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The current supply chain shortages have increased the focus on documenting and understanding risks and assumptions but these should always be part of your S&OP process.
Risks are significant concerns or challenges that could impact any part of the plan – from demand to production or supply. Looking ahead, businesses review risks and prepare an upside and downside plan based on scenarios that are outside of the norm.
While risks are something out of the norm, assumptions are "how" we plan on dealing with or accounting for the risk. Every risk requires an assumption, but not all assumptions deal with an identified risk.
Sometimes these risks and assumptions are simply verbalized in a meeting, but truthfully, they should always be documented and discussed. In this article, we outline why it is important and some best practices to follow.
Why Document Risks & Assumptions
The future is uncertain. Forecasts by definition are inaccurate. In S&OP meetings, you should not only have a clear plan but be able to outline and support how you arrived at it.
S&OP is a monthly cycle. Significant time and events happen between each cycle. In each Executive S&OP meeting, you will review last month’s plans. What were the assumptions and risks that were baked into that plan? Implementing learnings from the last cycle will bring about S&OP planning improvements.
Measuring performance to the plan only tells part of the story. A missed opportunity could have been caused by changing conditions or a bad assumption. One way to be sure is to clearly identify the root cause, so review why.
Accountability. The team needs to be able to provide a reasoning behind their plan. How did sales come up with the booking plan? An executive will want to know the rationale behind the plan or if it was made off the cuff.
Now that it is clear why risks and assumptions should be part of in your S&OP process, here are eight best practices to help you get started.
Best Practices for S&OP Risks & Assumptions
Document them: Don’t just share them in the meeting but create a record. The S&OP Coordinator should have a key document that is used to track all risks and assumptions made in the plan.
Utilize a standard format: S&OP is a repeated process. Create a standard Risk and Assumptions sheet that will follow the same format each time.
Be specific about timing: Indicate when the risk/assumption will start and the duration.
Be specific as possible about quantity: Is there a delay of some or a lot of components? There is a big difference between 50 and 5000 pieces. It helps to be more specific. Indicate a clear numerical quantity.
Assign them to a specific part of the plan: Whether the assumption came up during Demand Planning or the final S&OP plan, be clear which part of the plan is affected and who needs to be informed.
Identify whether or not it was included in the plan: A risk may have been noted but the plan can still proceed without factoring the risk in. The risk may still need to considered for the next plan.
Include them in your Executive presentation: The final S&OP plan should always include what risks and assumptions were made in the plan. Be prepared to use these to support how you arrived at the plan.
Revisit them the following month: For the next S&OP cycle, review changes made to the plan and evaluate the results. Learn from your findings and determine whether to adjust the next plan accordingly.
If you aren’t doing this today, don’t be intimidated. Start simple. Document the risks and assumptions in your current S&OP for a single product family. Next month, circle back and validate or adjust the assumptions. From there, you can integrate them into other product families. You’ll be guaranteed that doing this will add a level of credibility and depth to your S&OP discussions and decisions.
Watch our related video, Risks and Assumptions, where Doug expands on implementing these points in your S&OP process.
Not quite sure where to implement this concept into your S&OP process or even how to start one? We can help! Reach out to us. We’ll help you unlock the power of S&OP in your organization.
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