How a disconnected S&OP process can undermine your ERP, and what to do about it
I spent a year of my life configuring and deploying an advanced ERP at a manufacturing facility only to have it sidelined by a barely functional Sales and Operations Planning process (S&OP). This well-intentioned meeting, which came into existence in a high growth period where demand vastly outpaced supply, created an entire production plan based on the monthly commitments of operations leaders. Line by line we went down the Excel sheet. Cell 1, part A, “we can do 5”, part B, “12”, part C… and so on. Just when your head was ready to explode, we switched to the next tab. Cell 2, part A, “0”, part B, “17”. Sure, we looked at the true demand for each part number, but ultimately the decisions were based upon where the inventory was in the manufacturing process. Closer to the dock, higher chance of completion; earlier in the process or not released, low or no chance.
The problem wasn’t S&OP itself. The problem was that the decisions made in the meeting never became part of the system that actually ran the business. Instead of creating a feedback loop between planning and execution, we had created a second planning system.
One business, two maps
Those meetings often had over 40 people in that room, including operations, finance, sales, planning, and procurement staff. That is a lot of expensive people. Here is how it usually played out: sales went and gave new commitments to their customers. Purchasing expedited supporting materials where necessary. Operations worked overtime to hit the new commitments.
Then, as the end of the month approached, something predictable happened. The easier parts got pulled forward to improve the numbers while the difficult parts, including the ones that had been committed to customers during the S&OP meeting, got pushed aside. The result was a production mix that looked very different from the plan everyone had agreed to.
A good S&OP process should create a continuous loop: decisions are made during planning, those decisions are translated into the ERP, the organization executes against them, and the results feed the next planning cycle. Ours stopped after the first step.
The problem wasn’t a lack of effort. The problem was that the plan and the execution system weren’t the same thing. This is where the distinction between S&OP and Sales & Operations Execution (S&OE) matters. S&OP should help the organization look further ahead, often 18 to 24 months depending on the business, and make cross-functional decisions about demand, supply, capacity, inventory, and business priorities. S&OE is where the organization manages the near-term reality: what’s happening this week, what’s at risk, what changed, and what needs intervention.
The important connection between the two is the feedback loop. S&OP sets direction. S&OE tells you what is actually happening. The ERP has to carry those decisions into execution and bring the resulting signals back into planning.
When a periodic planning meeting turns into a detailed exercise in managing this week’s work orders, customer promises, and shop floor priorities, you’ve probably moved from S&OP into execution. There is nothing inherently wrong with that. The problem comes when the organization treats a tactical execution meeting as its primary planning process.
Which map do I use?
So why does this happen? The planning process succeeds as a forum for making decisions but fails as a feedback loop. Decisions are made, but they don’t consistently make their way back into the system that drives execution. In some cases, as in mine, S&OP became that system, and the planning value stemming from the ERP implementation was effectively lost. The truth is that ERP systems are clunky for this type of planning conversation, so the working meeting wins and the write-back gets sidestepped. Remember my bearings inventory story from my last blog? This was a direct outcome of this exact situation. When you are using more than one map, it is easy to get lost.
The problem isn’t that people need to stop using spreadsheets or stop having planning meetings. The problem is that the organization needs one authoritative plan that connects the decisions made in the meeting to what purchasing buys, what production builds, what the MES dispatches, and what finance ultimately measures.
The ERP directs work order prioritization at the resource level and communicates it to the shop floor via the MES. That’s where the planning decision becomes execution. If S&OP changes that priority but the change stays in the spreadsheet, the feedback loop is broken. When that happens, the plan and execution have separated. The shop floor is now executing one plan while the planning team is managing another.
The ERP has to be the one map, not because the meeting’s decisions are wrong, but because the ERP is the only map that connects the decisions to purchasing, the shop floor, finance, and everything in between. The S&OP meeting can inform the map. It cannot replace it.
Reading the trail before you commit
I remember agreeing to go on a six-mile hike with over 1,000 feet of elevation change last year. It wasn’t my finest decision as I’m not in the best hiking shape. My Apple Watch had plenty to say about my heart rate every time I stopped to catch my breath. The other hikers grew impatient with my slow pace.
