Revenue enhancer: Take control of your inventory cost center with S&OP technology
Bill Atkinson, contributing editor -- Manufacturing Business Technology, 3/16/2009 2:57:00 PM
While sales & operations planning (S&OP), as a process, has been around nearly 25 years, Nari Viswanathan, a VP and principal analyst for Boston-based Aberdeen Group, says it has only been more recently that software specifically targeting S&OP applications has been available.
|
|
Related reading: Flexible techniques improve balance between sales and operations plans |
Many of the earlier software programs focused on individual elements of S&OP, such as MRP, ERP, advanced planning & scheduling, capacity planning, and demand planning.
"Most of the software out there wasn’t directly addressing the S&OP process," Viswanathan explains. "Rather, software was available to create the data that feeds into an S&OP process, but the S&OP process was more of a manual collaborative discussion between the various parties involved.”
These parties include sales, operations, manufacturing, and accounting. "There hasn't been as much attention focused on a software solution specifically to run the S&OP process," Viswanathan says.
Today such software is available, and Viswanathan offers some guidance on selecting it. He says a viable S&OP system should have these capabilities:
• Strong integration tools;
• Reporting flexibility, configurable to the needs of the company; and
• Support for a "light footprint," meaning that it should be Web-enabled.
Viswanathan says Demand Solutions offers just such a system, releasing its first stand-alone S&OP solution in 1992. According to the company, its current version meets these four requirements for S&OP:
• Simplify the collection of all company's data;
• Validate the data by reconciling demand and supply;
• Customize the data to individual users; and
• Enable integration to support the S&OP process at all levels of the business.
Changed title, renewed spirit
As the former director of S&OP for Indianapolis-based Peerless Pump, it was Greg Brown’s job to accurately stock countless parts that eventually become custom-made pumps for Peerless customers—typically the owners of the world’s marquee buildings.
To streamline the inventory control process, Peerless chose Demand Solutions' S&OP.
Brown, now the director of regional competence center development for Peerless, says of the system, “At the time, it reduced inventory and customer lead times, and improved on-time delivery.” But Peerless allowed the technology to essentially fade into the background, until renewed interest from senior executives recently led to its resurrection.
"I was director of the information systems group at the time, and a strong proponent of the solution," Brown recalls. "The executives then asked me to become director of [S&OP].”
In turning their attention back to Demand Solutions, Brown says, "We found we could easily aggregate data up to meaningful levels of forecast.” For example, Peerless may sell a given product into three markets—such as water, commercial, and industrial—but with three sales teams that manage those markets. "I needed to create a forecast for the product at the model level, and aggregate this for better accuracy," says Brown.
|
| Using sales & operations planning from Demand Solutions, Peerless Pump is showing improved inventory turns and fewer inventory shortages, among multiple other benefits. |
After reviving the S&OP solution, Peerless started achieving some of the same results it did 10 years earlier when it first implemented Demand Solutions.
"For example, because we had better planning and inventory management, we saw notable improvements in on-time performance," says Brown. "We reduced lead time about 25 percent on half of our products, which represent about 85 percent of our sales."
Peerless also introduced a premium service "quick ship" program that allowed it to offer certain products in two weeks instead of the traditional eight weeks.
"At the same time, we improved inventory turns, we have the right mix of inventory, and we don’t experience many inventory shortages," Brown adds.
One particularly surprising benefit: The software initially helped Peerless adequately stock inventory to meet normal demand. However, it also predicted that inventory needs would double in the coming months. In response to the predictions, Peerless started stocking inventory accordingly, and was able to meet the predicted sales increase, while maintaining the same level of inventory—with no excesses or shortages.
"We didn’t have to increase inventory levels to accommodate the increased business, which led to much greater profitability and efficiency for us," explains Brown.
In the future, Peerless plans to use the S&OP technology to help it grow its business by focusing on longer-range demand planning. The company wants to uncover any impediments that keep it from selling more products, and different routes to market that open up new vistas of business. With access to more meaningful data afforded by the S&OP solution, such product innovation will be supported by sound planning processes.
