From SCDigest's On-Target E-Magazine
May 4 , 2011
Supply Chain News: In Which Direction is Your S&OP Process Biased?
One Question that is Infrequently asked and even less Frequently Answered is Whether the S&OP Process is Consistently Biased in one Direction or Another
SCDigest Editorial Staff
The following article is an excerpt from our recent SCDigest Letter on Sales & Operations Planning 2011.
To download an electronic copy of the full 16-page report, and access a variety of other S&OP resources, go here: Sales and Operations Planning (S&OP) information Center.
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The problem, he told us, is that not only will there likely be disappointment in the end because the plan is not met, but that the impact of that may have been exacerbated because inventories and other aspects of the supply chain may have been geared up to meet an unrealistic demand plan.
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What Do You Say?
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As the supply-demand plans are reconciled with the company’s financial plans in a Sales and Operations Planning process, if there is a discrepancy, in which direction does the resolution of that discrepancy tend to go?
Are the adjustments made from a top-down perspective, meaning the curve bends towards the existing financial plans, or towards the bottoms-up plans that might more accurately represent what the supply and demand organizations really believe can be achieved?
Of course, the issue largely comes into play when the consensus forecast will deliver lower results than the company’s financial forecasts. A core element of S&OP is to view alternatives - pricing, product mix, promotion, etc. - that can be altered to get the company back onto its financial budget.
This process is especially critical for public companies that must manage towards public financial projections and hitting analyst estimates.
SCDigest recently talked to one supply chain executive who had developed S&OP programs at three different companies. He did not want to be identified, but had this to say on the matter:
“Almost every company has a bias one way or another, and of course most often - but not always - it is towards the existing financial numbers,” he said. “Each S&OP process has its own unique culture, and this can be an important part of that culture - how discrepancies between the two sets of numbers in the end are reconciled. I have seen cases where everyone in the room knows the numbers are not going to be met, but they sign up for the financial plan anyways.”
The problem, he told us, is that not only will there likely be disappointment in the end because the plan is not met, but that the impact of that may have been exacerbated because inventories and other aspects of the supply chain may have been geared up to meet an unrealistic demand plan.
(Supply Chain Trends Story Continued Below)
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