The mix makes the difference

Morne production logistics would like to produce in sync with the market: not in advance, but just in time. However, this ideal is hardly economically feasible in any company. Customers and markets are far too "impatient". They demand a high degree of delivery readiness, want short delivery times and on-time deliveries. But how can you deal with such a market environment as economically as possible? There are five strategies for this:

1. They increase production flexibility. This requires higher production and more flexible personnel capacities.
2. But they can also insulate production from the firestorm of markets by building a firewall of inventory.
3. Alternatively, you can reduce the readiness to deliver. Every half percent of reduced readiness to deliver can save considerable inventory costs.
4. Just as reducing readiness to deliver reduces the required inventory costs, an accepted delivery delay reduces the required flexibility costs in production.
5. As a last resort, you can still try to educate customers to be patient. But even the automotive industry loses customers because of too long delivery times.

None of these measures can be used as the sole actuator. It is therefore a question of finding the right mix. The individual boundary conditions of a company and its markets strongly influence the respective interpretation of the Sales and Operations Planning (SOP). This does not make the work any easier. Nevertheless, certain basic mechanisms can be identified that regularly occur in all SOP processes (see also Fig. 1).

The planning process

The starting point of a sales and operations planning process is often a statistical forecast, which is then adjusted by the sales department. Above all, the sales department must bring information about projects, campaigns and competitive developments into the planning process. An initial demand plan can then be derived from this, and from this in turn a market-synchronized production plan.

The next step is to carry out a more or less detailed capacity planning. The most important restrictions that may need to be taken into account are plant capacity, personnel capacity and storage capacity. In addition, there may be the transport capacity, the unfortunately often neglected supplier capacity and, finally, possible liquidity restrictions.

By including these restrictions, one arrives at a corrected demand plan. It should now be possible to implement this demand plan with the available resources. At the end of the SOP process, there is a production plan that can be implemented with the available capacities and resources. This must then be implemented.

Many divisions affected

The results of a sales and operations planning process naturally affect many areas of the company. Sales, marketing, supply chain management, production, purchasing, procurement, logistics, finance and possibly development all want to see their priorities and needs taken into account. And these are sometimes contradictory. The great management challenge of SOP planning is therefore to find a fair and feasible compromise that all parties can stand by. Accurate data that is understood and accepted by all plays an essential role.

In order to ensure the quality of the input information to be used for the sales and operations planning process, it is therefore crucial that sales and supply chain management work together cooperatively. When considering future requirements, Sales usually thinks in terms of monetary values and commodity groups and is interested in the long-term trends of market development. Supply chain management, on the other hand, plans in units of individual products or inventory units (SKUs) and is more interested in short- to medium-term, MRP-relevant changes in demand. These contrasting views need to be synchronized.

Sales forecasts are essential

If you start the sales and operations planning process with statistical default values and do not ask the sales department to provide information on all individual products, you are on the right track. Then it is often sufficient to request more detailed sales information only for those articles for which the statistical statements are not sufficient. However, the importance of a good sales forecast for the result of the entire SOP process is often underestimated. The drastic figures (see Figure 2) from a project at a process manufacturer illustrate the true importance of a good sales forecast. With the existing quality of the sales forecast, almost 18% more inventory would have had to be built up to ensure the required delivery capability. On the basis of an improved statistical forecast, on the other hand, the required delivery capability could be achieved with 41% less inventory.

Central procurement control reduces response time

Ideally, it is possible to build up the demand forecast for the entire supply chain on the basis of point-of-sale data (keyword "Big Data"). This makes it possible to achieve not only significantly lower inventories at all warehouse levels, but also more flexibility and faster reactions throughout the entire supply chain. Good sales and operations planning thus requires a great deal of interdepartmental communication, especially between SCM, sales and - as far as possible - ultimately also the customer. An essential tool for this is higher planning frequencies and sub-monthly interim information, which can theoretically even be driven up to real-time calculation with the analysis of the "Big Data" of each transaction. Running SOP processes only on a quarterly basis is not enough, even for a start, because you can only roughly define the route here, so to speak. Experience also shows that the leaps in change are smaller even with monthly planning. Furthermore, if you recognize developments earlier, you can react earlier.

Reduce restrictions - don't hedge!

It should also be noted that the results of a sales-and-operations-planning process are not so much improved qualitatively by the fact that the handling of the existing restrictions in the