In 1984, Dick Ling was teaching the Ollie Wight Executive class and one of the attendees came up to him at a break and complained that the class was focused on operations and material planning but that he was from sales. He didn’t understand how the content was relevant for him and asked Dick to clarify. Dick explained that the process was about SALES and Operations Planning and that having sales engaged was a critical component of the process. The attendee then quipped “then why don’t you just call it that?” and the term Sales and Operations Planning was born. In 1988, Dick Ling with Walt Goddard wrote a book together Orchestrating Success, Improve Control of the Business with Sales and Operations Planning. This book remains a primary reference for any serious student of S&OP.
Sales and Operations Planning became Dick Ling’s lifetime work. While everyone else was focused on the supply side of the process, Dick focused on the demand side. As Ian Wilson (another Ling class attendee) said, “However good our research may be, we shall never escape from the ultimate dilemma that most of our knowledge is about the past, and all our decisions are about the future.” Most of the changes in the plan comes from the demand side – changes in the market, changes in the product, changes in demand patterns, etc.
In the 1990’s, with Andy Coldrick the concept of “Right to Left” or “Breakthrough S&OP” was articulated for the first time. Great success was achieved by companies implementing this approach. The communication and reconciliation required in a successful S&OP implementation enables companies to more effectively manage change – the real purpose of S&OP. However, something was still missing and S&OP was not widely adopted globally.
An inherent limitation to the S&OP process is the requirement to produce the single set of numbers to drive the formal planning system – the master production schedule (MPS). The MPS was invented as one way to stabilize the demand line of the formal planning tableau to mitigate the system nervousness that is caused when forecasts are loaded directly into the planning system. The rough-cut capacity planning process ensured that the MPS was achievable. However, S&OP still did not achieve the vision that Dick articulated some 30 plus years before.
A good S&OP plan is a range – an expected number with a pessimistic lower range and an optimistic upper range. This range represents the intended strategic direction from the executive team. However, traditional formal planning cannot calculate from a range. The MRP system needs a demand plan that is precise in quantity and timing. This is the chasm that must be crossed and traditionally the MPS is used. However, this is like trying to cross the Grand Canyon on a single wire. If you can balance precisely and nobody disrupts that wire, you may get to the other side rather than falling to your death. The volatile uncertain, variable and complex world we must now manage is like someone shaking that wire and having gale force winds coming through the canyon at the same time.
In 2011, a dramatic innovation in formal planning was published in Orlicky’s MRP, 3rd edition – DDMRP - Demand Driven Materials Requirements Planning. DDMRP was not a tweak or next evolution of MRP but rather a fundamentally different methodology that was proven to effectively manage a complex multi-echelon supply chain through an innovative process of position, protect and pull.
DDMRP is the planning engine inside the Demand Driven Operating Model (DDOM). The DDOM defines the company’s capability from an operational perspective. A Demand Driven Operating Model (DDOM) is a supply order generation, operational scheduling and execution model utilizing actual demand in combination with strategic decoupling and control points and stock, time and capacity buffers to create a predictable and agile system that promotes and protects the flow of relevant information and materials within the operational relevant operational range (hourly, daily and weekly). A Demand Driven Operating Model’s key parameters are set through the Demand Driven Sales and Operations Planning process to meet the stated business and market objectives while minimizing working capital and expedite related expenses.
Now for the first time the S&OP strategic range could be coupled to the operational capability – no MPS is required. The S&OP plan by family is translated to the required decoupling positions that are necessary to define the operational capability. This is not simple a disaggregation of the product family forecast to the SKU level schedule. The intended strategy with respect to response time, inventory investment, space utilization is reflected in the DDOM design.
A new bridge is required to cross this canyon – that bridge is DDS&OP. DDS&OP is a bi-directional tactical reconciliation hub in a Demand Driven Adaptive Enterprise (DDAE) Model between the strategic (annual, quarterly and monthly) and operational (hourly, daily and weekly) relevant ranges of decision making. DDS&OP sets key parameters of a DDAE Model based on business strategy, market intelligence and key business objectives (strategic information and requirements).
DDS&OP also projects the model performance based on the strategic information and requirements and various model settings. Additionally, DDS&OP uses variance analysis based on past model performance (reliability, stability and velocity) to adapt the key parameters of a Demand Driven Operating Model and/or recommend strategic alterations to the model and project their respective impact on the business.
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The most significant impact of DDS&OP is that now S&OP can realize its intended objective – an adaptive process that effectively manages change. Adaptive Sales and Operations Planning is the integrated business process that provides management the ability to strategically direct its businesses to achieve competitive advantage on a continuous basis by the protection and promotion of return on investment. Product innovation, customer focused marketing plans for new and existing products, operations strategy and the financial strategy are managed on a continuous basis by an integrated reconciliation team to enable the company to sense, adapt and innovate successfully across the supply chain.
S&OP – a great idea reinvented!