Page 370 - Orlicky's Material Requirements Planning

CHAPTER 20 Sales and Operations Planning 349

atively straightforward, there would be an emphasis on forecast accuracy and a single
number in supply. A business of this kind typically would be following a strategy of cost
leadership. An example of this type of business would be commodity chemicals.
In model 2, there is more new activity, but it is relatively straightforward, and the
business appears to have linear growth. New activity would play a part, but it would be
a minor role. An example of this would be an industrial chemicals organization whose
main business is commodities but that is also looking at specialty chemicals and may be
acquiring small businesses to augment the new-to-us category. The strategy here is pri-
marily cost leadership, but the response in specialty chemicals could be differentiated
service because of the higher margins on these products.
The most challenging business model for traditional S&OP is portfolio model 5,
where the existing portfolio today will not be around in four years’ time. These are busi-
nesses with a high degree of technology change and rapid implementation of new prod-
ucts. Portfolio management, including new products, is the single most important step in
the S&OP process. The traditional S&OP model of demand and supply balancing would
appear to be of little relevance to executives in this environment. Uncertainty and a range
of numbers in the integrated reconciliation step and the importance of simulation and its
impact on profitability have enormous consequences. Measurements such as time to mar-
ket and time to profit are immensely important. Standard S&OP software that does not
facilitate forecasting of new products before they are given a specific product code is an
obstacle in this environment. Manufacturers of electronics, mobile phones, software, and
computers are in this portfolio model. The strategy normally followed in these compa-
nies is product differentiation coupled with service differentiation.
Many food and drink companies and fast-moving consumer goods and pharma-
ceutical companies are examples of portfolio models 3 and 4. Typically, they would fol-
low product/service differentiation or customer relationships.
If your business has a portfolio similar to models 3, 4, and 5, spending time only
implementing a demand and supply process such as the traditional model in Figure 20-1
is really inappropriate.

Strategic Intent and Future Product Portfolio
and Their Impact on S&OP

Understanding the business strategy is essential to understanding the emphases on the
way S&OP will work. In the preceding section we discussed how S&OP product portfo-
lio models work and how these go hand in hand with understanding of strategic models.
Strategies are about choices and tradeoffs, and each business needs to understand the
principal strategy it is following. It is not unusual to find that an organization might have
different business units following different strategies.
A one-size-fits-all universal checklist for S&OP is not helpful; a business guide
showing that there are choices depending on strategy and product portfolio can be very
helpful.