How tightly should we integrate S&OE with the S&OP process?
Conventional S&OP operates with a ‘feed forward’ mechanism, wherein procurement plan, production plan, and finished goods deployment are all derived from the estimated demand plan. Feedback on actual demand is generally incorporated into next month’s S&OP as a monthly feedback loop.
Companies have realized that the monthly feedback is quite inefficient, especially in current times when we have access to rich data at the granular level on actual demand manifesting at the market place.
Since demand forecast accuracy has been low in CPG companies, the progressive ones have moved to dynamic replenishment using actual demand data. However, most of them are yet to take the next logical step of integrating it with their S&OP process on a more frequent basis, to influence their production and procurement schedules.
The frequency of integrating S&OE with S&OP should be designed based on the flexibility and responsiveness of the backend supply chain.
If the backend is relatively inflexible, we should operate at a fortnightly or a weekly integration. However, as the backend gets more flexible and responsive, we should move to daily integration.
CPG companies at the leading edge are already moving to daily integration.