Weekly S&OP: How it helps responsiveness and controlling costs
Literature on the topic of Sales & Operation Planning has it that the cycle of planning culminates in the monthly S&OP meeting. If a week is a long time in politics, a month is simply too long to respond to consumers in a fast moving marketplace. A competitor might face a short-term supply problem, allowing you a narrow window of opportunity to induce trial and gain marketshare. An event triggered on social media can result in sudden surge in demand or a drop in demand for a product. A hyped up online sale, like Flipkart’s Big Billion Day, triggered huge demand across the industry. To catch these opportunities effectively, response times must shorten.
By shortening the review cycle it is possible to track demand more accurately, rather than depending on forecasts. This leads to a product mix on shelf that is more closely aligned with actual demand, leading to reduced lost sales and lowered pipeline inventories. As all FMCG managers know, managing long pipelines can be difficult when demand is not in steady state.
Shifting from a monthly to a weekly planning cycle does not require a tremendous investment in effort or technology. It does require a new process and a heightened level of discipline. The key steps are:
- Bring execution discipline with focus on:
- Improving the accuracy of inventory & consumption data
- Delivering a very high Plan vs Actual performance
- Capturing and monitoring outcome measures like “Out of Stock” at key stock points.
- Define execution rules that will limit to changes in a plan. For example all changes in demand can only be before a 48-hour frozen zone. This makes it easier to develop consensus between manufacturing and sales teams.
- Implement replenishment-based fulfilment which takes the pressure off forecast accuracy and the effort required to verify forecasts (typically seven days goes in just getting forecast validated across different levels in the sales organisation). Forecast only for longer procurement lead time items.
- Disciplined process of conducting demand and supply reviews on weekly basis with standardised formats and KPIs. Focus on understanding gaps and trends.
In inventory management, traditionally inventory was traded off with information. If a perfect forecast was possible, inventory could be reduced to a bare minimum. Today, inventory is traded off with responsiveness. The faster a company can respond, the less inventory it needs to hold and the lower the lost sales. Increasing the clock speed of the S&OP process can deliver the twin benefits of lowered lost sales and simultaneously lowered inventory.