S&OP, the single plan and surprises

The first time I learned about S&OP was in 1991, while working as Logistics Innovation Manager at Philips Consumer Electronics. Gerald Davies of Oliver Wight Companies presented this as the missing link in MRP II – and consequently in the business processes that aim to align supply and demand. He emphasised business processes rather than ICT although, of course, ERP was still new at that time and the term APS had not yet been coined.

It was only 15 years later that S&OP popped up again during a discussion with the new Supply Chain Manager Europe of a multinational apparel and shoe manufacturer. He was about to implement an S&OP process to better align supply and demand. His key finding was that, in the three years after i2 and SAP R3 had gone live (at the simple push of a button), the days sales of inventory (DSI) had consistently increased without any increase in finished product diversity. I was not surprised.

Although I am known for being a nerd and include a lot of mathematics when teaching and supporting projects, I consider IT and mathematics as a means to an end. Every problem determines its solution. I consider the S&OP process as a solution to the problem that turnover-driven salespeople tend to sell what is not available, while efficiency-driven manufacturing people tend to produce what is not needed (I exaggerate slightly for the sake of clarity). Putting IT in the centre of the universe creates naïve solutions like ‘the single plan’, i.e. the sales plan drives all activities in the supply chain and preferably in detail: Advanced Planning & Scheduling systems produce the production schedules from there. This single plan created increases in stock numbers at a large food manufacturer within a year of implementation.

I love multiple plans, as long as they serve a purpose. People should be aligned, not plans. I have run several in-company S&OP workshops over the last five years. My advice: meetings, Excel and ‘KISS’. So far, no complaints. Just a means to an end…

Ton de Kok, Professor of Operations Planning and Control at Eindhoven University of Technology, Department of Industrial Engineering and Innovation Sciences and Director of European Supply Chain Forum