2. False expectations lead to disappointment

An obsession with ‘orders’ — the word — pervades the metals industry. No wonder it features prominently in what people tell us they expect from an S&OP process. It comes down to three things:

1. More accurate order promising dates;
2. A clear overview of the status of each order;
3. Allowing planners to take short-term action on orders.

While S&OP will improve performance in these areas, the bad news is that these are false expectations. S&OP is about maintaining and updating quotas to avoid overpromising on groups of products, types of customers, or individual customers. This doesn’t mean that order backlogs should be disregarded in the plan: if you have a deep order book you can make a much more accurate forecast.

But S&OP is not designed to manage backlogs or fight old fires. S&OP is about stopping backlogs developing and planning proactively. It is designed for decision-making, allowing you to optimize your product mix to maximize asset utilization, reduce costs, increase margins, and reduce carbon footprint, to give just a few examples.

3. Confounding process input and output

Some metals companies using S&OP tend to confound input and output. To get a handle on this, you have to understand that S&OP works with the following data as input:

• An unconstrained demand signal, roughly meaning “the volume of potential orders out there waiting for us to take if we didn’t have any constraints”;
• Current and future constraints and capacities dictated by the production model;
• The available inventory of raw materials, process stock, and finished goods.

It provides the following outputs:

• A constrained sales plan, roughly meaning “the type of products we want to produce and deliver for the (type of) customers we want to serve”;
• A corresponding production plan with asset utilization;
• A corresponding inventory plan.

4. S&OP decisions are insufficiently operationalized

The operational organizations of metals companies tend to be rather skeptical of S&OP, perceiving it as of limited importance for them. And, for many there’s a reluctance to even accept certain formal S&OP outcomes, not just in production organization but also in logistics, procurement, and sales. As a result, S&OP decisions are insufficiently operationalized by these internal customers and not shared much with the wider organization.

It is therefore very important to raise perceptions of S&OP’s value across the entire organization. As this Gartner article outlines, supply chain leaders should demonstrate how S&OP can contribute to growing revenue, enhancing profit, improving customer service, and reducing costs and carbon emissions. The emphasis should be on how this process aligns all stakeholders and participants with common objectives. Most importantly, appropriate KPIs should be put in place, paying sufficient attention to linking business metrics with operational metrics so that planning is at a level of detail that can steer operations.

5. Too much detail makes S&OP unmanageable

Implementing S&OP is a process of finding the right balance between exactitude and manageability. We always recommend companies look at their big decisions: where they purchase raw materials, which (type of) customers to serve (primarily), and where to avoid production bottlenecks. The answers to these questions provide the prime building blocks of a solid S&OP system. Then it can gradually extend to the level of detail that best matches the production apparatus, market landscape, and strategy.

Any of these pitfalls sound familiar? Reach out to me to find out how we can improve your KPIs by implementing S&OP. 

Want to learn more about deploying S&OP in the metals industry? In our ‘S&OP in Metals’ e-book, we offer recommendations about how to run a more effective S&OP process, based on experience in recent projects.