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The decisive role of technology in sales and operations planning

S&amp;OP is a proven efficient work methodology for those looking for planned production in line with demand. To implement the concept, it is necessary to understand - and know how to use - the planning indicators, which provide the manager the possibility to measure the effectiveness of planning.When the manufacturer adopts S&amp;OP, it is looking for a way to align its different production processes with demand. All departments start to work in an integrated way, ensuring the quantity of inputs purchased is enough to produce according to needs - without excess or waste.<h2>Why measure planning performance?</h2>As it is directly related to production performance, it is important for S&amp;OP to be regularly assessed, as well as the quality of forecasts and plans that are made based on it.This is where performance management comes into play, a practice that aims to assess the improvements that have been achieved with the adoption of a new work methodology.Through different indicators, it is possible to measure the quality and efficiency of the organization as a whole, encourage high performance from employees and verify potential risks that can be mitigated.In the case of sales and operations planning, the manager can rely on S&amp;OP indicators to monitor the results that have been obtained since the methodology has been applied.<h3>Planning indicators</h3>Through KPIs (Key Performance Indicators), it is possible to assess different performance areas that, together, collaborate to achieving good results inside the company.Among the most important S&amp;OP indicators, we will highlight 5 extremely relevant below:<h3>MAPE</h3>The acronym stands for Mean Absolute Percentage Error. Its function is to demonstrate how much, on average, the manufacturer is missing in its forecast calculations compared to what was actually sold. The result is presented as a percentage.Let's assume that a manufacturer of preserves and juices in Florida intends to sell 500 jars of strawberry jelly in Miami, and another 500 jars in Atlanta. In both cities, it will also offer 100% natural fruit juice.In Miami, it sold so much strawberry jelly that it even ran out of product on the shelves. In Atlanta, consumers gave preference to other flavors, and only 200 jars of strawberry jelly were sold.In this case, we had two planning errors: in Miami, there was no strawberry jelly, that is, there was an out-of-stock event. In Atlanta, only 40% of the planned volume were sold. Ideally, this percentage would be much larger: the closer the value is to the forecast value, the more assertive the planning was.It is worth mentioning that the MAPE indicator does not compensate negative errors with positive errors. In other words, the fact that jelly is left over in one city does not cancel out the product shortage in the other. Each inventory is independent, and each error is computed.<h3>MAD</h3>MAD stands for Mean Absolute Deviation. This indicator demonstrates, in absolute numbers, what was the magnitude of the forecast error, compared to the actual value.If we go back to the example above to serve as a basis for this indicator, we will see that, in absolute numbers, the jelly manufacturer was wrong by 300 jars in one of the cities.In the other city, defining the MAD will depend, for example, on the number of customers who couldn't buy the strawberry jelly.<h3>WMAPE</h3>The acronym stands for Weighted Mean Absolute Percentage Error. This indicator shows almost the same thing as MAPE, however, it considers the relative importance of each product/location at the time of calculation.The idea here is to understand the weight, the importance of each demand forecast error. There are products that cost more to produce, or have greater output, or are sold for a higher price. Making a mistake in the forecast of these items has a much greater weight for the manufacturer than making a mistake with a cheaper product.This difference in the weight of each product can be purely financial (a matter of profit vs. loss), but it can also be measured by other indicators, such as production complexity or raw material quality.For example: if the manufacturer failed to sell 300 jars of strawberry jelly at $15 each, it had a loss of $4,500. However, it planned to sell only 1,000 cups of natural juice at $5, but managed to sell 1,500, that is, it made a profit of $2,500.Natural juice is cheaper and takes less time to produce, so it is advantageous to “make a mistake” and end up selling more juice than planned. The balance of this calculation will depend on the weight that each product has for the manufacturer.<h3>BIAS</h3>BIAS sounds like an acronym, but it isn't. This indicator aims to understand the bias, the direction of a demand forecast, based on the positive and negative errors that are mapped.When the manufacturer implements a tactical S&amp;OP planning, it wants to establish its production in line with demand. In the ideal scenario, there will be no product shortage for the customer, but inventory will be lean, without excesses.If the jelly manufacturer sold much more than expected, its sales expectations were pessimistic. If, on the other hand, it delivered far more strawberry jelly than actual demand, its forecast was too optimistic. In either case, there is a misalignment between planning and actual demand to be studied (and corrected).You should know that BIAS can also appear in the form of the MPE, which stands for Mean Percentage Error. The name is different, but the usage is the same.<h3>Planned capacity vs actual capacity</h3>This indicator is a little more obvious: its function is to compare the production capacity that the manufacturer plans to have, with its actual production capacity.If the manufacturer is not able to supply the demand with its current production capacity, there must be a strategic planning that enables increased production.If the company has growth limitations, it may need to think about additional shifts, overtime, or some other way to produce more. Actual and planned capacity do not necessarily need to be the same, but it is essential that jelly is not missing at the POS.It is important to mention that each of the S&amp;OP indicators described above comes with a mathematical formula - which must be applied by a qualified and experienced professional, who is capable of making the calculations and interpreting the results.<h3>Benefits of using planning indicators</h3>Knowing how to leverage these indicators is essential for companies that want to ensure the excellence of their operations.As this methodology works with forecasts, your metrics must be accurate. Precisely for this reason, knowing how to use the indicators - and trusting their results - helps the manufacturer to have more accurate estimates.Proper use of S&amp;OP indicators provides several benefits, such as:<ul><li>Reduced costs: when production and demand are aligned, manufacturing takes place at the pace of consumers. Thus, the waste of inputs and inventory stagnation are avoided.</li><li>Greater understanding of processes: If S&amp;OP is effective, teams are aligned and have a greater view of all processes. This is reflected in greater quality for activities.</li><li>Growth and expansion possibilities: a company that plans better has more chances to grow in a healthy and sustainable manner.</li><li>Continuous Improvement: Operational perfection is a myth. The more the company optimizes its internal processes, the more it manages to correct errors and increase its service level.</li><li>Valuing employees: when they work together and help each other, people tend to feel more motivated and determined. In S&amp;OP, all tasks become relevant, which makes people feel more valued in their respective areas.</li></ul>If you want to have these and many other benefits in your company, you need to apply S&amp;OP and know how to use the right metrics and indicators to track the effects.

If you want to measure the effectiveness of your company's operational planning, you must know the S&OP indicators that are essential for this measurement.

Sales and Operations planning indicators and the importance of using them

S&OP

Sales and Operations planning indicators and the importance of using them

If you want to measure the effectiveness of your company's operational planning, you must know the S&OP indicators that are essential for this measurement.

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