S&OP and Lean

I believe that S&OP and lean manufacturing systems work best when they work together. They do different, and very necessary things, and you need them both - so I answered it in that vein. Here in a nutshell is what I said:

Creating a flow environment and pulling to the customer's demand is something everyone should be trying to move to. But the value stream and supply chain need to be engineered in advance to be able to flow.

Unfortunately the weakness of lean is that it is shortsighted. It has no ability to see or predict an upturn (or downturn) in volume or to demonstrate the impact on capacity when that kind of change is happening in the future. It's almost totally focused on execution - pulling to the drumbeat of the customer.

But what process ensures that the value stream (pacemaker processes in particular) have been engineered to support that change in takt time?
And more generally what process ensures that the capacity is in place in advance of its need?
What process helps establish the average demand used to size supermarkets and loops so that the inventory is in place to support a consumption based pull system?
What process ensures that the vendors are not surprised by a sudden change in demand?
What process establishes the finished goods inventory (finished goods supermarket) levels that will satisfy sales and marketing's objectives as well as the need to have smooth flow through the plant and supply chain?

I think the answer is S&OP and related processes. S&OP is the process to predict changes in volume and in takt time. S&OP along with rough cut capacity planning is the process to predict and respond to capacity needs in advance of a crisis. It's forward planning processes (S&OP and forecasting and MPS) that are the best mechanisms for establishing average daily demand for supermarket and loop sizing (yes I hear all the time about just using past usage to do this but unless you have a static business this just isn't adequate - the one Japanese company that I deal with, part of the Toyota keiretsu, who gets about 75 turns on their inventory uses demand calculated from the MPS not historical usage).

Supplier scheduling - a technique that both the lean people and the resource planning people claim they invented - is the mechanism for showing future demand to the suppliers. In the most lean environment you can imagine, this would be driven directly from S&OP (rough cut material planning). In other lean environments this projection will probably be driving by the MPS and a material planning process.

Finally the way to engage sales and marketing and get them to participate in setting inventory levels is through S&OP.

What's always amazing to me is that some of the leading lean advocates are in denial about any need to plan in advance. This directly contradicts the documented experience at Toyota (Professor Monden's study of the Toyota Production System talks extensively about their production planning and master scheduling processes and even mentions their MRP system.

To see my complete answer, as well as other frequently asked questions, see our website at:

www.partnersforexcellence.com/sopfaq.htm

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