SALES AND OPERATIONS PLANNING – A SIMPLE WAY TO GAIN FROM INTERNAL INTEGRATION

The breakdown of functional silos and the integration between the different areas of the companies, as well as the adoption of a process vision, have been widely publicized and encouraged issues for years. However, even with the adoption of integrated management systems and organizational restructuring, obtaining tangible and quantifiable results through internal integration remains a challenge for most companies.

Within this scenario, the adoption of the Sales and Operations Planning (S&OP) process has been growing over the last few years, including in Brazilian companies. Through very simple practices, S&OP seeks to simultaneously achieve improvements in terms of cost (inventory levels and production costs) and service (product availability).

These general results are achieved through improvement in the sales and production planning process, based on the balance not only between demand and product availability (including production and supplies) in a macro way, but also between volume and product mix. The process then seeks not only to provide the correct aggregated volume of products to meet the demand, but also to reach the right quantity of each type of product to meet its respective demand.

According to CORREA, the S&OP process has some specific objectives that can serve to characterize it. Are they:

1. Support the strategic planning of the business through periodic analyzes and revisions, ensuring its viability and effectiveness;
2. Ensure that the operational plans are realistic, considering the existing interrelationships between the different areas of the company;
3. Manage changes effectively from a proactive stance;
4. Manage final product inventories and/or order backlog in order to ensure good delivery performance (product availability);
5. Evaluate the performance of the sales and inventory planning process, identifying and segregating activities that are out of control from those that are under control;
6. Develop teamwork by creating conditions for each department to participate in the company's overall planning.

Description of the S&OP process

The standard S&OP process consists of five basic steps, as shown in Figure 1. Each of them will be briefly described below.

Data update

This step should occur right after the sales close for each month or planning period. It consists of three activities:

• Updating files with data from the previous month – actual sales, production volumes, stock levels, etc.
• Generation of the necessary information so that the teams in the Commercial and Marketing areas can calculate the sales forecast. This can include analysis of sales data, statistical forecast reports and worksheets for field sales staff to complete.
• Dissemination of information to the appropriate people.

demand planning

This step basically consists of the company's sales forecasting process. Its objective is to draw up a tentative sales plan that will indicate what the company is willing to sell or offer to the market.

Like any sales forecasting process, a combination of statistical forecasts obtained through the treatment of historical data, qualitative market information (obtained through the commercial team) and planning of promotional actions is expected.

The additional needs of this activity in the S&OP process relate to meeting the requirements of other areas that use the sales forecast. These requirements are reflected in the imposition of a deadline for the transmission of information, in order to allow the use of the forecast throughout the other planning stages, and also the passage of the forecast in the language used by other users, in addition to the Commercial and Marketing. It is common, for example, for companies with different ways of segmenting products between the commercial and industrial areas.

Production and supply planning

This step consists of drawing up one or more alternative production plans that seek to support the sales plan generated in the previous step, and generating the desired inventory levels, expressed by the coverage policy for each product family.

Also part of this stage is the monitoring of production and supply capacities, seeking to identify lack of capacity and, consequently, the need for corrective actions. These actions can be either demand balancing (through changing the mix or managing delays within the order backlog) or acquiring additional resources, such as: expanding capacity through overtime; procurement of critical materials in shorter than normal times; and development of new suppliers to face supply constraints.

Prior S&OP meeting

The main objective of the previous meeting is the discussion of all points of difference between demand planning and production planning, as well as the evaluation of their financial impacts. Participants are expected to arrive at the meeting already aware of these points and, if possible, armed with some alternatives. This is typically a working meeting, attended by members of the middle management of the areas involved in the material planning process.

The discussion of points of incompatibility between the plans generates two types of results: the consensus on the points where it is possible to reach a solution without the need for the involvement of the company's top management/management, and also the definition of possible alternatives regarding of outstanding issues that will be presented at the executive S&OP meeting.

It is worth emphasizing that the fact that there are still outstanding issues even after this meeting is usually not due to the middle management's inability to reach an agreement, but to the fact that many alternatives require changes in sales and production strategies - typical decisions that fall to the top management/management of the company. Another relevant aspect is that, due to the learning curve, it is common for the number of outstanding issues to decrease as the process enters into regime.

S&OP executive meeting

Final stage of the process, the executive S&OP meeting should end with all the planning closed and formalized for the entire company. While the pre-meeting is a forum for discussion and work, the executive is a meeting for approvals, decisions and follow-up. The people present at the previous meeting participate in this meeting, plus an executive committee formed by the company's top management/direction.

Approvals refer to all consensus decisions taken during the prior meeting, which may be accepted or rejected by the executive committee in favor of alternatives considered more suitable. Decisions regarding questions still open are taken after the presentation of possible alternatives and their respective impacts on costs, availability, revenue or any other consequence involved.

The monitoring aspect of this meeting is due to the opportunity that exists to evaluate the company's operational performance, allowing the directing of improvement efforts, mainly with regard to the planning activity. As an example, we can cite the monitoring, in an integrated manner, of compliance with the sales budget, as well as the incidence of stockouts.

