Great S&OP enables Operational Excellence.

The first step in S&OP is creating your demand plan. Organizations rely on business development forecasts to create a demand plan, but historical customer demand should play a big role.

We want to review historical data for these 4 things;

·        Average

·        Variability

·        Seasonality

·        Trend

You could just “eyeball” charts for these things, but I prefer a statistical approach using Six Sigma tools.

Get orders received for the past 5 years (if you can go back that far). Calculate labor hours and/or machine hours and get them into monthly buckets by due date. Below is an example.

This is a typical chart of customer demand. This business has flat demand over 5 years with a modest amount of variation in order timing. The monthly average is 3192 hours with a standard deviation of 533 hours.

Next, we are going to test for any trend using a moving average control chart.

Since no data points are close to the control limits, there is no trend. To show how this trend control chart could work, below is some data from a facility affected by Covid in 2020 and a surge of orders in 2022, with a “return to normal” in 2023. In a situation like this your business development team are more critical in creating a demand plan.

 The final part of reviewing historical demand is for seasonality.

In the example, you can see there is no seasonality that is worth planning for, as each month is within the control chart limits.

After reviewing the entire business, segregate your data by:

·        top customers, (use the 80/20 rule)

·        work center/dept/product line

·        specific item numbers that make up more than 10% of your demand.

Here is the same data from the first example, but split into the four work centers; Large milling, small milling, lathe, and stampings.

In this example, there are some obvious things going on. The large milling business is growing, but the small milling business is shrinking. Also, there is a lot of variability for demand in the turning (lathe) department. You will get similar insights by customer or by item.

               Once you have reviewed this historical data, use it along with your business development forecast to make your DEMAND PLAN. The one thing that you have NO control over is variability.

               You will have to plan how to deal with the variability. I will address that in my next article about Capacity Planning.

               If you would like to discuss further how you can get a handle on your customer demand and make realistic and robust demand plans, send me a message.