When it comes to Sales and Operations Planning (S&Op), there are two perspectives. The first, or as some like to call it, the old school approach involves developing a plan to match demand for new and existing products with the current supply chain. Many organizations take this approach, as it is a traditional model that has been successful in the past.
With more volatile markets, this approach can be very dangerous. It leads to missed opportunities and inventory issues. When developing an S&OP, there are a few potentially negative outcomes. The first happens when marketing and sales are too conservative.
Sales opportunities are missed because production planned for a certain level of demand that has now been exceeded. Production can't ramp up quickly enough to meet customer requests. Marketing and sales smile and say "isn't beating forecast good news?" The answer is a resounding no.
Another potential scenario happens when marketing and sales are overly optimistic. They say the sales will be at one level, but they fall well short. Production delivers output that meets the original projected level of demand. Now, you have a warehouse full of inventory that is tying up cash. The inventory also runs the risk of becoming obsolete. Soon, you find yourself having to put reserves on the books to protect your financial position.
Let's take a quick look at moving to an S&OP process that provides more agility. In this scenario, production is on the same level as sales and marketing and vice versa. Neither side has greater influence over the other. For example, manufacturing can't dictate to sales and marketing what can be sold (based on manufacturing limitations).
When there is balance between the two, agility happens. Agility is the ability to switch gears internally in the face of market and supply volatility. Along with this recalibration, your business still has the capability to deliver products at the right time, at the right cost and quality, and still meet the customer's expectations in service.
The new S&OP model doesn't mean that you can make widgets faster than you did before. The new model requires you to do some planning for the unexpected. Simply put, that's going to happen. Understand the trade-offs, and put together plans that allow you to move quickly and easily to meet these changes. Develop contingency plans for supplier hiccups or catastrophes. If you assemble syringes, and your barrel supplier goes kaput, what do you do? Is there a contingency supplier?
You won't become a new school S&OP planning guru overnight. It takes practice to develop and build models. It requires strong partnerships with suppliers and internal customers. Lastly, you need to understand supply chain trade-offs to become more agile.
Old school is an initial step. Sure, you can spend some time there to get your feet wet before you move on to the new school program. The better you are able to sense what is happening externally, and respond to the market, the sooner you will be graduating from the new school of S&OP planning.
My name is John Sipple, and I am the President of Ignite Business Coaching. As a business coach, I work with business owners, leaders, and entrepreneurs to grow businesses profitably in stable and uncertain times, and still attain the quality of life you want outside of work.
Visit Ignite Business Coaching at BusinessIgnite.com, or contact me today! Call 859-420-5950, or email me at John@BusinessIgnite.com.
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