Today’s focus is on introducing a powerful tool that can elevate your Sales and Operations Planning (S&OP) process. While the term "tool" might make you think of a technology solution, this is actually something different. This is a framework that brings clarity to your business. It answers critical questions like, “Do our results match with our plans?” and “Are our plans properly aligned across the organization?” Additionally, it assigns accountability for both the plans and performance.
In short, this tool helps you get clarity on where you’re at, where you want to go, and how to set, measure and manage the path to get there. If you’re interested, read on!
Why the Right Data Matters
It all starts with the right data, at the right level of granularity. Without this, you’ll face disconnects between your strategic plan and execution. This could lead to poor on-time delivery, overstocking, stockouts, unplanned downtime, and even poor customer service. Having a clear view of your data is critical because it helps manage the strategic buffers that keep your business on track. This allows you to pull the right levers at the right time.
Enter the 5-Section Sheet
The 5-Section Sheet is a purpose-built tool that simplifies your business data and uncovers the real story. It’s made up of five sections:
Bookings (orders you expect to take)
Shipments (orders you expect to ship)
Backlog (current open orders)
Supply (your build or receipt plan)
Inventory (your finished goods inventory)
Having visibility into these areas at the right level of granularity is essential for making decisions and driving accountability. Now, the 5-Section Sheet won’t solve your planning problems by itself, but it will make it impossible for any issues to stay hidden.
How It Works
1. Validating the Numbers
To ensure accuracy, you start by validating your backlog and inventory numbers. For example, if your June closing backlog was 190 units and your July bookings were 420 units with shipments of 360 units, your expected closing backlog should be 250 units. Similarly, validate your inventory by using the same calculation method. This confirms the accuracy of your data and helps prevent miscommunication.
2. Tracking Performance vs. Plan
Next, you check last month’s performance against the plan. If your bookings were planned for 410 units but came in at 420, that’s only a 10-unit variance, not a big deal. However, if shipments were planned for 420 units but only 360 went out, this could be significant. You’d want to dig deeper into why this happened and whether it impacts your backlog or lead times.
3. Planning for the Future
The 5-Section Sheet also tracks changes in future plans. For instance, if your September bookings have increased from 420 to 540 units, this signals a demand increase.
Similarly, shipment plans are adjusted from 430 units to 470 in August and from 430 to 520 in September. These changes suggest that both demand and the shipping plan are being revised to meet these new expectations. You’ll need to adjust your production and inventory plans accordingly. The 5-Section Sheet helps you see the risks tied to these adjustments.
Understanding "The Story"
It’s not just about the numbers, it’s about finding the story behind them. For instance, if production has been below plan for two months while demand is rising, you need to ask why. The tool gives you the insights to address these issues before they escalate, allowing you to make key strategic decisions rather than just reacting to daily challenges.
Establishes Clear Accountability
One of the major strengths of the 5-Section Sheet is that it drives accountability. Sales is accountable for bookings and the unconstrained shipping plan, while Operations is responsible for supply. The final shipping plan is a balanced outcome, factoring in both demand and supply constraints. This creates clear responsibility for setting and monitoring strategic buffers like lead times and inventory levels.
Asking the Right Questions
The 5-Section Sheet not only provides clarity but also helps ask the tough questions that can keep the S&OP process on track. By examining changes in future plans and performance, businesses can uncover potential issues before they become major roadblocks. Here are some of the key questions to consider:
To Sales:
Are we underestimating bookings?
Is the plan too pessimistic, and what potential upside should we consider?
To Production:
What would it take to reduce the backlog to our target level?
If bookings increase again next month, how quickly can we adjust production?
By addressing these questions, the 5-Section Sheet ensures that teams are aligned and prepared to make informed, strategic decisions.
Take Control of Your S&OP with the 5-Section Sheet
If you’re looking to improve your S&OP process and gain a clearer view of your data, the 5-Section Sheet is worth exploring. It helps you validate your numbers, review past performance, anticipate future changes, and ultimately make better decisions.
Interested in learning more? Our book Sales and Operations Planning: How to Run an S&OP Process Everyone Understands provides step-by-step instructions for building your own 5-Section Sheet, along with practical guidance on running an effective S&OP process.
Professional Support for Your S&OP Journey
Does your company need help implementing the 5-Section Sheet or enhancing your overall S&OP process? We offer professional services that include coaching, guidance, and support to ensure you get the most out of your S&OP journey. Reach out to us today to learn how we can help your team uncover the right story behind your numbers and make the best strategic decisions!
At DBM Systems, our consultants have over 20 years of experience providing S&OP leadership to businesses worldwide. We equip teams with coaching and the tools to quickly start and sustainably run an effective S&OP process. Learn about our process and unlock the power of S&OP in your organization.