Sales & Operations Planning (S&OP)
Sales & Operations Planning (S&OP) is an integrated business management process that provides alignment and synchronization across all functions of an organization. S&OP helps to break down the barriers between departments and enables the organization to focus on a common goal rather than operate as different functional silos. S&OP has a monthly cycle that consist of the following meetings/processes:
Demand Review: The Demand Review is the first meeting in the monthly S&OP cycle. The goal of the Demand Review meeting is to produce an unconstrained demand plan (UDP) that represents all the demand that could be satisfied if the required materials and capacity were available. A combination of statistical forecasting, sales inputs and promotions, new product introductions (NPI) and end-of-life (EOF) plans are used to develop the UDP.
Supply Review: The Supply Review is the second meeting in the monthly S&OP cycle. The goal of the Supply Review meeting is to create a constrained supply plan (CSP) by applying material and capacity constraints to the UDP created during the Demand Review meeting. Recommendations on how to
resolve imbalances between the UDP and the CSP are sent to the Integrated Reconciliation meeting for resolution.
Integrated Reconciliation: The Integrated Reconciliation meeting is the third meeting in the monthly S&OP cycle. Integrated Reconciliation resolves imbalances from the Demand Review and Supply Review meeting and generates financial plans for revenue, margin and cash flow that will be used for the Executive Review meeting.
Executive Review Meeting: The Executive Review meeting is the fourth meeting in the monthly S&OP cycle.
Product Review Meeting: The Product Review meeting is the last meeting in the monthly S&OP cycle. During the Product Review meeting new product introductions (NPI) and end-of-life (EOL) plans are created.
An effective S&OP implementation is more about processes and business alignment that it is about software tools. Tools for statistical forecasting, inventory and capacity planning and financial modeling are all used at different points during the monthly S&OP cycle to facilitate communication between the organizations stakeholders.
Material Requirements Planning (MRP)
Material Requirements Planning (MRP) is a computer-based inventory management system that places orders for dependent demand items for manufacturing and distribution companies. Dependent demand items are used to produce finished goods and include raw materials, subassemblies and component parts. MRP works backwards from a finished goods production plan and uses bills-of-materials, inventory targets, etc. to create the time-phased purchase orders, transportation orders and manufacturing work orders to meet the demands for finished goods. MRP is a base process in Enterprise Resource Planning (ERP) applications that link functional areas such as accounting, engineering, finance, human resources, marketing and sales across an entire business enterprise.
Why Doesn’t Our MRP Work?
The MRP logic probably works fine but some of the internal settings may be incorrect and/or the data being used by the system is no longer accurate. Due to these issues the old adage “garbage-in, garbage-out” causes many companies to either turn off the MRP logic or simply ignore the mountain of exception messages that are produced. Some examples of internal setting that can cause problems are:
- Time-fence setting that regulate how far forward demand can be pulled
- The disaggregation setting that determine how demand is planned (e.g. once a month or spread over the number of weeks in the month)
- The netting logic used for setting how actual orders consume the forecast
With many companies the data used by the MRP logic hasn’t been updated since the system was first implemented. Some of the data issues that cause problems with the MRP plans are:
- The bills-of-materials (BOMs) in the system are incorrect
- The lead times in the system are incorrect
- The inventory targets in the system are incorrect
- The yields used are no longer correct
- The routings used by the system are no longer accurate
- The production plan being input to the system is unconstrained which causes the plans generated by the MRP logic to not be achievable due to constraints with manufacturing capacity, supplier capabilities, storage limitations or transportation capacity
How Can Optimum Profit Consulting Help?
For companies that have an ERP system but don’t use the MRP functionality a quick assessment can be performed to determine which of the factors discussed previously are causing problems. Optimum Profit Consulting will then create a roadmap of the activities needed to make the MRP logic useful.
Many companies don’t have an ERP system but do have some form off account software. For these companies Optimum Profit Consulting can use our software to set optimal inventory targets and then use our MRP module to create purchase orders that can be executed by the accounting software.
Strategic Network Optimization
How do you assess the impact of potential changes to your supply chain network such as outsourcing to China, adding additional manufacturing capacity or changing your distribution network? Are these impacts usually analyzed by committees or at best put into high level spreadsheet models that lack the detail of the real world? Wouldn’t it be better to have a realistic model of your supply chain network that can rapidly solve multiple scenarios before reaching any decisions? This is exactly the type of analysis that Strategic Network Optimization is designed to perform.
What is Strategic Network Optimization?
A typical supply chain network is made up of suppliers, manufacturing plants, distribution centers and customers linked together by transportation routes. For every element in the supply chain network there are going to be costs and constraints that must be included to accurately represent the capabilities of the network. For example, suppliers may have limits on how much they can produce, manufacturing resources only have a certain amount of capacity, distribution centers may have maximum storage limitations and transportation lanes may have minimum shipment quantities. Once all the details of the supply chain network are added the final element is a forecast of demand for each product at each customer location or distribution territory.
