Supply chain planning, demand planning, and S&OP

1
SUPPLY CHAIN PLANNING, DEMAND PLANNING,
AND SOP

• One of the most common problems facing
  manufacturer across all the industry is the
  difficulty of actually balancing demand and
  supply. Supply chain planning begins with
  acquiring the goods or material needed to satisfy
  the end product. It is also the procurement of
  materials or services required to create the
  final product and continue until the finished
  goods are in the hand of consumers. This process
  typically involves a range of decision and
  transactions between several distinct entities.
  Manufacturers are continually faced with the
  challenge of determining what to make, how much
  to make it, and when to make it. When companies
  fail to meet these challenges effectively, they
  suffer a multitude of consequences. Failure to
  balance the supply chain will not only affect the
  entire manufacturing organization but the
  complete business trading network. However, many
  companies havent been able to maximize supply
  chain performance because of the disconnected
  planning, poor supply chain visibility, and
  misaligned functions. Lack of coordination hurts
  supply chain profit when supply and demand
  management are made independently. Therefore,
  supply chain partners must work together across
  the enterprise to coordinate the decision and
  maximize profitability. This obstacle has led to
  further business challenges, such as poor
  delivery performance, and loss of orders and
  revenue.

2
To maximize revenue and ensure availability of
product demand planning must be effective. We all
know how important demand planning functions in
ensuring that operation is timely, cost effective
and efficient. To understand the demand for a
product, these go beyond the basic of what type
of demand are we seeing. For any given product,
there may be dependent demand, independent
demand, service parts demand and inter/intra
plant demand. All types of demand have to be
planned for in the supply chain planning to
ensure availability when needed. Estimating
future demand is one the most valuables
activities in any organization. The demand plans
impact is felt throughout the business, from sale
and marketing to manufacturing and distribution.
The right plan can balance inventory planning
with costs and lead to higher customer service
levels and positive cash flows. The use of demand
planning enables the supply chain to increase its
profitability because supply and demand are
matched in a parallel fashion. Excessive and
costly inventory may be stocked for discontinued
or slow moving items on the other hand,
inventory shortage for new and promoted products
may inhibit promotional programs. Stock-outs may
occur because companies failed to have the right
products in the right place at the right time.
And if this is frequent it can lead to increased
costs due to expedited orders or even worse,
permanent loss of customers.
3
Supply and demand management through sales and
operations planning (SOP) can significantly
improve management performance of an organization
when applied to predictably variable products.
Sale and operations planning is a business
process that helps companies better manage demand
against supply. Keeping demand and supply in
balance is a constant struggle. The consequence
of poor customer services, high inventories, cash
flow difficulties, and failure to meet planned
business goal leads companies in search of a
process to better manage the delicate balance of
supply and demand. SOP enables the management to
establish the desired levels of customer
services, production plan, and inventory sale.
More importantly, it guides the organization
toward managing their business proactively
towards optimal performance. The SOP business
goal is to reach consensus on the current status
and future plans for each product family, both
for demand and supply. Leading companies often
adopt SOP (Sales Operation Planning), a
solution and process that ensure business units
make plans and decisions in the context of
overall business objectives.