Demand-Driven Operations Planning Part 3

If you’re creating a manufacturing plan to support customer needs it’s of course, important to have a customer forecast, likely created by the function in your organization responsible for sales and marketing.  The sales and marketing group is normally a very positive group and will forecast numbers that will support their bonus and all the market upsides.  However, as a manufacturing planning person it’s important to have knowledge and understanding of what it would take to support the optimistic sales quantities.  Unfortunately, these optimistic quantities if built may end up in inventory without hard orders to back up the forecast.

All the constituencies (sales and marketing, manufacturing, supply planners, R&D, and procurement) must be on the same page to be able to develop an effective demand driven plan.  When this group has agreed upon an approach, then senior management must be engaged to buy in to the approach.  Achieving an agreed upon data set includes describing customer needs, competitor capabilities, internal strengths and weaknesses, and strategic opportunities.  A single plan will come out of this effort, which will become the structure of the demand driven plan and a process to arrive at a monthly plan with a fixed period of demand, a forecast period, and projected inventory levels.  The approach will match customer needs with internal and competitor capabilities.

Best supply chain practice is focused upon demand driven operations planning that combines the best attributes of S&OP with the level of production driven by pull demand capabilities.  This, of course, requires broad supply chain analysis from suppliers through customer delivery.  To achieve this comprehensive approach it’s required to have all disciplines on the same page.  Procurement must have all the supply chain partners linked into the short-term requirements and be aware of the future forecast and willing to commit to both.  Additionally, the S&OP process requires optimized sourcing and product development and distribution capabilities.

S&OP supply-demand is best combined with level production pull connectivity.  This facilitates a broad supply-chain view from upstream suppliers to delivery to the customer.  With multiple function input to the product build plan it follows that an accurate capacity utilization plan can be achieved.

Partnering with primary suppliers can be achieved with an open demand plan view.  Suppliers will be most likely willing to meet the plan as they’ve had a view of the demand even though it may have changed, but they have gained long-term confidence through communications.  Additionally, during the process of negotiating the demand build with internal functions it’s necessary to maintain contact with the suppliers about supply options.  The complete S&OP process requires optimized sourcing, product development information and distribution capabilities.  However, the end result of product changes must be taken into consideration for parts supply and planned product changes.

An S&OP process is generally run monthly.  MRP is a plan that is filled with firm customer orders and forecasted orders.  The sales forecast should begin with the orders that are already in the plan and the forecasted orders are loaded in the future buckets replacing the planned orders already in the plan.

There will potentially be different bills of material and communication with suppliers may be required to verify whether a change is possible.  Your forecasted orders will be the input for your level pull plan that you’ll share with your customers and with your suppliers.  Also, the actual customer orders, the forecasted orders, and the projected inventory levels will be the information required to be reviewed with senior executives for approval to execute the plan.

Implementation of the plan takes cooperation among all functions monitoring the execution to ensure all activities are smoothly working together or problems are being addressed.  The planning function will monitor all actual orders as they are received and replace the forecasted orders and find what differences there are and make production aware of the differences in order for them to react to any modifications required.  Additionally, the sourcing strategy must be structured to address any changes in the plan.

This strategy will include a supply market analysis and business needs assessment that may be unique or specific to you.  Additionally, it is very important that the strategy includes the selection of the suppliers that are partnering with you to achieve your market requirements.  Furthermore, it should include the structure of your bills of material, build quantities, and any special tools and techniques that need to be supported.  Finally, as the plan is being executed there should be adherence to the agreed upon details and the contractual requirements that need to be maintained must be monitored and negotiated as situations change.

In the next article on S&OP I’ll go into more depth about the supplier and customer relationship as well as internal production or supply issues that may arise.

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