Executive Sales and Operations Planning

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Company

LOGO

Main Street August 7, 2009

Executive Sales andOperations Planning

Presented by:John S. Pennington

President - PCI Associates

Adjunct Instructor IU Kelley School of Business - IUPUI


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PCI Associates 2

Why Plan?

Planning is astrategy forsurvival.

Planning can be anywhere on the spectrum fromthe dream

to

the nightmare.


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Why Do OrganizationsPlan?

To anticipate and prepare for the futureTo ensure adequate and availableresourcesTo complete projects on timeTo avoid problemsTo establish backup plansTo ensure we dont forget tasksTo determine potential results


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Whats The Alternative?

The alternative to planning is NOT planning, & businesses that do not planare extremely difficult to control and

manage:EXPEDITING is endemicDrift from Crisis to CrisisPriorities change from minute to minuteHigh Stress diminishes customer serviceCosts are difficult to contain


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What needs to beplanned?

ResourcesInformation SystemsFinancesServicesProductsMaterialsLaborEquipmentFacilities


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SALES AND OPERATIONSPLANNING

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S&OP 101

S & OP is a process led by senior management that, on a monthly basis ,evaluates revised, time-phased projections for supply, demand, andresulting financials. It is a decision making process that ensures that tactical

plans in all business functions are aligned and support the business plan.

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S&OP 101

It is done once a month and is reviewed(discussion & decision making) by seniormanagement at an aggregate (product or

service family) level

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S&OP 101

The process must reconcile all supply,demand and new products at both thedetail and aggregate level and tie to the

Business Plan

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S&OP 101

It is the definitive statement of what thecompany plans to do for the near tointermediate term covering a horizon

sufficient to plan for resources and supportthe annual Business Planning process

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S&OP 101

Executed properly the Sales andOperations Planning Process links theStrategic Plans for the business with

execution and reviews performancemeasures for continuous improvement

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S & OP in the Planning Cycle

Detailed planning &control

(days, weeks out)

Tactical planningS&OP

(months out)

Strategic planningLong-Range Plan

(years out)

Limited ability toadjust capacity Detailed planning(day to day, hour byhour)

Lowest Risk

Workforce, inventory,subcontracting, andlogistics decisions Planning numberssomewhataggregated (monthby month) Moderate risk

Bricks & mortar andmajor process choicedecisions Planning done at avery high level(quarterly or yearly) High risk

Days/weeks out Months out Years out

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S&OP continued

(2 - 18 months out)Outside of time frame strategic planningInside of time frame tactical planning

Big Picture approach to planningFamilies or groups (aggregation) of:

Products

ServicesResourcesTechnologies or skills

Provide rough estimates

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Why Do CompaniesUse S&OP?

Many companies have difficulty inestablishing a valid game plan for sales,production, procurement, and inventory

levels -- and then tying them to day-to-dayscheduling and execution. As a result,performance suffers: customer service ispoor, production and procurementare inefficient, inventories are too high ortoo low, or all of the above.

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Why Do CompaniesUse S&OP?

Sales & Operations Planning has emergedas an essential management tool in thisage of rapid changes, increasingly

demanding customers, and supply chainsthat extend half a world away. It's rightfullybeen called "top management's handle on the business."

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What is Executive S&OP?

Executive S&OP is top management'spart of the overall set of Sales &Operations Planning processes. It's atool that enables the top managementteam to establish in advance thedesired levels of customer service,inventory investment, and lead times -and then manage the businessproactively to achieve those targets.

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An important point: Executive S&OPis essential to gain the maximumbenefits from the other parts of Sales& Operations Planning, the ones thataddress the details

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The results from the monthlyExecutive S&OP process drivedownward to impact directly the day-to-day activities in Sales, Purchasing,Production, and Service - and alsodrive upward, so that the company'sFinancial Plans can reflect currentrealities and future operational plans.

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What are the Benefits ofUsing S&OP?

"Hard" benefits -- ones that can be readilymeasured -- include:

higher customer service

lower finished goods inventoriesmore stable production/service ratesfaster and more controlled new productintroductionsreduced obsolescenceshorter customer lead times

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What are the Benefits ofUsing S&OP?