Critical Success Factors

Despite being an apparently quite simple process, basically encompassing two activities already carried out by the companies (sales forecast and production planning) and two rounds of meetings, the S&OP process needs a combination of factors to be successfully implemented. These requirements are mainly due to the need for the different functional areas of the company to work in an integrated manner. These requirements, hereinafter referred to as critical success factors, will be described below.

Company commitment

The first aspect of this topic, related to the degree of legitimacy of the process, concerns the degree of effective involvement of the company's governing body in the S&OP process. How often are you present at meetings and what is the degree of interaction of decisions taken?

The second aspect concerns the involvement of all areas directly or indirectly affected by the material planning process. As an example of an area with an indirect relationship, we can mention the case of maintenance or engineering. In some cases, changes from scheduled production stops to maintenance may be necessary in order to make material planning feasible. Based on this example, it is possible to identify the importance not only of the presence of all areas related to material planning, but also that representatives of these areas have decision-making power.

Meeting planning

Due to the numerous developments and impacts arising from sales and production planning, S&OP meetings are constantly subject to a loss of focus and discussions on specific and less relevant points. Thus, the planning of meetings should be done in such a way as to define an agenda focused on the main points of discussion and prevent minor issues from gaining undue importance.

It is also important to communicate the agenda of the meeting in advance to those who will be present. In this way, all areas that will be involved in some type of decision to be taken will be able to prepare in advance, outlining scenarios and identifying alternatives.

Definition of responsibilities

In addition to clarifying the responsibilities of the representatives of each area within the process, it is advisable to define a sponsor and someone responsible for the S&OP process as a whole. It is the sponsor's responsibility to maintain the attention of the entire company to the process, to remove possible impediments, to incorporate additional necessary resources (participation of new people, acquisition of some tool) and, finally, general support to the process. Due to these responsibilities, mainly the need to manage conflicts between different areas and keep the company committed to the process, it is important that the sponsor is at the main hierarchical levels of the company.

With regard to the person responsible for the process, his main responsibility is to manage the execution of each of the stages of the process, including compliance with the defined deadlines, and conduct planning meetings.

planning horizon

It is related not only to the total planning period, but also to the moment from which the planning becomes more detailed (one can, for example, plan for five months, but detail the production mix only for the following month) and the presence or absence of a planning freeze period.

The importance of these definitions is based on the specific planning needs of each area involved. If, on the one hand, the supply area needs a raw material consumption forecast of, for example, three months, due to purchase restrictions, but that is not affected by the product mix, the production area can be indifferent to the long-term forecast, but require that the forecast for the following month be fixed, in order to avoid changes in the scheduling and sequencing of production.

Support tools

In any complex planning process, the use of decision support tools is a strong indication that the decisions taken adequately consider all the trade-offs involved in the problem. In the case of S&OP, there is room for the use of this type of tool, both in isolated planning activities, as well as in the sales forecast and production planning stages, as well as in the resolution stage of possible conflicts between these plans.

In the latter case, the ideal is for the company to have a tool that provides a view of its entire flow of materials, encompassing all integrated planning. This tool should assess the impact of possible changes on each of the areas involved, as well as on the entire company; for example, estimating the result of the period being planned.

It is worth mentioning that the use of support tools for each of the planning activities does not depend on the existence of an S&OP process, and may occur before or after the implementation of the S&OP process. Their use, together with the S&OP process, has the effect of expanding their potential, migrating from obtaining local gains to an integrated gain in efficiency in planning.

degree of aggregation

This is perhaps one of the most controversial points in relation to the S&OP process: to what point of disaggregation of products should the planning discussions go? If, on the one hand, a planning discussion based only on product families can make meetings much more objective and concentrated on large topics, this approach leaves room for the appearance of unfeasibility in the defined plan due to details not considered.

In turn, a planning approach by SKU eliminates this possibility of infeasibility due to the mix of sales and production, having as a negative point, however, an exponential increase in the necessary workload for planning, which may even make the process of planning unfeasible. discussion between different areas.

The suggestion for this dilemma is to previously identify the real need for planning fragmentation of each area along each stage of the planning horizon. The S&OP discussion process should always be based on the most aggregated level of information possible, but which at the same time meets all business planning needs. Any planning activity that has a disaggregated focus but only affects one area should be kept outside the S&OP process.

financial monitoring

S&OP meetings can be used to monitor and review the company's overall budget, not only in terms of volumes but also revenue and profitability. This influence on the financial aspect takes place through possible changes in the planning of the sales mix resulting from the S&OP.

Therefore, it is advisable to assess the impact of all planning alternatives discussed during the meetings. This assessment can be carried out before the meeting itself, or even during the meeting, which gives greater flexibility and dynamics to the process, requiring, however, greater support from decision support tools.

