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S&OP: Death by Detail

Last week I had a discussion with a customer about his S&OP process, which in his view was not delivering enough value. Useful, but it did not really make the needles move and he could not get his fingers around the reasons why. The amazing thing was that in 2 minutes, we got to the core of the problem and I am happy therefore to share the debate:

  • What is your S&OP planning horizon?
  • Approx. 3 months.
  • To what extent can you still influence sales volumes within 3 months?
  • Not a lot. We can drive or slow down sales in the short term to some extent, but generally this means we are moving volumes in time rather than really influencing them.
  • OK. So what about changing capacities or influencing cost in production?
  • Within three months? Nothing really; we can plan some overtime but within strict limits and conversion costs in the short term are fixed.
  • And what about Purchasing?
  • Well, contracts are fixed of course, so the only thing we can do is call-off less than promised. For most contracts this again means shifting volumes in time, we cannot really change them anymore.
  • So you are having a meeting about something that you cannot change anymore. What about extending the horizon?
  • Good point, we thought about that, but the problem is that we do not have all the details yet.
  • Details?
  • Yes, we must have all the details before we can enter any planning information into our system.
  • So your system must have all the details?
  • Yes, that’s what I said.
  • Who else?
  • …?
  • Does Sales make plans with a horizon longer than 3 months, e.g. about portfolio changes?
  • Of course.
  • Do Production and Sourcing make plans with horizons longer than 3 months?
  • Of course, they have to.
  • So would it not make sense to see whether these different plans match?
  • Of course, but our system…
  • Forget about your system! Do you think that Production and Sourcing would be interested in the Sales plans as a basis for their own plans?
  • I guess…
  • Would they really need to know the detailed product mix information to plan capacities and agree contracts, or could volumes suffice?
  • Good question, I suppose it depends on the horizon.
  • Congratulations, you just solved your own problem!
  • Solved?
  • We just concluded that the hunt for detail, which nobody needs but your system, is killing your S&OP process!

This discussion shows a very, very common issue with S&OP implementations. In many cases, people seem to confuse accuracy with detail, and fail to explicitly match the decisions to be taken at different horizons with the required level of detail to support them.

Are the answers always simple then? Of course not. The optimal solution is always dependent on the specific requirements, but defining the core of the problem generally means that you have solved it for 90% already. Filling in the final 10% in many cases is a matter of mindset rather than solving complex puzzles: adding more detail generally is not the answer when designing S&OP, even though your systems and many people around you seem to think it is.

If you always do what you always did, you will always get what you always got
Albert Einstein