Demand Planning: 4 Obstacles Hindering Alignment in Your S&OP

Creating alignment in your S&OP can be challenging.

A manufacturer’s supply and demand should, ideally, always match. Most often they are not even close.

When the information sales and operation are working with is different, the state of your overall planning becomes weaker and less accurate. To achieve alignment, sales and operations need to collaborate and, eventually, work according to a single production plan.

Achieving this alignment is difficult. The following steps pinpoint the most typical obstacles standing in your way.

This article focuses on obstacles faced in your demand-planning.

1.  Varying Operating Models

A common obstacle found in many businesses is that they operate with multiple sales channels with varying operating models – as they should. Nonetheless, it complicates things a bit. Let me explain.

We usually divide the sales channels into two categories:

  • Classic retail-based sales
  • Population-based sales (Pipeline based sales or/and Service-based sales)

Classic order-based sales are the easy part of managing sales and operation, as they are simply the purchase of finished goods by your consumers; all the products that have already made it to the end of the supply chain. Most businesses have this layer covered in their existing sales plans.

However, with population-based sales, things start getting a bit trickier. Here, another measure of sales is used: We focus on the leads in your pipeline and the likelihood of turning them into customers. Even though the leads are not yet customers, they need to be kept track of in just the same way.

And finally, the service-based sales:

Imagine you are selling windmills as your main product and part of the agreement with your customers involves installing and supporting (service) said windmills. This means that part of your sales is based on the service consumption.

Essentially, what we are trying to get across is that there is need for a system that can handle these types of splits in your sales channels, otherwise they become an annoying obstacle in aligning your S&OP.

2.  Sales Events Happen Sporadically

Another obstacle, let’s call it a roadblock, for alignment is when sales events happen sporadically.

Those events you have not planned for in advance, as they do not happen often and repetitively year after year. Basically, occurrences that are impossible to forecast and, therefore, become tricky for an S&OP alignment.

An example could be a campaign for a product. Demand for the product featured skyrockets during the campaign, but those numbers are not representative of the actual demand today or in the future.

Another current example is how the corona crisis, suddenly and with no warning, created a massive rise in the demand for face masks. This is impossible to forecast and makes an alignment harder to implement.

This step is closely related to the next one in line, which focusses on changes in assortment.

3.  Changes in Assortment

Changes in assortment is another obstacle almost every business experiences.

As with a big sale’s event, the demand of a product should be looked at with a grain of salt in the phase-in and phase-out stages of its life.

As your assortment naturally changes throughout the years, the data on your products can be inaccurate when a new product is first introduced. The same goes for when an old product leaves your assortment.

Basically, once you introduce a new product and phase out an existing product, you can expect that demand will be noticeably different than once the product enters a more mature phase of its life. Only when a product or material has been on the market for an appropriate amount of time, will you be able to forecast demand accurately for the future.

This, once again, makes an alignment of sales and operation difficult.

It is therefore important to take the phase-in and phase-out stages of a product’s life into consideration when looking at your demand planning.

4.   Translation Between Units

The next challenge we want to mention happens when there is no clear translation between units; a classic issue within the IBP space.

When a sales plan meets the production plan, it is important to include certain variants of the actual product; the specific materials, color of said materials and the like.

Sales tend to skip this rather important step in their planning.

In our experience, sales tend to be focused on the product level of the production plan. In other words, they tend to focus on the actual number of units sold.

They are not thinking about all the different parts needed to produce the finished product.

Let’s use the example of selling a computer. Sales planning are focused on selling as many computers as possible. However, production needs to know the color of the computers sold, the keyboard layout etc.

Ideally you should have a flexible translation between the different unit types to work as efficiently and accurately with your data as possible.

Practically speaking you need to have accurate translation from your planning unit from quantities into values, whether it be margins, standard costs, costs of goods sold or revenue.

Having the possibility to translate into multiple quantity units should be a function that should, preferably, be present as well.

Where to Go From Here

The purpose of this article was for you to identify key gaps or disconnects in your demand planning.

Once you notice these common obstacles, your initial response might be along the lines of “I want to stop this from happening! How can I cope with these issues in my demand plan in the future?”

The question is completely reasonable – however, it is not quite that simple.

You will never be able to completely avoid these issues.

Rather than thinking of these obstacles as a signal of your demand plans being broken, the obstacles should be seen as future opportunities to upgrade your current systems and methods, making your supply chain superior to those of your competitors.

Being aware of a problem is often the first step in the right direction.

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