Demand management is like this. When you accept a customer PO for quantities and timelines you know you aren’t in shape to deliver, it erodes customer trust and makes everyone’s life miserable. This is where you need to push back on the sales side. Often you are hit with the bullwhip effect. Broken promises, particularly in aerospace, drive customers to order more than they actually need as they try to buffer against your delivery risk. Once you deliver what they truly need, they don’t authorize the ASNs to ship the remaining product. Finished goods inventory that you just paid OT to make sits on a shelf collecting dust, and your order to cash cycle starts to elongate.
The first step in S&OP isn’t figuring out how to make an impossible commitment happen. It’s deciding whether the commitment should be made in the first place. Don’t commit to the six-mile hike when you already know you aren’t capable of delivering it.
Starting the climb
Once you moderate incoming demand as a first cut, you can use S&OP for finesse. But the work isn’t finished when the meeting ends. Once the revised plan is finalized, the ERP should be updated with the appropriate planning signals so the decisions made in the meeting become executable. The feedback loop has two jobs: 1) translate decisions into execution and 2) make sure future demand is represented correctly in the next planning cycle.
For WIP:
- MES dispatch and sequencing should reflect the meeting’s priorities
- Anything with a week left to finish you should complete so you aren’t introducing chaos into the momentum. Remember Heijunka: work toward a repeatable rhythm of volume and mix
- Limit WIP to what you actively need. If you have too many open work orders on the floor, change their status to ‘unreleased,’ ‘on hold,’ or whatever status your system uses to tap the brakes. This removes them from the active MES schedule
- Update work order due dates in the ERP to align with the new commitments that were made to the customer
- Isolate and secure WIP that is being sidelined so it doesn’t disappear. Employee theft is a real thing, and product that sits too long becomes an easy target
- Continue to enforce operators working from the ERP-generated production schedule and do not allow any alternate ‘maps’ to hit the shop floor
For future periods:
- Planners need to correct the demand signals
- Consider using a Master Production Schedule to drive level demand into the system and to reduce the volatility of your customers’ ever-changing demand picture. This can work well even in an MTO (Make-to-Order) environment. Once demand is updated, rerun MRP and signal the purchasing team that they can run exception reporting
- Keep a snapshot of the demand picture before changes are made. Often the total demand or timing of it is a metric on someone’s dashboard, and changes need to be explained higher up the chain
- Purchasing should work the exception messages
- MRP should flag corresponding push-outs and pull-ins for action
- Review any substantial changes with your raw material suppliers to ensure they can support them
- Send shortage signals back to planning so they can be addressed in the next S&OP cycle or even better, in the more frequent S&OE cycles
- Review material allocations to ensure raw material isn’t linked to the wrong work orders
This is where S&OE becomes the feedback loop between planning and execution. Build a short, weekly S&OE meeting between S&OP cycles. Keep it focused on the deliveries that matter this month and use it to maintain alignment between all players. Don’t forget QC either; they need to understand the flow of product, so they have inspection manpower in place to absorb the waves. Remember, the meeting isn’t the plan. The meeting creates decisions that need to become part of the plan.
The test: where does the decision live?
If you’re evaluating your own S&OP process, ask these four questions:
- When the team changes a commitment, priority, quantity, or date, where is that decision recorded?
- Does it change the planning signals that drive MRP, production, purchasing, and the shop floor?
- How do you know it was executed? Can you look back and determine whether the organization delivered what it committed to?
- Does what actually happened feed the next planning cycle?
If the answers point to different places, or if execution never makes its way back into planning, you don’t have a feedback loop. You have more than one map. And eventually, someone is going to get lost.
One team, one plan, one map
If your S&OP process is producing good decisions but those decisions are bypassing your ERP, the process isn’t necessarily broken; the feedback loop is. Planning, execution, and measurement have to remain connected. The goal isn’t to eliminate the meeting. It’s to make sure the decisions made in those meetings become part of the system that runs the business.
One team. One plan. One map.
If you’re standing up S&OP for the first time or trying to figure out why a process that looks healthy on paper keeps losing its own decisions, I’d be glad to walk through it with you. Reach me here. I’ll bring the map.
