I recently saw a very successful example of sales and operations planning (S&OP), whereby manufacturing, distribution and sales have been welded together into a high level of demand fulfilment.
The company concerned started in foodservice and then expanded into the retail sector as a result of spare production capacity. Retail extended its product range by 70% and sales by 25%.
The trouble was that the retail business was not as profitable as foodservice. Also, customer service levels had worsened, upsetting both its retail and foodservice customers. The company clearly needed to expand production capacity to provide the ‘bandwidth’ to cope with that extra complexity. The problem was it could not justify the extra cost.
The sales forces had always worked without constraint, selling what they could and seeking constant range extensions and promotions. After months of debate and worsening profits and service, the company eventually agreed to install S&OP and match what it sold to what it could make with current capacity.Within nine months four things had changed for the better.
The company set up an S&OP forum which created a deliverable capacity plan each month to which it stuck. It also replaced standard cost analysis with activity-based analysis and cut out a number of complex, low-contribution retail stock-keeping units (SKUs). However, the company never really noticed the loss in sales.
The company reined in the sales forces to focus on what it was able to manufacture profitably and cut the level of promotional activity. The consequence was that service improved to almost best practice levels.
Amazingly, sales actually grew, as did profitability. So the company now had the funds with which to invest in new production capacity.
However, it no longer needed the extra capacity because it had made good inroads into complexity. Total changeover time had reduced by more than the growth in volume, leaving the company with at least another year before more capacity was needed.
Tim Knowleis Director, ProActivehttp://www.proactive21.com