In today's rapidly shifting global economy, it's very easy to become distracted from ensuring that the fundamentals are performed exceedingly well. In a manufacturing company, one of these fundamentals is keeping the balance between aggregate supply and aggregate demand.
An "out-of-balance" condition is defined as having too much or too little in the way of aggregate resources, that is, people, equipment, inventory, etc. When this imbalance exists, failure to satisfy customers while maintaining the financial objectives of the company is typically the result. As such, the management of the company will have very little time to pay attention to anything else, which, over time, becomes a competitive disadvantage of the highest order.
In other words, in today's highly competitive environment, not being able to do the routine things routinely is a sure sign of troubled waters ahead. Keeping aggregate balance between supply and demand, and making shipments to meet customer's needs, is one of the fundamental things a manufacturing company must learn to do routinely, with a minimum of time, energy, and effort. The good news is that this aggregate planning process does not have to be invented. It already exists, and is known as Sales and Operations Planning (S&OP).
The purpose of this paper is first to refresh the reader's understanding of the basic principles, and second to present a framework that will assist the reader in leading an improvement effort back at their own company.
In a manufacturing company, bringing balance to supply and demand is a fundamental "law of nature"—that is, it happens as a natural course of events. It's only a matter of who will bring about this balance. If the presiding leadership function (management) does not execute this responsibility to the satisfaction of the stakeholders, an outside force will eventually take over bringing about this balance. Among these outside forces that will take over are creditors and competitors, neither of which have the company's best interest in mind.
Over the past 20 to 30 years, many tools and techniques have been developed to assist management in achieving the objective of balancing supply and demand. For aggregate planning, this process has become known as Sales and Operations Planning, and is defined by the APICS Dictionary as follows:
•A process that provides management with the ability to strategically direct its businesses to achieve competitive advantage on a continuous basis by integrating customer-focused marketing plans for new and existing products with the management of the supply
•The process brings together all the plans for the business (sales, marketing, development, manufacturing, sourcing, and financial) into one integrated set of plans.
•It is performed at least once a month and is reviewed by manage ment at an aggregate (product family) level. The process must reconcile...and tie to the business plan.
•Executed properly, the S&OP process links the strategic plans for the business with its execution and reviews performance measures for continuous improvement.
While every company in existence is doing S&OP to some degree, a truly competitive company constantly evaluates how well it is performing these cross-functional processes. Additionally, whether or not a company is in a Just-in-Time (JIT) or traditional environment, this process remains an essential function. As a matter of fact, one can make the case that S&OP is more important in a JIT environment than in a traditional one. This is because in a JIT environment, there is less inventory, which in a traditional environment acts as a buffer between supply and demand imbalance.
To Be Continued
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