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 Tell Us the Truth:
Will We Make What We Need?

by Dave Garwood

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 results.

SOP Process

In 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.

After 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?

Six Key Questions to be Answered in Step 3

The 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?

Changes 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!

QUESTION #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?

QUESTION #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.

QUESTION #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?

QUESTION #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 be feasible.

QUESTION #6: Need to reschedule any current supply plans and which demand plans are affected?
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.

Building Trust
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.

All Contents Copyright � 2002 R. D. Garwood, Inc. All Rights Reserved.