Lean principles and S&OP – Do they belong together?
Contribution by Shuchita Gokhale – Supply Chain Consultant at Bristlecone
S&OP and Lean are fundamentally different processes. Lean is an internally focused process, with emphasis on how the manufacturing department produces the goods; whereas S&OP is outward looking with focus on customers and markets.
So, do companies working on Lean principles need an S&OP process in place? The answer is an emphatic yes; simply because these two concepts complement each other. And in the words of Tom Wallace, “Lean and S&OP work best when they work together”.
[blockquote style=”2″]Lean aims to create pulls based on customer demands, which requires the value stream and supply chain to be in sync – albeit in advance. Being focused on execution in short-term, Lean cannot predict long-term volume fluctuations, and thus its impact on capacity. This is where S&OP bridges the gap. It ensures that capacity is upgraded based on any future demand upturns, since it is by nature a mid to long-term process.
S&OP coupled with rough cut capacity planning and resource requirement planning can predict upswings and/or downswings of capacity based on demand forecasting. Additionally, S&OP brings the demand and supply planning teams together, which in the long run is required to drive Lean goals better. S&OP looks at both directions of supply chain, and it is this holistic view which complements a Lean implementation, since Lean typically only looks at supplier schedules.[/blockquote]
A common integration technique for S&OP and Lean could be to include Lean metrics like takt time, cycle time, and costs in the executive S&OP process. Another way to make them work together is to align the product family categorization of Lean and S&OP. Both Lean and S&OP require grouping products into families; but for very different reasons. This commonly results in a difference in how the grouping happens. Typically for Lean, a family would mean grouping of products manufactured by the same resources. This would create a synchronous flow in manufacturing that allows products to be produced at a uniform, linear, market-driven time known as takt time.
For S&OP, families are product groups that are similar in the ways customers/sales look at them in the market as per their usage. Their purpose is to help arrive at a rational and reasonable forecast based on market trends.
As is typical with ideal circumstances, only rarely would there be the same families for both Lean and S&OP. This rare case would be when the Lean product families match what is sold to customer markets. That is, there is a one-to-one mapping between production and the markets – quite unusual.
The recommended approach to best align the product families for Lean and S&OP is to use the Executive S&OP techniques. This would involve converting each market based family demand into value stream volume or run rate, which would then drive the execution.
Lean needs to know how much volume needs to be manufactured per production family. The rough cut resource planning done as part of S&OP can be used for alignment by mapping the volume data from S&OP to the detailed level data for execution purposes.
To arrive at a reasoned relationship between product families, map the historical data of S&OP market families against existing Lean families to arrive at a correlation, which in turn can be used as a basis for translating volume to mix (detailed level). However, while this connection is being established, scenarios like seasonality, cyclical nature, among others will need to be considered.
[blockquote style=”2″]The Lean principles of operational efficiency are essential to a successful S&OP. Continuous improvement driven by S&OP will be advanced by embracing Lean concepts and help close the loop between business strategy and execution.[/blockquote]