Us the Truth:
Will We Make What We Need?
No surprises. This is one of the primary objectives of the Sales and Operations
Planning (SOP) process. We can't always do what we would like to do, but
it shouldn't be a surprise. The executive management team deserves to know
all the key issues (even if some of them are ugly) and have enough time
to cost effectively take action to avoid the problems, thus avoiding disappointing
essence, the primary objective of both the demand and supply planning step
is to get all the cards out on the table. This means identifying the assumptions
the proposed plans are based on, identifying the associated risks and proposing
solutions. The last two steps in the process are to find consensus solutions
based on facts derived in steps 2 and 3. Everyone should know what to expect.
No surprises in the financial performance. No surprises in customer deliveries.
No surprises in gross margins. This requires taking a quick look at the
proposed plans and digging deep to understand in detail what will be required
to execute both plans. This is what should happen in Steps 2 and 3.
the sales and marketing people have put a lot of effort into planning demand,
what do we need to talk about in the supply planning step?
Key Questions to be Answered in Step 3
supply planning step objective is to evaluate the supply plan that would
be needed to satisfy the demand plan (determined in Step 2) while simultaneously
meeting inventory and customer delivery lead time targets. The purpose
is to determine what actions are needed to get the job done and get prepared
to communicate to the rest of the organization any risks and uncertainties
in actions needed to execute the supply plan -- eliminating any surprises.
Here are the key questions to be answered by the manufacturing, planning,
engineering and purchasing people:
QUESTION #1: Any problems meeting the supply plan?
in the demand plan may require changes to the supply plan. Additional people,
more equipment, overtime, outsourcing, compressing lead times, etc., may
be required to meet the revised supply plan. Do we have a problem increasing
the demonstrated capacity to meet the required capacity? Do we need to
increase supply plans inside the time fence that cause the need to compress
lead times on components or raw material? Changes in the supply chain capability
because of loss of people, material shortages, supplier going out of business,
etc., may put the previous supply plan in jeopardy. These realities, even
if disturbing, need to be identified and communicated so that everyone
is aware of reality!
#2: What resources are needed to meet the supply plans?
A major focus in the supply meeting is to decide what we need to make to
meet the customers needs. Do we need more people? Schedule more hours?
Look for additional sources? What are each of these actions going to cost?
#3: What are the key assumptions made to meet the proposed supply plan?
The supply plans can be met if the new supplier can meet our specs, if
the new supplier can get certified, if the additional capital expenditure
is approved, if we can find and hire capable people, etc. These assumptions
represent a potential risk. They should be communicated to make everyone
aware of what must happen to meet the supply plans and discuss them in
the partnership and SOP meeting. The consensus decision may be that these
assumptions are too risky and not to go forward.
#4: Any supply plans at risk?
Stuff happens! A key supplier just called and informed us we won't get
all the material needed. The earthquake took it's toll on their plant.
Quality problems have caused some engineering design changes that will
take 8 weeks, putting production on hold. A key piece of equipment needs
repair. It will be on the disabled list for 3 weeks and it will be slow
to ramp production back up. The new hires are slow to meet productivity
goals. Which supply plans are impacted?
#5: What actions are needed to minimize the risks?
We could pay a premium and get material from an alternate supplier. We
could move the work to an alternative work cell in the plant. We could
build a large buffer inventory before shutting down the equipment for repair.
We could hand fit the old material at a higher cost and lower quality until
the engineering revisions are completed. Some of these alternatives may
#6: Need to reschedule any current supply plans and which demand plans
Unfortunately, the ugly truth is that these risks are sometimes high and
we won't meet some of the existing supply plans that looked certain just
4 weeks ago. Does the organization want to know about the impact before
or after the fact? After the fact means making apologies to investors and
customers for not keeping our promise. Bad choice! The better choice is
to identify the impact before the promises are made and false expectations
are established. The supply side folks need to identify supply plans that
won't likely be met, thoroughly consider alternative solutions and as a
last result, reschedule the plans that won't be met. They also need to
look at the demands that are impacted and suggest which ones to reschedule.
Sales doesn't trust manufacturing and purchasing! And these two groups
don't trust sales? Why? Bad people? No! The problem is lack of honest communication.
We need a forum to discuss the key issues to meet the supply plans required
to meet the market demands. We need to help sales understand the reality
of the obstacles in the supply chain. The Supply Planning step in SOP is
the activity to help prepare to communicate this important information
to the organization. Make sure the right questions are asked and answered.
The organizational wars will end and a spirit of cooperative effort to
find the best solution will be the byproduct.