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Last year I attended IBF’s conference in Orlando on demand planning, forecasting and S&OP with many peers and industry leaders. During the leadership forum, we had an opportunity to break into groups to discuss the key steps of S&OP – product review, demand review, supply review and executive review. I was surprised that that the product review step was the part of S&OP that most attendees found challenging, or were unfamiliar with.

S&OP has been around since the late 1980’s. The process has been traditionally about balancing supply and demand to support the strategy needed to meet company goals. Many books and articles have been written over the years about the S&OP process, how to implement it, and how to make it better.

Generally, it has been a 5-step process that centered around tactical activities: data gathering, demand planning, supply planning, pre-S&OP and an executive review. Over the years, the process has evolved and even been called new names like SIOP (Sales, Inventory & Operations Planning) and IBP (Integrated Business Planning) among others with the addition of other business functions (such as inventory and finance).

In the last few years those steps have become process activity oriented: product review, demand review, supply review, pre-S&OP and an executive review. In the change from tactical to process oriented steps, it appears that a new review has appeared – the product review.

Why You Need A Product Review In Your S&OP

While demand and supply balancing addresses the economic factors facing the business, the product review and lifecycle review processes address the strategy and product portfolio we want to offer the market. Product review and lifecycle processes are not new and exist in most organizations but they are frequently independent of the S&OP process. If the product review cycle is not a part of your existing S&OP process, it should be. Let’s look at some compelling reasons to integrate the product review into your S&OP process.

If the product review cycle is not a part of your existing S&OP process, it should be.

1. You Get A Single Corporate Product Strategy

A product review should be exactly as it sounds, an analysis of the lifecycle of each item in our product portfolio to determine the future sales strategy of each item. Development and launch of new items are managed with project timelines, market analysis and launch forecast, while items slated to be discontinued due to declining sales are managed separately in item lifecycle reviews. The product review, therefore, is the strategy for each item into the future.

The product review is the strategy for each item into the future.

Including the product review as part of the S&OP process and integrating with demand and supply allows us to control our destiny as a company and provide the best opportunity for success. Our demand and supply plans encompass not only our current business but allow for improved visibility into changes in the business going forwardAll aspects of the supply chain can anticipate changes to the portfolio enabling a single cohesive conversation that prevents overlooked challenges and opportunities. Anticipation of consumer demand improves when we know what sales is selling to our customers. A single corporate product strategy reduces competing priorities between departments and reduces disruptions to our customers.

2. Product Review Means An Improved Demand Plan

Integrating the product review into the demand review process improves the forecast. Demand planners really are experts at managing assumptions. A most common assumption, which is also used for all time-series forecast models, is that sales history can be used to predict the future. That’s true but demand managers can enhance this by applying other assumptions into their demand plans and make improvements to the forecast. Other assumptions might include changes in customer mix, market intelligence or the impact of inventory stock outs on past sales. When they include the results from the product review, demand managers can also look at how changes to mix of items sold impacts the forecast.

Demand managers can focus on improving the timing and magnitude of anticipated product changes instead of just reacting to changes in sales.

Now the demand manager can also consider cannibalization impacts between items when a new item launches, and also the impact when an item is discontinued. Each managed assumption has the potential to improve or hurt the business and can be easily captured in the KPIs you use in your S&OP process. Including the results of the assumptions from the product review tends to improve the quality of the resulting forecast and allows for capture of mix changes before they happen. Demand managers can instead focus on improving the timing and magnitude of the anticipated product change instead of just reacting to the change in sales. Demand becomes more predictive and less diagnostic and descriptive in the process!

3. You Get Improved Supply Performance and Inventory Plans

Supply planning is usually the last department to know about any changes to items including new product launches, distribution changes or even item discontinuations. By including the product review in S&OP and as part of the supply review process, supply and inventory plans can be tied to the product strategy. As a result, replenishment plans that were created on the historical product mix can be corrected to cover the current or future mix of items being sold to customers. The supply review can properly plan and replenish the right inventory volumes at the right time on the right items for future sales.

Planners can set safety stocks and replenishment strategies that support the overall future corporate strategy.

Planners can set safety stocks and replenishment strategies that support the overall future corporate strategy. Manufacturing, purchasing and logistics have improved opportunities to identify bottlenecks and communicate those risks back into the S&OP process. As a result, overall inventory levels are managed across all items. New item inventory is available on time while inventory for discontinued items can be reduced before customers stop ordering.

Ultimately, the goal of any S&OP process is to enable better decision making and support business decisions. To do this, the S&OP process has three key parts: strategy, demand and supply. The product review should be a key part of any S&OP strategy and plays a defining role in the results of the demand and supply review steps.

For S&OP to be successful, defining the product portfolio and managing item lifecycles are crucial. Communicating the results of the product review as part of the S&OP process adds clarity and improved opportunity for success. Making the product review process an integral part of the S&OP process keeps all parts of the organization focused on a single product strategy and the critical items needed to support the long-term corporate goals.

Misty will be speaking on this topic at IBF’s Business Planning, Forecasting & S&OP Conference in Orlando from October 20-23, 2019. Join her and a host of other planning, forecasting and analytics leaders at the biggest event of it’s kind for learning, networking and more.