime /and or  sopbook.com

So here you go a draft to chew on !  My contribution to clearing the confusion for ALL

In the world business now operates (Flat) there are often grey boundaries between enterprises that are often described as the  “extended supply chain”.  In this “flat” world the ability to match resources of supply with true demand can get buffered, not counted, wasted, over ridden in many forms using traditional accounting or even specialty enterprise tools creating enormous waste, missed orders etc.

 

Thus in this flat extended enterprise there is an amplified need for a current and forward horizon planning, operational, measurement system that can measure (inventory, cashflow, working capital consumption, order book etc.) not just across functional groups within AN enterprise (eg sale / manufacturing)  but increasing cross enterprise / function (order fulfillment to contract manufacturer to component supplier) across financial business entities.

 

We at DCRA Inc. define S&OP as this financial and operational planning and process most companies and especially cross enterprise virtual fulfillment / manufacturing operations require and unfortunately majority lack.

 

We at DCRA Inc. define S&OP as that enterprise to cross enterprise process that uses a scientific based time phase lead time algorithm in their manufacturing and distribution planning which is driven by an operational planning bill of material.   The planning bill of material is not the same as an engineering bill of material it is generally the components of or finished good said enterprise controls.  Thus are the functional building blocks of a complete order of an item, group of items or build to order product.

 

{insert simple planning bill with exploded time phased component diagram here}

Figure 1

 

The S&OP planning process can run at ANY frequency or as “real time” as the appropriate, demand, supply, inventory, lead time information can be synchronized.  The more often the more strategic and lean the enterprise can run !  More profit !

{insert Figure 2 planning frequency diagram here}

Generally a weekly S&OP plan with updates to address major disruptions is state of the art but by no means is it optimal.    S&OP REQUIRES technology  enablers for this time phase planning process but is NOT and should NEVER be considered a TECHNOLOGY or software or cloud software PRODUCT.    Optimally done the technology enabler should be capable of seamless linking to ANY and all existing enterprises existing order, fulfillment, manufacturing execution,accounting, order management, financial planning, transportation and other functional processes a business currently utilizes.

 

This concept of the S&OP technology enabler being compatible with ANY other enterprise system is not an academic point it is critical to SUCCESS as with an extended supply chain / virtual business there is NEVER the ability for one organization to dictate ONE common SYSTEM.    Additionally even if  they used the same “product” the instance would be an asynchronous loosely coupled nature and thus would be impossible to reconcile disjoint plans.  So this we all use the same ERP plan is a non starter and should be avoided from day 1 and specifically identified by the S&OP definition.

 

So there is a START !  But is a start and a definition we developed 20 years ago, have applied very successfully to many clients, patented key parts of the enablers. Run the S&OP in all sorts of industries and at all sorts of planning cycle times.    I think it is also a definition most I have met who have really deployed a real S&OP success agree with !   Those selling an OLAP product, and ERP module, a supply chain CLOUD or a general consulting solution don’t generally like as it does not let them call their product S&OP ?   Most of these folks want to use S&OP as a strategic entry point to trap you into their oozing blob of function and never let go !  Be careful !

 

We find it is unfortunately contrary to the economic interests of many if not MOST who want to sell you and S&OP product (software, cloud etc.).   We think  this is because there is not a true definition of S&OP and because it does not fit typical VC, big software, IT synchronous system models that every software company product business models and their financial backers cling to !  To be clear it is not Microsoft WORD !

S&OP really requires a SOLUTIONS approach that defines a process, coaches the process but also introduces technology to save people time and consistently apply science to the decisions.

 

We KNOW from experience leadership of an organization MUST be informed so they can properly pick the path the plan to proceed with !   You have to pick… do you want financial, operational success then you have to use a SOLUTION definition  of S&OP very much like what we define here.

 

or

 

If you want to plug a product into a hole and declare functional success you could do whatever you want and call it whatever you want ! – but it will NOT create the value of S&OP !  It will not be S&OP and from what history has show often ends up being a huge distraction with a negative ROA and serves to confuse and divide the top down bottom up cooperation in a a business vs. unite them into a team !

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