Should Suppliers Be “Silent Partners” in S&OP?
John R. Dougherty, Partners
for Excellence
Want to
improve forecasting and S&OP? Get closer to your customers.
But the information and
interaction that every company wants from its customers is exactly what its key
suppliers desire from them. The only difference is the
direction in which you are looking. The issues are the same: leadtimes, inventories, capacities, forecasts, customer
orders and supply plans. In this increasingly competitive world, these can be
best managed collaboratively with the supply chain partners working together to
improve the efficiency and effectiveness of the chain in total.
S&OP in Supply Chains
The objective of S&OP is
better customer service, lower costs and inventories, and meeting all the
business plans and targets. To help
achieve these, S&OP can provide structured communication and
decision-making regarding demand planning and inventory management with
customers and distribution partners. And it can do the same thing for
supply chain partners, whether the process is initiated by the supplier or the
customer.
Benefits can come from using
the S&OP process to monitor capacity planning, leadtimes,
costs and product quality issues, through standardized planning displays and KPI's. For optimal collaborative decision-making,
this information can be shared on a monthly basis between all key supply chain
partners. It can then be used for making timely decisions on:
Ř
demand and
supply plan timing and quantity changes
Ř
the use of
overtime and premium freight
Ř
the need to add
capacity (people and/or equipment)
Ř
the need to
temporarily subcontract to other supply chain partners
Ř
the need to more
permanently outsource some requirements to new supply chain partners
Ř
the need (often cost driven) to "offshore"
some requirements to new partners in Asia, Eastern Europe,
Often S&OP can identify
issues early enough so that the least costly and difficult alternatives can be
chosen to solve a problem.
The Role of the Supplier
The inputs and participation
of the supply chain partners can vary depending on the situation:
Ř
An interactive audience survey conducted during my APICS International
Conference presentation in October 2007 in
Ř
suppliers may be
simply treated as a capacity constraint in the rough-cut capacity planning
validation of the supply plans
Ř
the partners may
supply information and input through individual communications with those
responsible for the supply planning and/or S&OP partnership review meetings
Ř
for major
partners, there may be a separate S&OP family supply plan for their product
line, subfamily or family
Ř
some partners may collaborate in decision-making on
supply plans, inventory, tactics, leadtimes, etc.
Ř
sometimes major partners actually attend supply planning
meetings to provide real-time input and participate in the
decision-making.
Ř
often, the
partners are the recipient of numbers and notes from the S&OP process
Ř
sometimes there
are separate supply reviews or S&OP partnership meetings that exclusively
review products provided by major suppliers
Case Study: A Consumer Food Processing Company
At this company many baked products are made at two plants
from a sister division. The sister division’s S&OP process recognizes the
inter-divisional demand that is placed on these plants in two 1.5 to 2 hour S&OP
partnership meetings with attendees
from both divisions. These meetings are seen as crucial to the proper communication
and prioritization of requirements on the plants.
Twenty-nine percent of total
sales comes from over a thousand different packaging
material items produced and shipped directly to select customers from fifteen contract manufacturer plants. The company
holds a separate, 30 minute S&OP partnership meeting to solely discuss contract
manufacturer demand and supply issues.
It is attended by customer service, demand management, finance, purchasing,
and sales personnel.
Summary
Effective supply chain management
is all about applying tools and methodologies outside the boundaries of a
single company. It requires timely and usable information in a
consistent format. Its effectiveness is based on the mutual participation
in key decision-making processes by the supply chain partners -- in other
words, enlightened collaboration.
S&OP provides visibility
up and down the supply chains, in a level of detail that is appropriate and
significant to management, supporting timely decision making on demand,
inventory (at the right spot in the chain), and supply plans and
resources.
S&OP monitors partner
performance, and provides early warnings to the partners where improvement is
needed and when it's time to adjust volumes.
And most importantly, S&OP provides a clear framework that
identifies when and how decisions need to be made, along with the roles and
responsibilities of each supply chain partner.
Linking and collaboration
are the keys to successful supply chain management, and S&OP provides the
structure to ensure timely and accurate interaction between supply chain
partners.
This article is excerpted from Sales & Operations Planning – Best Practices by John Dougherty
and Christopher Gray.
John Dougherty is a founding
Senior Partner of Partners for Excellence (www.partnersforexcellence.com). For 30 years he has provided management
counseling, education, and hands-on process improvement consulting to manufacturers world wide. He is conducting the 6-part APICS
Webinar Series on S&OP during November and December 2007. He can be reached @