Process documentation

Usually, the degree of formalization of an S&OP process has a strong relationship with its level of documentation. Thus, it is expected that successful S&OP processes will have documented the detailed planning policy, participants, responsibilities, deadlines and objectives of each step of the process.

dynamics of meetings

S&OP meetings, instead of playing an informative role, with the communication of production and sales plans, have the fundamental objective of being forums for discussion and decision-making. The active participation of all areas present is expected, with questioning and validation by all of the chosen planning alternative.

Performance monitoring

In line with the financial monitoring aspect, the monitoring of the S&OP process must address both the performance as a whole and also that of the activities of each area involved in the process that may have an impact on its final performance.

From the point of view of the end result of the process, it is important to monitor the availability of products for sale and stock levels, in addition, of course, to the financial result of the company as a whole, as discussed earlier. Regarding the specific activities of each area participating in the planning process, we can mention the accuracy of the sales forecast, compliance with the production plan and the final productivity of the period. Figure 2 shows examples of indicators used in an S&OP process.

Flow of information - communication

In order to make the S&OP process an integrated plan across the entire company, an efficient flow of information is required between all areas involved in the process, both during the planning preparation stages and after it is carried out.

The flow of information during planning consists of sending the sales forecast to the area responsible for production planning and, subsequently, sending these two plans to the person responsible for planning the prior S&OP meeting. Also included in this flow is the communication of the meeting agenda so that all participants are prepared for the discussions. Communicating the plan, after its completion, is essential for it to be effectively used by everyone in the company.

CONCLUSION

Based on this list of critical success factors, it can be concluded that, despite being apparently simple, S&OP can become a difficult process to implement. Within this context, the following question arises: “To what extent is the effective consideration of all critical success factors necessary for S&OP to achieve its objectives? Is it possible to have a process that encompasses only a partial combination of these factors and is still effective?”

Based on this question, Larry Lapide, professor at MIT (Massachusetts Institute of Technology), structured an evolution model for the S&OP process composed of four stages:

Stage 1 – Marginal Process: Companies that have some sort of planning process, which tends to be non-formalized and sporadic, often having a chaotic nature.

Stage 2 – Rudimentary Process: companies that have formal planning processes, but not fully participatory or integrated, having only basic and rudimentary elements of the S&OP process.

Stage 3 – Classic Process: companies that have formal planning processes and that follow most of the guidelines of the S&OP process.

Stage 4 – Ideal process: stage that is hardly ever fully achieved by a company, encompassing all critical success factors at their highest level. This stage should be used as a benchmark for directing improvements to the process used.

However, what are the combinations of critical success factors that position a company in each of the stages described, more particularly in stage 3?

In order to answer this question, the CEL/Coppead team conducted a series of interviews with five companies that already have S&OP processes operating in regime, and which are considered success stories in Brazil. The process of each one of them was evaluated according to each critical success factor. In order to make the assessment more structured, it was based on a three-level scale, namely:

• Green: present success factor and fully meeting the needs of the company. (2 points)
• Yellow: Success factor present, but only partially meeting the company's needs. (1 point)
• Red: Missing success factor. (0 point)

The result of the evaluation can be seen in the table.

The analysis of the results leads us to the following points:

• Although there are distinctions between companies with regard to the score assigned to each factor, their final performance is quite similar. This was already expected, since companies that are known to have efficient processes were interviewed.
• Four factors obtained the maximum score in all companies (company commitment, definition of responsibilities, degree of aggregation and information flow), and can be considered as a starting point for the implementation of the S&OP process. Its absence becomes a strong indicator of the lack of effectiveness of the process. Analyzing the characteristics of these three factors, it is noted that all are easily implementable and require a low investment level.
• Three other factors obtained, in general, the lowest scores (support tools, financial monitoring and process documentation). These factors can be considered as important for maximizing S&OP results; however, it is possible to achieve satisfactory results, even if these only partially meet the needs.

Evaluating the factor referring to support tools a little deeper, we can say that, although packages developed specifically for S&OP are currently available on the market, their use is not essential for obtaining results. The S&OP process is not heavily dependent on the adoption of specific technology, which can be adopted after the process enters into operation.

In general, the research results confirm Prof. Tombstone. We can conclude that the analyzed companies are all in stage 3, with processes that do not fully meet all the success requirements, but that meet the planning needs well enough.

However, the most important conclusion is that, considering the implementation of S&OP as an evolutionary process, the necessary actions to reach a satisfactory stage from the point of view of results are not complex. There is, therefore, no reason to fear the implementation of this practice, as it can be started quite simply and evolve, in terms of complexity and investments, as the results are achieved and the company's confidence in the process as a everything is increasing.

BIBLIOGRAPHY

WALLACE, THOMAS F.. Sales & Operations Planning, The How-To Handbook. TF Wallace & Company, 1999

CORRÊA, HENRIQUE L.; GIANESI, IRINEU GN; CAON, MAURO. S&OP – Sales and Operations Planning, Production Planning, Programming and Control. Atlas Publisher, 2001

LAPIDE, LARRY. Sales and Operations Planning Part III: A Diagnostic Model. The Journal of Business Forecasting, Spring, 2005