"Soft" benefits resulting from ExecutiveS&OP include:

enhanced teamwork in the executive and mid-

management groupsbetter decisions with less effortone set of numbers, in both units anddollars, with which to run the businessa tight linkage between strategic plans andday-to-day activitiesa "window into the future"

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Wh ' U i S&OP


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Who's Using S&OPSuccessfully?

Large companies such as Coca-Cola,Caterpillar, Procter & Gamble, EliLilly, Dow Chemical, Honeywell,

Allied Signal, Pfizer , Newell-Rubbermaid and many more - plus alarge and growing number of mid-sizeand smaller companies.

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Wh ' U i S&OP


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Microsoft, among many others, alsouses Executive S&OP and all of theirmanufacturing is outsourced.

Companies in this category may needExecutive S&OP even more, becausethey have less control over their sourcesof supply.

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Wh ' U i S&OP


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In addition, S&OP is starting to takehold in retailing and banking, and incompanies that produce products of a

non-physical nature: product designfirms, process engineeringorganizations, and so forth.

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What Does it Cost?

In contrast to these sizeable benefits,the costs to implement ExecutiveS&OP are small. The primary "costs"

in making the process work are notfinancial, but are in time, energy, andthe need to change.

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Sales and Operations PlanningAll functions are aligned on one business plan

Strategic Plan

Business Plan

AggregateSalesPlan

KeyAccounts

Territories

PrdnPlan

MasterSchedules

InventoryPlan

Raw MaterialSchedules

CUSTOMER

Data Integrity

SimplifiedReporting andAccounting

CapitalExpenditurePlans Countries

New ProductDevelopmentPlans

DetailedPlans andMilestones

Sales and Operations Planning(Integrated set of Numbers)

Mfg. Lab Finance HR Sales &Mktg.

People andSkillsReqts

RecruitmentandTrainingPlans

DM Program Resources and Education on US-Dylan - Doc #379 --S&OP Executive Overview.ppt 28PCI Associates


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SALES AND OPERATIONSPLANNING

THE MONTHLY PROCESS

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Inputs into S & OP

InputProjected demandMarket intelligence

Actual salesCapacity informationManagement targetsFinancial requirements

New product informationNew process informationWorkforce availability

ResponsibilityMarketingMarketingSalesManufacturingManagementFinance

R & DProcess engineeringHuman resources


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2008 Pearson Prentice Hall --- Chapter 9, Slide 31

Forecast Laws

Almost always wrong by some amount

More accurate for shorter time periodsMore accurate for groups or families

No substitute for calculated values.

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S l & O i Pl i


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Sales & Operations Planning:Monthly Cycle, Implementation

Radical thoughts on forecastingThe supply sideDecision making

Implementation

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The Monthly S&OP Process

Step #1Run Month

End Reports

End of Month

Statistical Forecasts Field Sales Worksheets

Step #2DemandPlanning

Management Forecast 1st -pass spreadsheets

(with new forecast)

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Thoughts


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Thoughtson Forecasting:

Forecasting is a Process

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The Forecasting Process

Current CustomersNew Customers

CompetitionEconomic Outlook

New Products/ServicesPricing Strategy

PromotionsBid Activity

Management DirectivesIntra-Company Demand

History (Data)Other

Process

Inputs OutputsForecasts that are:

1. Reasoned2. Reasonable3. Reviewed

Frequently4. Represent the

Total Demand

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Thoughts


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Dont Focus on Forecast Accuracy

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Accuracy????

5

10

15

20

25

30

ForecastActual

5

10

15

20

25

30

Forecast

Actual

Which is more accurate? Which can be fixed more easily? Which is more dangerous?

Product A Product B

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Thoughts


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Dont Focus on Forecast Accuracy

Focus on Bias Stamp It Out

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The Supply Planning Process

1. Develop New Production/Service Plan

2. Translate New Production/Service Plan:from product/service families to resources

from units of product/service to units of workload reqd

3. Compare required workload (demand for capacity)to demonstrated capacity (proven supply ofcapacity)

4. Adjust where necessary and practical

5. Where not practical, elevate to Pre-SOP Meeting40PCI Associates


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Step #1Run Month

End Reports

End of Month


Step #4Pre-SOPMeeting

Recommendations &Agenda for Exec Meeting

3 rd -pass spreadsheets ( consensus, alternatives, what-ifs )

Step #2Demand

Planning Management Forecast 1st -pass spreadsheets

(with new forecast)

