April 2009
When markets are changing, it is especially important to forecast and plan effectively in order to optimize inventory, make the best use of available resources, and match production to demand. S&OP is the process of developing and maintaining a plan for how company resources will be applied to meet customer demand. It’s a balancing act matching supply and demand.
The forecast is at the heart of S&OP – if the forecast is wrong, the resulting plans will not achieve the objective of making best use of resources to meet demand. Unfortunately, unsettled times like the present are the point when it is the most difficult to develop and maintain a good forecast. In more ‘normal’ times, forecasting is mostly a statistical analysis and projection forward of historical demand patterns. That obviously won’t work when longer-term past history shows steady growth and current demand is down a significant amount. The big questions now are: will the decline continue, for how long, and at what rate? Where and when will the decline ‘bottom’? When will demand begin to increase again and how fast will it increase?
Statistics won’t answer any of those questions. Management will have to closely watch the overall economic situation, analyze current industry status and projections, talk to customers and prospects, and otherwise dig for any information available.
One other ‘tool’ for managing resources during this difficult time is to do whatever you can to reduce lead-time. Being able to react more quickly to changes in demand is a huge competitive advantage in any market. Also, don’t just assume that you can deliver quicker because your plant is currently operating at less than capacity. You’ll find a previously published article Reducing Lead-Time on my web site if you’d like a refresher on the components of lead-time and some thoughts on how to address its reduction.
Other components of lead-time include material acquisition, consequently sourcing and inventory management become more critical. Also, consider that any product with more than one level on the bill-of-material has a ‘critical path’ lead-time that is the true determinant of how quickly you can deliver. Improvements in non-critical legs will not help you react quicker to changes in demand. Contact Dave Turbide to find out how we can help you reduce lead-time for increased agility and responsiveness.
