On-Time Delivery, Lead Times & Capacity
Stop Missing Delivery Dates: Sales and Operations Planning That Matches Demand to Capacity
When you're booked out of capacity, sales and operations planning reconciles demand with capacity before customers see late deliveries or past-due orders.
The glue that holds a reliable delivery process together, as well as the final part of the process, is reconciliation. At the top level, the sales and operations planning (S&OP) process integrates demand and capacity planning for the business. The schedule approval process is key to securing buy-in, ensuring timely decisions, and enabling early action to satisfy the customer.
Reconciliation is owned by the business process owners – production for the execution schedules and the general manager for the sales and operations plan. The master scheduler manages the processes and is accountable to the process owners.
The essence of the process is for management to reconcile the demand forecast with the planned capacity, making adjustments as the business requires, BEFORE the customer is adversely affected.
Demand Forecasting
Producing a demand forecast helps you build a model of your business. Producing a forecast of capacity requirements shows you what types and approximately how much capacity you’ll need. Once you have a demand forecast, you can identify the types of equipment and skills you’ll need to satisfy the market.
Having a forecast is not the same as having a plan. The forecast and your ability to respond to it must be reconciled. Some trade-offs are inevitable. You can’t build a new plant in a day; you can’t open a new market in a month. Therefore, a process must be implemented to rationally reconcile market demands with available capacity.
Implementation
Matching release to the constraint is a change in how the plant is run. Not everyone finishes it.
There are two prerequisites for a successful implementation:
- Management maturity: management must be prepared to commit to change and see it through. They must be able to lead the implementation through word and deed.
- Mature sales organization: the organization must be ready to capitalize on operational improvements. The sales organization must be prepared to be aggressive in capturing additional orders enabled by shorter lead times and improved reliability.
Results
Traditionally, managers devote little attention to how the order fulfillment process is managed. As a result, the process is chaotic and inefficient and simply doesn’t do its main job of delivering products to customers on time.
When release and priorities match the constraint, people stop working three hot lists and the order goes out on the date you quoted.
In addition, the system delivers significant financial benefits. Other benefits include increased throughput, shorter lead times, improved labor productivity, higher sales, and improved cash flow.
The full method is in How to Deliver On Time All the Time.