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More Families Are Better Than Fewer Families

This is a common and easy trap. 

In manufacturing, the name of the game seems weighted towards dealing with mix issues – what specific items are required and when, how much inventory do we have of those items, how many of those specific items are scheduled and how much more of each must be scheduled in the future.  Supply has to be balanced with demand and there are lots of detailed processes to help do that – at a mix level.  Mix — individual products — is what companies ship to their customers. That’s where the pressure is. Mix in the near term is pressing and time-consuming. The effective planning of future volumes may be seen as important, but it carries less urgency.

But managing mix is not enough and deferring the planning process for future volumes is a dangerous strategy.  When volumes – specifically things like capacity in key resources, product availability, order backlog and cash flow or profitability problems – aren’t planned and managed effectively, it’s much more difficult to deal with mix problems as they arise. By not distinguishing volume-related problems – whether with sales rates or production rates by product lines or families, or capacity problems in key resources, and dealing with them in aggregate - many companies make it impossible to solve the mix problems.  They simply “can’t see the forest for the trees”.  The details (mix) obscure the big picture (volume). 

Even when companies buy into the idea of planning volumes at product family levels, they frequently overestimate the ability and interest of senior executives in reviewing individual families.  They fall into the trap of thinking that “more families are better”. 

But the history of implementing and operating effective volume planning processes – specifically S&OP and related processes – suggests that for a typical company 5 – 12 – 15 is likely the practical maximum that senior managers can be expected to review.  Twenty families are too many for most executive management teams to plan – or even review – effectively. 

Sales rates and production rates by family typically must change more frequently than quarterly — and by increasing the number of families, you magnify the effort to do the job of adjusting these volumes effectively.  It’s not just an arithmetic increase in difficulty either.  The difficulty seems to increase almost geometrically.  And beyond some point, you make the adjustment process impossible. 

S&OP is the management process that addresses the balancing of demand and supply volumes, in a way that can guide the detailed mix forecasting, customer order management and supply scheduling.  It does it in a forward-looking way, helping management to identify imbalances (which may be problems or opportunities in disguise).  S&OP won’t uncover any volume problems that wouldn't be confronted eventually, but it will highlight them sooner, when they can be more effectively managed. 

But it can only work when there are a manageable number of product lines or families to review.