Page 376 - Orlicky's Material Requirements Planning

CHAPTER 20 Sales and Operations Planning 355

ness environment and competition are known to all, but this is certainly not true in global
organizations where there can be vast differences between regions, countries, and markets.
It is essential that the assumptions on which the strategy, longer-term forecasts, and budget
are based are clearly identified and grounded. For larger companies, these should start with
economic and political issues before considering market dynamics and competitive posi-
tion. The hopes and aspirations for the product portfolio in terms of market share and the
timing of and forecasts for new product introductions should feature strongly.
The business forecasts based on these assumptions would be a range, the extent of
which would be underpinned by the positive and negative assumptions. There is no
place here for a single set of numbers! The monthly regional and global S&OPs would
review significant changes to the assumptions and modify forecasts accordingly while
firming short-term forecasts.
Hand in hand with assumption-based forecasts is scenario planning. Each forecast
should have a most likely outcome with upsides and downsides. The manufacturing and
supply functions build their firm plan around the most likely outcome but have a plan of
how to meet upsides and downsides should they arise together with decision points.
These are the latest times when these alternative plans can be initiated successfully.
The S&OPs at the country, regional, and global levels are cross-functional groups
that review the assumptions, forecasts, and scenario plans on an exception basis.
Discussion is focused on either major changes to assumptions or a pending decision
point for a scenario plan. Budget, cash flow, and strategic consequences of these changes,
of course, are worked up by the finance function. With such a tight grip of the business,
it is sometimes possible for the global or regional teams to switch resources to capture
exceptional market opportunities because they have a clear, current view of markets. It is
our view that the power of S&OP is unrivaled in these situations, and it also can be used
extremely effectively in broader resource planning and allocation across companies
including capital planning.

Small to Medium-Sized Businesses and Developing Markets
Another question often posed is, “My business is small, for example, $2 million to $8 mil-
lion revenue. Do I still need S&OP?” Our view is that any successful business uses S&OP
principles formally or informally. A one-person company or a small group of entrepre-
neurs runs S&OP informally in their heads or around the coffee machine. They do not
have the formal process steps outlined in the earlier sections, but they are continually
evaluating predicted demand and balancing resources to meet it. They share assump-
tions and changes to assumptions informally on a daily basis.
This chapter has been written to apply mainly to medium to large businesses, but
the challenge for smaller businesses is that as they grow and employ more people, they
do need to formalize their process for continually evaluating demand against the
resources they have. They probably do not need a formal five-step S&OP process, how-
ever; instead, a simpler three-step process is used, as shown in Figure 20-17.