Strategic Network Optimization (SNO) calculates the most optimal (highest profit or lowest cost) way to source supplies, production and distribution across the supply chain network. SNO uses a cost optimization solver (linear program) that creates a time-phased plan of what to purchase, manufacture and distribute across the supply chain network.
What does the Network Model Contain?
The model can include all of the revenues, costs, quantities and capacities associated with every supplier, manufacturing location, distribution center, transportation lane and customer in a companies' supply chain network. The level of detail in the model is client specific and may include:
- Manufacturing costs and capacity by product by resource
- Distribution cost and capacity by transportation lane and mode
- Maximum inventory levels by product by location
- Minimum production rates by product by resource
- Maximum distribution center throughput by product by location
- Revenue by product by customer by location
- Safety stock targets by product by location
- Inventory carrying costs by product by location
- Variable production run sizes by product by location
- Forecasted demand by product by customer by location by period
Essentially, any cost or constraint in your supply chain network can be included in the model.
What are the Opportunities?
There are many areas of missed opportunity that manufacturers face by not optimizing their supply chain network. There is a one-time savings for decreasing overall inventory levels and an ongoing savings in the reduction of inventory carrying costs. Reductions in total manufacturing and distribution costs are expected although it is possible that one may increase and another may decrease in an optimal network plan. In addition, many “what-if” scenarios may be performed to answer strategic supply chain network questions such as:
- What is my manufacturing and distribution plan if sales increase 5, 10 or 15 percent?
- What impact does removing a plant or production line have on customer service and cost?
- What does it cost to increase fill rates from 95 to 98 percent?
- Should I pre-build inventory or add overtime?
- What impact does a new product have on my supply chain network?
- Should I add capacity or outsource manufacturing?
Today this type of supply chain planning and “what-if” analysis is probably being performed using spreadsheets or other manual methods. Optimum Profit Consulting can enhance your existing processes by providing cost optimization across your entire supply chain network.
Supply Chain Software Implementation & Consulting Services
RapidResponse (RR): RR performs key supply chain management and sales and operations planning processes. As these processes are brought together with RR end-to-end model of the supply chain in created. RR provides capabilities for sales & operations planning, demand planning, capacity planning, inventory management, inventory planning and optimization, master production scheduling, order promising, supply planning, supplier collaboration, engineering change management and integrated project management.
Multi-Stage Inventory Planning & Optimization (MIPO): MIPO calculates optimal inventory targets for every product/location combination across the supply chain. IO uses demand, demand variability, lead time, lead time variability, cost and desired customer service levels to calculate inventory targets that maximize service at the lowest possible inventory investment.
Oracle/PeopleSoft/JD Edwards/Numetrix Software
Strategic Network Optimization (SNO): SNO models the entire supply chain including suppliers, manufacturing, distribution, storage, outsourced manufacturing and customer demand. The model can include all costs and constraints at the lowest level of detail desired. SNO uses an optimization solver to plan you network at the lowest possible cost or highest profit. SNO is typically used for high-level strategic analysis and "what-if" simulations.
Production & Distribution Planner (PDP): PDP can also model all costs and constraints across the entire supply chain and is typically used for tactical planning. PDP optimizes the flow of goods from procurement through manufacturing to distribution with real-time visibility and event management. PDP simultaneously performs Master Production Scheduling (MPS), Distribution Requirements Planning (DRP) and Material Requirements Planning (MRP) while respecting real-world constraints.
Production Scheduling (PS): PS models manufacturing processes within the four walls of the factory. PS can be used in both process and discrete environments and maximizes shop floor throughput while optimizing the use of resources. The PS model can include raw materials, machine capacity, tooling requirements, labor by skill level, sequence dependent setups, co-products, by-products and any other shop floor level constraint imaginable.
Inventory Optimization (IO): IO calculates optimal inventory targets for every product/location combination across the supply chain. IO uses demand, demand variability, lead time, lead time variability, cost and desired customer service levels to calculate inventory targets that maximize service at the lowest possible inventory investment.
Collaborative Operation Planner (COP): COP models the entire supply chain including suppliers, manufacturing, distribution, storage, outsourced manufacturing and customer demand. The model can include all costs and constraints at the lowest level of detail desired. COP uses an optimization solver to plan you network at the lowest possible cost or highest profit. COP is typically used for high-level strategic analysis and "what-if" simulations.
Supply Chain Planner (SCP): SCP can also model all costs and constraints across the entire supply chain and is typically used for tactical planning. SCP optimizes the flow of goods from procurement through manufacturing to distribution with real-time visibility and event management. SCP simultaneously performs Master Production Scheduling (MPS), Distribution Requirements Planning (DRP) and Material Requirements Planning (MRP) while respecting real-world constraints.