One way to achieve that is to develop a forward-looking game board—projected out for a predetermined number of weeks based on financial plan requirements—that shows how each SKU is tracking to projections on a week-to-week basis. It is similar to how NFL coaches determine which plays to run depending on the situation and field position.
With this game board, each SKU is assigned numbers that represent the minimum and maximum allowable weeks on hand for inventory. The game board also shows the actuals for that week and their impact on succeeding weeks. As long as the weeks of on-hand inventory remain within the allowable range, no action is required. If they stray outside the range, however, the team is alerted, allowing management by exception.
“Management” doesn’t necessarily mean take action, but maybe consider action. For example, if one week sales fall below projections, the game board reordering might be adjusted to ensure the maximum allowable weeks of on-hand inventory is in the range for the future. Sales, however, might know that a snowstorm that blanketed the East Coast caused an unusual drop that week; they might recommend waiting to see if the next week balances the inventory.
In another case, suppose a particular SKU’s sales, which are higher than projected for two consecutive weeks, puts the business at risk of being out of stock in four more weeks. By seeing it ahead of time, purchasing can order more and notify manufacturing to adjust the production schedule to avoid a possible out-of-stock period. Ordering is done enough in advance to allow the manufacturer to plan properly. Marketing can also feature an alternative SKU—and avoid sale prices on the SKU in question—to help manage inventory.
Like NFL managers relying on stats to make in-game decisions, business executives can use an S&OP game board to obtain a clear picture of what is happening now and consider the various outcomes that may result. Those insights can help them know when to stick to the book and when to deviate to give themselves the best chance of securing a victory.
Bringing Home the Prize
Whether football or business, the trouble with data is that it’s often subjective. One person’s valuable information may be another’s trivia. S&OP seeks to remove the subjectivity in data analysis to arrive at a single version of the truth by prioritizing information ahead of time and providing parameters with which everyone can agree.
Doug Braun is the chief executive officer of IBS, a leader in distribution resource management software, providing applications for the wholesale, distribution and manufacturer/distributor markets. He translates business needs into products that solve customer supply chain problems. He can be contacted at email@example.com.