S&OP Implementation
Problem
A perishable goods manufacturer and distributor was dissatisfied with their oscillation between being out of stock on key items and having too much inventory that would expire before sold.
How could they build a process for reviewing inventory regularly that would reduce costly inventory swings?
Solution
Together we created a sales & operations planning process (S&OP) with clear accountability using a RACI model that tied sales review and forecasting to inventory decisions.
The process allowed them to reduce inventory levels by 15% and reduce out of stock occurrences by 8%.
The approach
What was the problem and how did we solve it?
The perishable goods manufacturer and distributor was suffering from a cyclical problem of having too little inventory, then too much, and then too little again. When they had too little inventory, they missed out on valuable, time sensitive sales that they could not recoup, and when they had too much inventory, they lost the cost of the inventory because it was perishable and had to be discarded.
The manufacturer already ordered based on sales history, but sales history was often from the year prior, and due to growth and difference in channels, their business looked very different now than it did a year ago. They needed a process that weighted recent sales history more heavily and included other inputs as well - cost of inventory, varying lead times, among others - as well as a clear understanding of the potential consequences of inventory decisions.
Success in this project would be measured by overall inventory level (carrying just the right amount of inventory frees up cash for other things) and out of stock occurrences.
We learned together that while the company thought they were making informed decisions about inventory using sales history and other data, there were more departments and people that should be involved in the process to make an informed decision about inventory. They had heard of sales & operations planning processes, but struggled to adequately implement it in a way that changed outcomes.
One reason the process did not stick was people did not understand how they should be contributing to the process and how it should all come together.
I introduced the concept of a refined Sales and Operation Planning process that involved a RACI model. RACI models designate tasks to each individual in a process with a clear level of involvement - each person is either responsible, accountable, consulted, or informed (RACI) for each task.
Once people understood how they needed to prepare and contribute and how their preparations impacted inventory decisions, the team could have more detailed and informative conversations about sales, recent sales history, marketing plans, sales forecasts, lead time variation, cost of inventory etc. This process and model led to better inventory decisions and successful inventory outcomes.