LEAN and the Sales & Operations Planning Process

When I talk with organisations about forecasting most tell me it's not possible in their industry, their customers don't know what they need so how are they ever going to know? That usually just code for our sales guys like to take orders rather than build relationships and understand the customer needs. Or they tell me they do this process, daily / weekly when what they are really talking about is a planning meeting. So what is an S&OP process and how does it help you on your LEAN journey.

What is an S&OP Process 

A Sales & Operations Planning Process is firstly something you run typically monthly, you could do it fortnightly but you would need to be in a really really volatile environment for that to be the need. 

The process actually starts way back at your annual budgeting where your sales guys/account managers and senior leadership team get together to discuss (sometimes hotly) what the expected sales per customer will be, where the new customers will come from, what customers you will be exciting, and of course what resources will be needed to service all of this. So your basic enjoyable budgeting process. Once you have this-this becomes your stake in the ground and everything from now on in your S&OP will link back here.

The sales team (or account management team) are responsible now for creating an ongoing forecast of what they're customers will be spending with you for at least the next 3-4 months on a rolling basis. It doesn't have to be by-line by line detail but there does have to be substance to their numbers. There will be a combination of firm orders, forecast orders - so orders you know about but don't have a firm PO for or are 85% certain will happen and then there is everything else with is just imaginary until it crosses at least the 85% certainty line. 

The sales team and the operational team sit together monthly and review the new forecast with the operational team asking questions to verify the information from the sales guys. Think about it as a Shark Tank / Dragons Den scenario where the sales guys are trying to convince the ops guys the numbers are real. The Operational guys are interested in the risks linked to the numbers and certainty about the relationship with the customers.

As part of this process, you are also reviewing the previous month's forecast Vs what actually got sold and you are looking to understand the variance both positive & negative. In other words, if more sales appeared than you expected why? after all, you probably had to scramble around to get more material at higher costs than planned, probably ran more overtime than you had planned and so on. Conversely, if it was lower than expected you had extra material that you had to spend money on you didn't need to, you now have a cost of stock holding to think about and you had more people than you wanted. You see the waste mounting up here? 

What about the PDCA loop, have you spotted that?... You Planned the sales (Budget & Forecast), Did the work, Checked the forecast Vs actual and then you are reviewing the valiance to close the gap - PDCA. The bet is when you do it monthly the gap reduces between forecast, budget and actual sales.

S&OP Outputs 

 From a good S&OP process you can get a huge number of things:

1. A realistic forecast of what your sales will be like - you do this by asking questions of your customers and building trust 
2. A closed loop improvement system to get a better forecasting & budgeting system
3. An accountability tool to hold your sales guy to, they set the numbers after all
4. A wider team understanding of the real workload requirements
5. A real time  (or month to month) interactive review of your performance to your financial budget that your entire team are aware of i.e. variance analysis of performance to budget & performance to forecast.
6. A rough cut capacity plan for the operation i.e. how many people you need to meet your sales, typically based on a percentage of sales.
7. Analysis of actual production manning used Vs planned
8. A closer sales & operations team through the regular contact and justification of the numbers everyone buys in to the final numbers.

Where's the LEAN ? 

So ok we have explained the PDCA element to the process but what about the 8 LEAN wastes, surely they can't be captured here.. really?

But Our Customers Can't Forecast

Really?.. lets think about this for a second.

• From a new product point of view they know what they are working on just now in the design process, you should too, that way you can help ensure that they are designing it with the minimal amount of waste designed in. This helps them and ensures you know the timeline.
  
• They sell things every week / month, so what did they sell, help them keep track of it, what is their re-order point and sales frequency, help them understand the use of the historical data and help them to ask the questions of their customers
  
• You don't feel you can ask the questions. Sorry that doesn't wash, it's the job so dive in, it will reduce yours and everyone else's stress levels!
  
• Our customers wont share that information with us. Ok so why wont they? is there a trust issue that you can fix? if not then monitor your own sales to them and project from that

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Summary 

Organisations, irrespective of their size, should be running an Sales & Operation Planning Process. It dramatically improves the accountability of the sales team, builds the relationship between sales & operations, it improves your performance to budgets, reduces waste in your system and so much more.

A good S&OP process is about having the difficult conversations, between your sales team and your customers, between operations and sales and everyone in between.