Optimizing S&OP (5): focus only on where it adds value
April 11, 2016
A differentiated approach supports demand planners in focusing their planning activities where it adds most value. In event planning, explicit decisions about the risk of each promotion are essential. This is the fifth article in a series about sales and operations planning (S&OP) by dr. Freek Aertsen, academic director of the Executive Master of Operations and Supply Chain Excellence at TIAS.
When products are forecasted in several different ways, good product categorization is essential to provide the right focus, namely, where it adds the most value. This is the key to increasing planning efficiency and effectiveness – by spending available time and resources in the best way possible.
In the context of the High-Tech industry, basic categorization should be differentiated according to the demand characteristics. For instance, high-volume products with highly volatile demand will be very difficult to forecast statistically, but they still require focus in order to ensure that demand is met.
Figure: Many small adjustments - very few large adjustments (Goodwin 2010).
A differentiated approach supports demand planners in focusing their planning activities where it adds most value. Research (Fildes, 2009) has revealed that in many companies, planners spend the majority of their time on small (and often irrelevant) plan adjustments. By making use of product characterization, they can focus their efforts on those products where human judgement is required, as the use of statistics will most likely not result in an accurate forecast.
Enrich planning for events and promotions
It is necessary to enrich the planning for a successful outcome in the case of events like promotions and projects. In most cases promotions are either fully accepted or not. A huge part of the full requirements needs to be met in the short term, leading to large spikes in demand. It is therefore essential that the management process facilitates explicit decisions about the risk of each promotion.
A first prerequisite for a good promotion-management process is the separate capture of the promotions in the actuals and forecast. In this way they can be excluded from the regular forecasting process and form a focused input to the promotion demand-management process.
Promotions are to found in different sorts and shapes. As shown in the figure below for each specific promotion type a specific process has to be defined.
Figure: Promotions in different sorts and shapes.
A good promotion planning process differs from the normal statistical forecasting process as follows:
- Promotion demand is captured separately.
- Financial assessment of potential bids.
- An explicit decision to enter a promotion is made.
- Explicit risk decision.
- Promotion-based follow-up of actuals versus forecast.
The time-phased dynamics can be managed by having the detailed forecast together with the aggregated initial forecast in one view. The risk decisions are made for the bids that will end in the short term. Mid-to-long-term capacity and procurement decisions can be made using the development of overall requirements, as compared with the initial forecast.
Read more: Step 1 to 4 in this series about sales and operations planning (S&OP) by dr. Freek Aertsen.
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