In the last four decades or so, more and more companies have gone global. With that, the structure of the S&OP process has changed, though the key objective remains the same—aligning supply with demand, integrating operational plans with strategic plans, and optimizing product portfolio and product mix.
What type of Global S&OP structure we need depends on the company’s supply and demand configurations. There is no one-size-fits all. Some companies have standardized products where the same products are sold all over the world; others have region specific products with different requirements for labelling and packaging. Some companies have manufacturing plants located all over the world, while others have them only in their home country.
So, different configurations of supply and demand require a different structure. Here we discuss a generalized Global S&OP process, which can be adapted, with some tweaks, to different situations. The process is typically done on a monthly cycle.
The Global S&OP Process
The Global S&OP process discussed here assumes products are produced and sold globally. The regions involved are: (1) North and South America, (2) Europe, (3) Middle East and Africa, and (4) Asia-Pacific. It is a 6-step process, which works as follows (see also Figure 9.1):
Step 1: Regional Demand Review
Each country prepares and reviews demand forecasts with a team comprised of functions such as Sales, Marketing and Finance, and sends them to the Regional Demand Planner. The Regional Demand Planner consolidates all the demand forecasts of its region, meets with its team consisting of the Regional Marketing Manager, Regional Sales Manager, and anyone else involved.
If necessary, he or she makes adjustments in consultation with the team and then sends the forecasts of each category to the Category General Manager (GM). (This is needed only where a company has a number of large categories. Otherwise, the Regional Demand Planner will send the forecasts directly to the Global S&OP Demand Planner.) Regional forecasts are better because they are closest to the market, and local teams know better than anyone else about their customers, competition, and consumers.
Step 2: GM Category Review
The GM of each category reviews demand forecasts and, if needed, makes adjustments in consultation with the Regional Demand Planners. The GM then consolidates each category into a global forecast and sends them to the Global Demand Planner.
Step 3: Global Demand Review
Here the Global S&OP Demand Planner reviews forecasts of each category with its GM, makes adjustments if necessary, and sends them to the Global Supply Planner. (Where Regional Demand Planners send their forecasts directly for Global Demand Review, the Global S&OP Demand Planner will make any necessary adjustments in consultation with the Regional Demand Planners.)
Step 4: Global Supply Review
Here the Global Supply Planner reviews the demand forecasts to see if they can be met. If there are gaps, they discuss how they can be closed. Based on the demand forecasts, the Global Master Production Scheduler develops a production plan, considering outstanding inventory. For that, the scheduler uses an optimizer tool which is programmed to maximize gross profits based on total delivered cost to customers.
The plan includes how much is to be produced and at which plant. The Global Supply Planner also prepares a report on misses and their possible causes. Misses include where we are likely to go over and below the demand. All this information is then sent to the Global Pre-Executive team.
Step 5: Global Pre-Executive S&OP Meeting
Participants of this meeting are the Global Demand Planner, Global Supply Planner, and Category GMs. The objective of the team is to come up with a plan that helps to align supply and demand, meets financial targets, optimizes product portfolio, hits market share targets, and/or fulfills any other goal that is important to leadership.
Wherever there are gaps, the team tries to close them. Although the team tries to resolve most issues, those that remain unresolved or for which consensus could not be achieved, are placed, among other things, on the agenda for the Global Executive S&OP meeting.
Step 6: Global Executive S&OP Meeting
This meeting is attended by key people including the President, high-level executives, Global Demand and Supply Planners and the CFO. They evaluate the plan presented by the Global Pre-Executive S&OP team against the company’s strategic plan, policy, and risk parameters. It also makes sure that maximum profitability within service and inventory constraints is maintained. If needed, adjustments are made to the plan. Once approved, it is implemented. If there is a significant change, the Global Master Production Scheduler is asked to re-do the production plan.
Where the company has different business units and each one is large, it may decide to have a separate S&OP process for each. The Global Master Production Scheduler, based on consolidated demand forecasts for all business units, allocates production among different units in an optimal fashion. The production allocation includes what to produce at which facility, and how much.
S&OP is a great tool for managing demand but in a globalized world, emphasis is now on global maximization of financial performance rather than local or regional. For global maximization, we need a global process. Without it, different regions and countries will be more inclined to optimize performance of their region or country, and not of the company as a whole.
Further, a global process provides increased visibility across the entire supply chain, facilitating better and quicker decisions. It also improves communication and teamwork across regions, making it easier to manage tradeoffs.
The above is an excerpt from Dr. Chaman Jain’s Fundamentals of Demand Planning & Forecasting, widely recognized as the most comprehensive book written in the area of demand planning and forecasting. Get your copy here.