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Sales and Operations Planning

What Works & What Doesn’t

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1. Gain an understanding of the concepts of the S & OP process.

2. Review Hard and Soft Benefits of S & OP.

3. Identify S & OP Deliverables.

4. Outline a typical S & OP Process .

5. Review What Works and What Doesn’t Work.

6. Review Ways to Improve Your Forecast Performance.

7. Summary and Close.

Presentation Objectives

Sales &Operations PlanningSales &Operations PlanningWhat Works and What Doesn’tWhat Works and What Doesn’t

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Sales and Operations Planning - Defined

Definition source: www.oliverwight.com

Decision-Making Processto

Balance Demand & Supply (at the Volume Level)

and to

Integrate Financial & Operating Plans

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Weekly Sales/Supply Meeting

• What are today’s backorders?

• What do we need to expedite this week?

• Should we adjust the forecast for 690’s?

• Are we really going to sell the 5,000 E101’s

that the Account Manager forecasted?

• Customer ordered 1,000 E202’s that were

not forecasted by the Account Manager.

Can we produce them?

• When will the XXX PO arrive?

Characteristicso Detail orientedo Addresses today’s prioritieso Results in the short-term execution plan

Why It’s Not S&OP• Not product family oriented

• No (direct) connection with business plan

• President / GM not involved

• No discussion of $$ or profit

• No discussion of plant/supplier capacity

• No long term action items

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Monthly S&OP Meeting

• Category X is 25% behind the YTD Budget.

What is being done to correct this?

• Sales has cut the forecast for YYYY, but the

production plan has not changed. Inventory in

August will be 45% over plan.

• Inventory for PDIF is running at 30 days’

supply, while the target is 60 days.

• Customer announced that they will not order

during Sept. to reduce year end inventory. What

is the impact on our forecast and production plan?

• XXX is 50% below plan for the second year in a

row. Should we abandon the product line?

Characteristics Senior management involved.

Product family oriented, not SKU’s.

Aggregate sales, production & inventory

Longer-term horizon: 3 – 12 months

Accountability to business plan

Driven by key performance measures

Action plans to align operations with the business plan.

Differences in a Sales/Supply Meeting vs. S&OP

Hard Benefits: Higher Fill Rates Lower FG & RM Inventories Shorter Customer Order Lead

Times Shorter (more reliable)PO Lead

Times More Stable Production Rates Less Unplanned Overtime Lower Operating Costs

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Soft Benefits: Enhanced Teamwork - Operating Level

Mgt. Enhanced Teamwork - Executive Mgt. Improved Access to Important

Information Better Decisions with Less Effort and

Time Better Financial Plans with Less Effort

and Time Greater Accountability Greater Control

Top Management’s Handle on the Business8

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Sales Rolling 12 – 18 month product family sales forecast Fiscal year deviation from budget/plan Customer Service measure Realistic new product introduction schedule

Production Rolling 12 – 18 month product family product plan Comparison of actual vs. planned production Plant manpower requirements Plant operating schedule – open / close dates

S&OP Deliverables

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PurchasingSupplier Performance Reporting

Supplier Capacity Analysis

Sourcing Plan

Inventory Management Rolling 12 – 18 month inventory projections Deviation to budget Analysis of inventory turns and days’ coverageA More Accurate Forecast

S&OP Deliverables

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End of Month

Step #1Run Month

End Reports •Statistical Forecasts •Field Sales Worksheets

Step #5Executive

S&OP Meeting

•Decisions •Company Game Plan

Step #4Pre-SOPMeeting • Recommendations &

Agenda for Exec Meeting• 3rd-pass spreadsheets (consensus, alternatives, what-ifs)

Step #2DemandPlanning

• Management Forecast• 1st-pass spreadsheets

(with new forecast)

Step #3Supply

Planning • Capacity constraints• 2nd-pass spreadsheets (with new production plan)

Bad News Change

6-12 Months(to get full results)

Good News Few People

(10 – 20)

Early Results(2-3 Months)

Low Cost

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. . . is not in understanding S&OP. It’s simple

The hard part is

Behavior Change . . .

. . . changing the way we do our jobs:Discipline

AccountabilityConflict Resolution

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Balance demand & supply Harmonize units & dollars, one set of

numbers Focus is volume and medium/long term Monthly cycle Cross-functional Decision-making Window into the Future Top Management’s Handle on the Business

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WORKS Insist on Highest Level

Participation as Possible

Have Cross-Departmental Participation

SCM Prepare, Analyze, Facilitate the Forecasting Process

Review Past, Focus on Future (3-18 Months)

DOESN’T WORK Try to Succeed With

Mid-Low Level Representation

Limit the Participants to Friendly Parties

Allow Sales to Own the Forecasting Process

Dwell on the Past, Look Out Only 1 to 6 Months

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WORKS Use the Forecast

Before it is Perfect

Use Metrics to Measure Success

Use Pareto Analysis (Over & Over)

Focus on the Business Processes that are Needed

DOESN’T WORK Expect the Forecast to

Precisely Predict the Future

Manage by Feel or Intuition Alone

Assume all Products are Created Equal

Think the System is the Silver Bullet

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WORKS React to Near-Term

Spikes

Learn to Speak in Terms of Each Participant

Use Lag Time Analysis

Strive for Consensus

DOESN’T WORK Change the Forecast

after the fact

Use only APICS Jargon

Review 1 Month Back/Forward

Insist on Winning Every Argument

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WORKS Take Notes & Follow

Up

Prepare an Agenda – Run a Good Meeting

Celebrate Successes

DOESN’T WORK Assume People Will Do

What is Assigned to Them

Run a Disorganized Meeting

Dwell on Failures

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• They concentrate on the trivial many, not the significant few.

• They don’t involve all of the appropriate people in the forecasting process.

• They don’t analyze the appropriate time period.

• They avoid the details. Analysis is not performed consistently. And it’s never published.

• They expect unreasonable precision.

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1. Evaluate your forecasts EVERY month.

2. Measure by ABC Class

3. Review - in detail – the 20 items with the least accurate forecasts

4. Review - in detail – the accuracy of all “A” items

5. Evaluate forecast accuracy at the product family level.

6. Review the 5 product families with the least accurate forecasts

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7. Review in detail the 5 worst items in these 5 families.

8. Don’t wait until the end of the month to review your forecasts

9. Review month-to-date progress

10. Use the Unsigned Error as a range to identify problem items(ABC Code = A and Unsigned Error > 25%)

11. Determine if specific forecasting formulas are causing problems

12. Determine how much forecast error you can tolerate and not Stock-out - Hint: It’s greater than you think!

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13. Ask your key customers for their forecast – expect to find major discrepancies and work to resolve them

CPFR Pilots – Collaborative Planning, Forecasting and Replenishment

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14. Vary inventory management tactics for items with high errors:

• Manage safety stock by ABC Class• Use Service Level Manager for bad performers• Reduce safety stock for good performers• Create a stocking policy to define when to stock products• Reduce stocking locations – centralize “C’s”• Periodically balance inventory to redistribute excesses• Finish the most volatile products to order rather than to stock

Suggestions for Improving Your Forecast Accuracy (cont.)

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• It’s the Business Process, not the software that makes the difference.

•Get started now and perfect it as you go along.

• Paretto, Paretto, Paretto

• Assign Responsibility and Follow-Up

•Gain Consensus Whenever Possible

•Develop and Use Metrics (Not too Many)

• Set Fair, Achievable Goals