By Tom Wallace

How would you like a process to help you give better customer service, lower your inventories, shorten lead times, build teamwork between marketing and manufacturing, and give top management a real handle on the business? It exists. Would you like this tool to be relatively easy to implement, not cost much, and start to generate results within a month or two of getting started? You can. It's called sales and operations planning (S&OP), and a growing number of companies are using it to sharply improve their ability to run the business. (For more information, check an article titled "Sales & Operations Planning: A Report From The Field" in the February 1997 issue of this magazine.)

S&OP's mission is to balance demand and supply at the volume level. Volume refers to rates — overall rates of sales, rates of production, aggregate inventories and order backlogs. Companies have found that when they do a good job of planning and replanning volumes (rates and levels) as they go through the year, then problems with mix (individual products and orders) become less difficult to deal with. Companies have found they can ship better, ship more quickly, and do it with less inventory.

One of the tricky parts of implementing S&OP is in aggregating the individual items into meaningful groupings, called families. Since this is an important fundamental, let's take a look at some of the mistakes companies have made in setting up these groupings.


1. Too many families
If you have more than about 15 product families, you probably have too many. Why? Well, it gets down to the mission of S&OP; it's a decision-making process for top management to use in balancing demand and supply. This is done each month in the Executive S&OP meeting — the culminating event of the monthly sales and operations planning cycle. See Figure 1.

Having worked with numerous top management teams over the years, I can assure you of several of their characteristics: First, they're very busy; second, because of this, they have limited attention spans; and therefore, third, they are not
interested in getting into
lots of detail unless it's absolutely necessary.
Having to review 20 or 30
or more product families
once per month does not
match this profile. Thus, if you have too many families, top management will tune out. If top management
tunes out, the process will die. Hands-on, active participation by top management is essential for this decision-making process to be effective.

The best number of product families is around six to 10. Twist my arm and I'll give you a dozen. When you start to get much above that, look out.


2. Not making use of subfamilies
How, you may be thinking, is it possible to define a complex business in just a few families? My question for you is: for what purpose? If you're talking about filling customer orders and making shipments, you need to work with stockkeeping units (SKUs), i.e., individual products. But you can't do sales and operations planning at the SKU level even if you wanted, because S&OP is a tool for aggregate planning.

The answer lies somewhere between individual SKUs and the high-level product families used in the Executive S&OP meeting. Most companies call these intermediate groupings "subfamilies." Example: the Acme Widget Company has two product lines — industrial and consumer. Within each of these categories, there are three product families: small, medium and large. The consumer product line has another aspect: seasonal vs. everyday. Acme people often need to view these separately; the seasonal line requires extensive pre-build prior to the onset of the peak Christmas selling season, while demand and production for everyday products is of course more stable. When planning the pre-build, with its attendant rise in inventory, top management people want to see the plan so they can approve it. They also want to view it during the height of the season. However, during most of the year, it's not of interest to them unless something is going wrong.

It's the job of the Pre-S&OP team (see Figure 1, second box from the top) to ensure that they're performing to plan. When they're not, the Pre-S&OP people need to fix them, and sometimes this requires a decision from top management. In these cases, the Pre-S&OP team is empowered to escalate a sub-family, along with their recommendation, up to the Executive S&OP meeting for a decision. This has the dual advantages of keeping the top management folks in the loop when needed, but not taking up their time unnecessarily.

Individual products, SKUs and customer orders represent a view from about 50 feet off the ground, and you can't see much of the big picture from there. Sales and operations planning, on the other hand, provides a view of the business from about 5,000 feet and that give you the big picture. Sometimes it's necessary to get a bit more granularity, to drop down to around 2,000 feet, and subfamilies make that practical.


3. Not recognizing the difference between product families and resources
Products are what the company provides to its customers, and a company's families should be organized on that principal. Set up your families based on what makes sense to the folks in sales and marketing. Make sure the families line up with market segments, customer groups or, when appropriate, individual large customers. But, as you do that, you may find that these families do not line up with your resources — plants, departments, processes, etc.

That's O.K. Don't make the mistake of trying to force fit the resource picture into your product families. The result is usually mish-mash that doesn't do a good job.

The Acme Widget Company had this problem. Both of their primary product categories — industrial and consumer — were made in the same departments in their plant: fabrication 1, fabrication 2, subassembly and final assembly. A further complication was that the low end of the small and medium consumer widget families were outsourced, i.e., purchased as complete products from an outside supplier. Try as they might, the Acme people couldn't integrate the "operations view" of the business into their product families without making the whole picture terribly complicated and user-unfriendly.

They solved the problem by keeping it simple. They kept the product families and subfamilies aligned by major category (industrial and consumer) and by product (small, medium, large). The resources are separate elements; they represent the supply side of the business while the product families create the demand for the resources. Within the family groupings, Acme people first do the forecasting of future demand, and then set the production plan to meet the demand and keep inventories and/or order backlogs at their desired levels. Through a process called rough-cut capacity planning, the production plan for the individual families is "translated" into units of workload for each resource. This enables the operations people to relate the required capacity to their available capacity. They're able to evaluate the "do-ability" of the plan, changes needed in staffing levels, needs for new equipment, etc. See Figure 2.

Figure 2. Acme Widget Product Families and Resources
	Families Large Industrial Widgets Medium Industrial Widgets Small Industrial Widgets Large Consumer Widgets Medium Consumer Widgets Small Consumer Widgets	Resources Fabrication 1 Fabrication 2 Fabrication 3 Subassembly Final Assembly Supplier A (outsource products)

If you've been having trouble getting sales and operations planning off the ground in your company, you might check how you've set up your families. Often the problem lies there.

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