Ed. Note: In today’s guest post, Eric Deutsch, principal with Oliver Wight consulting, provides some additional insights into their method of sales and operations planning, answering some of our most-asked questions. You can also see earlier thoughts on S&OP here. For more from Eric, see our June webinar, Developing Corporate Muscle Memory with IBP
- Are you working with any aerospace companies and what is different about handling them? Yes, several aerospace companies have implemented S&OP. According to my colleague Jim Correll, “Aerospace companies have the same challenges that other companies have when it comes to IBP. Adapting IBP to the multitude of organizational structures that we encounter in aerospace companies and other types of industry is always a challenge. What we do find is that forecasting in aerospace companies that are suppliers to the large airframe manufactures and military contracts is easier because their schedules are typically much firmer than in other industries.”
- In a Consensus forecast, how do you reconcile high expectations of the Marketing people with the statistical forecast? Especially with highly variable demand, both intermitent and highly volatile.First, there is a place for statistics, and it typically doesn’t work well in highly variable, volatile, and sporadic environments. If the highly variable demand is associated with low volume/revenue products, you may want to ask yourself “Why am I in this business? What will we do to get these products moving?” If the highly variable demand is associated with high revenue “big hits”, then you have to get closer to the customer and get more demand information from them. Second, you want to turn “expectations” into “PLANS” and hold people accountable for results. As words, “forecasts”, “guesses”, and “expectations” have no accountability behind them and shouldn’t be used to drive business decisions. A “plan” (i.e. Demand Plan, Supply Plan) means that you have activities in place to achieve that number (plan the sale and sell the plan) and that you should be held accountable to execute on those activities to achieve the plan. Every month, you “re-plan” in IBP by reviewing the latest information, changes since the last cycle, and gaps to strategic objectives. It’s amazing how much better people become at planning when they are held accountable for hitting the plan…not over, not under, but HITTING the plan. Sometimes, folks are rewarded for exceeding the sales plan. “We hit 125% of plan!” Great for the top line…but often the supply chain suffers because they were scrambling to fulfill demand that nobody told them about, typically at a higher cost. Plan the sale and sell the plan and use shared tactics (e.g. inventory, lead times, capacity) to handle variability.