This month it’s exactly 20 years ago that I first traveled to the corporate headquarters in Houston to participate in a worldwide project to redefine the global planning process for Compaq Computer Corporation. At the time we did not call it S&OP, we called it supply chain planning. Our challenges then? We had 8 levels of judgment by sales, product managers, planners and procurement between the forecast in the sales offices and what we communicated to our suppliers as ‘the plan’. As you can imagine, with so many people making changes to the plan, the outcome was probably less reliable than rolling dice. When we started our journey towards a global S&OP process our suppliers awarded us the title of “least reliable in the industry”.
Today, our customers have the same symptoms we had then: Excess inventory, product shortage, lead-times, costs. Many things have changed, yet some things remain the same:
- The production plan drives the company
- Inventory and costs
- Internal focused
- Technology offerings have improved, yet Excel still rules them all
When we engage with a new customer we generally find they have the same starting point: Manufacturing is a major investment and no capacity should be lost. ‘The engine of the company has to keep running’. These companies often exclude the production process (‘Make’) from their supply chain governance and control processes, if they recognize supply chain at all.
This generally results in inefficiencies in the logistics network: Excess inventory for one product or geography and additional logistics costs for another (to compensate for said product shortages). Constrained components have been used in products without orders and backorders for products are waiting for more supply of the constrained material.
Then there is the customer satisfaction mistake: thinking you know what the customer wants, because you know so. Today we still run into companies that measure themselves on shipped performance! Or companies that do not talk to their customers on forecasted volumes because “our statistical forecast is better”. Go talk to your customers and ask them how they measure you and why that metric is important to them, so you can plan accordingly.
And finally, my favorite: Companies continue to invest heavily in ERP systems (Remember ERP equals Enterprise Resource Planning) yet forecasting is done by using Excel spreadsheets. Exporting, updating and importing to and from Excel is still common practice today.