We work with many companies at various stages of an ERP implementation to help them realize business performance improvement and to charter a journey of continuous improvement. Frequently, we find that our mid-market clients do not have a formal execution plan to match the goals of their business plan and that their innovation, supply chain, marketing and sales efforts are not in alignment to realize their strategic goals. They utilize their ERP system to facilitate the execution of their business processes but under-utilize the business intelligence, forecasting, and planning capabilities to truly drive improved strategic execution. The lack of alignment can manifest itself in a number of ways, ranging from product development efforts that don’t match market needs, over/under producing various product lines because of disconnects between sales, marketing, forecasting and operations, excess labor due to seasonal demand for product, and poor service levels due to lack of available capacity. The set of best practices known as Sales and Operations Planning provides a template to enable management teams to truly align their activities towards a common goal.
The purpose of Sales and Operations Planning is to establish proper production rates and operational capacity to affect:
- Inventory levels
- Customer backlog levels
- Work force stability
The Sales and Operations Planning is also establish to extend planning horizon sufficient to manage:
The S&OP cycle is monthly with a set calendar of meetings culminating in a senior management sales and operations planning meeting. The preparation meetings utilize the outputs of the ERP system. The first step in the S&OP cycle is to extract sales history, production history, and inventory levels. These are measured against plan to highlight variances and to establish accountability. The sales history is utilized to generate a sales forecast, using the forecasting module of the ERP System. This is frequently a consensus process. With a consensus forecast generated it is reviewed in a sales planning meeting with action items generated to increase sales in strategically important areas. Based on these sales plans the forecast can be revised.
With history vs. actual captured and a sales forecast generated this information can be fed into the ERP system to generate capacity and material requirements. The capacity and material requirements information is then used as input into an Operations and Finance meeting to determine how much capacity is required and decisions are made to establish inventory levels based on desired service levels. Recommendations about make vs. buy, capacity investments, and inventory investments are reviewed by finance to ensure there is alignment to the company financial plan.
The senior executive team meets to jointly review the sales, operations, and financial plans. The plans are vetted against the business plan to ensure alignment. The plans are then changed as necessary to remove disconnects or to affect desired strategy changes. By coupling the capabilities of ERP systems with a formal planning process, business performance improvement can be realized.
To achieve the desired improvement we work with our clients to ensure they have the proper systems and processes. First generation ERP systems often fall short in properly supporting a mature Sales and Operations Planning process. We find this gap then creates a set of selection criteria that we incorporate into an ERP selection project.
If you organization is struggling with Sales and Operations Planning, we can help. Give us a call and we’ll discuss your company’s goals and how Ultra can help your team obtain them.