Posted by: Christian Verstraete | January 13, 2010

Do we need S&OP?

Over a year  ago, I chaired a Supply Chain conference, and one of the presenters asked the question whether S&OP was really needed. He got deep silence in the room. Everybody was asking themselves what he had been smoking till he explicit what he meant. He explained he was running the supply chain of a network equipment provider and he had optimized his supply chain in such a way it ran on replenishment. In other words, every time he sold one switch, it triggered the supply chain in getting a new one made.

Several months later I was in India, meeting with the head of supply chain from a cookie manufacturer. During the discussion he told me his willingness to move to a replenishment model. He has a complex distribution network throughout India and every time a case is sold, he wants a new one to arrive.

A couple weeks ago, when I was working on a number of entries on my Supply Chain Blog around the concept of closing the loop, I thought back at these conversations. They had something. Transforming a supply chain in a replenishment operation where every step is triggered by what happens in the next one. This could really facilitate operations. But what would be needed to implement such approach? Well, three things I believe:

  • An information backbone providing immediate notice of a sales and the need to replenish the product

  • Enough capacity to be able to address variations in demand. The availability of safety stocks could be a way around this though

  • The acceptance from suppliers to work in the same way, at least as far as their delivery to the supply chain is concerned

This leaves one thing open however, and that is the needs for planning. Indeed, even if we get rid of the S&OP process, we still need some sort of planning to ensure we source the raw materials and components, and we have enough manufacturing capacity available to address customer needs over the next period. If you really think about it, it makes you look at your supply chain as a JIT or Kanban operation. It brings that simplification to the supply chain.

I am not sure most supply chain managers would be willing to experience with such approach today, but it’s worht thinking about it and even if we decide not to get rid of the S&OP process all together, what can be done to make the supply chain more responsive and improve the replenishment process. What do you think about it?

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  1. Interesting thoughts, Christian. The “replenishment model” you are referring to seems to match the “lean manufacturing” philosophy. And lean manufacturing techniques have definitely proven to dramatically reduce the need for detailed day-to-day production scheduling, but at the same time almost increase the need for decent longer-term planning, just because of e.g. the necessity of sufficient production capacity – as you mentioned indeed. Long story short: I think the best approach is a combination of your “replenishment” (lean?) model for scheduling purposes, backed by a decent S&OP process for inventory and production capacity planning purposes. As long as both approaches are implemented right, that is. Which is a different story… Cheers! Stijn

    • Stijn, I agree with you. Just wanted to be a little provocative in the entry to make people think. To get noticed you occasionally need to put things a little black and white, knowing that the truth is probably in the middle. Your point on right implementation is spot on. Thanks for your contributions.

  2. Replenishment chain management needs a trio of approaches that can be exploited together without conflicts. The first of the trio is a focusing management and this is where TOC (theory of constraints) provides the most robust approach, including dynamic buffer management and production planning with protective capacity throughout the value chain. The second of the trio is Lean with all its wonderful tools subordinating solutions to TOC focusing dictates. And last of the trio is Six Sigma focused on reducing variability at the constraint. A combined approach to these trio to develop a blue ocean strategy is what Augusta Management & Systems has developed in its TLSBlue computerized model with the additional possibility of including a TPM module for productive maintenance.

    After decades of implementing solutions, neither Lean nor Six Sigma by themselves can generate the benefits generated when these follow TOC focusing and its Process of Ongoing Improvement (POOGI).

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