Step #3Supply

Planning Capacity constraints 2 nd -pass spreadsheets

(with new production plan)

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S&OP E l


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S&OP Example

Sales Plan 2 4 6 8 12 19 21 14 8 4 9 10 3 5

Actual Sales 3 5 7

Cumulative Diff. +1 +2 +3

Production Plan 8 8 10

Difference 1 1 1

Actual Production 7 8 9

Difference -1 0 -1Cumulative Diff. -1 -1 -2

Backlog Plan 20 14 10 6 11 11 11 11 11 11 11 11 11 11 11

Actual Backlog 20 16 13 11

Difference +2 +3 +5

Past FuturePresent

Product Family B D J F M A M J J A S O N D J

8 12 19 21 14 8 4 9 10 3 5


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Step #1Run Month

End Reports

End of Month


Step #5 Executive

S&OPMeeting

Decisions Company

Game Plan

Step #4Pre-SOPMeeting

Recommendations &Agenda for Exec Meeting

3 rd -pass spreadsheets ( consensus, alternatives, what-ifs )

Step #2Demand

Planning Management Forecast 1st -pass spreadsheets

(with new forecast)

Step #3Supply

Planning Capacity constraints 2 nd -pass spreadsheets

(with new production plan)

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Executive Sales and Operations


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Executive Sales and OperationsPlanning Meeting

The purpose of theExecutive Sales and

Operations PlanningMeeting is to update theSales and Operations Planas a result of changes in

the external and internalenvironments.

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Executive S&OP Meeting

Objectives:Make decisions on each product family, accept Pre-S&OP team recommendations or alternativesAuthorize production/service or procurement changes

Compare plans to business plan and make requiredadjustmentsMake decisions where no agreement on Pre-S&OPteam

Review business key performance indicators whereperformance was less than planned

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The Monthly S & OP Process:


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The Monthly S & OP Process:Summary

1. Run month end sales forecast reportsstatistical forecasts and field sales worksheets

2. Demand planningmanagement forecast and first pass spreadsheets

3. Supply planningcapacity constraints and second pass spreadsheets

4. Pre-S & OP meetingRecommendations and agenda for Executive S & OPmeeting

5. Executive S & OP meetingApproved single companywide game plan


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PCI Associates Chapter 13, Slide 47

Advantages of S&OP

Negotiated processAgreed demand

Functional coordinationBudgets and cash flow analyses

Reduces operations and supply chaintasks to meeting the plan


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S & OP - who is Responsible?

The President and COOhas the responsibility todevelop and oversee the

S & OP process which:Enables the business plan tobe executedProvides the bridge betweenstrategic planning andoperational activityIs specific in terms ofprojected volume by productfamily


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Implementation

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I l i S&OP


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Implementing S&OP

Bad NewsChange

8-12 Months

Good NewsFew People

Early Results( 2-3 Months)

Low Cost

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Th ABC f


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The ABCs of Implementation

C - Computer

B - Data

A - PeoplePCI Associates

Th R l


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The Real

Implementation Challenge . . .. . . is not in understanding S&OP. Its simple

The hard part is

Behavior Change . . .. . . changing the way we do our jobs:

DisciplineAccountability

ConflictPCI Associates


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Principles of S & O P

The Sales and Operations Planning isthe Company Game PlanThe Sales and Operations Plan is thevital link between long range and short

range planningSales and Operations Plans areestablished at the Product/ServiceGroup levelThe Sales and Operations Plan includesall management targetsThe Sales and Operations plan is

monitored and revised monthly

S&OP: Key Points


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S&OP: Key Points

Balance demand & supplyHarmonize units & dollars, one set of #s

Focus is volume and medium/long term .

Monthly cycle

Cross-functional

Decision-makingWindow into the Future

Top Managements Handle on the BusinessPCI Associates

What Can Sales & Operations


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What Can Sales & OperationsPlanning Deliver?

Formal way of running, developing &growing a businessIntegrated new product/service, sales and

supply volume re-planning and theirfinancial implication (12 18 months)Managing change to assumptions aboutthe business

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What Can Sales & Operations


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What Can Sales & OperationsPlanning Deliver?

Led and owned by business managementLess meetings, less duplication

Common sense is not so common

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References

Orchestrating Success: Improve Control of the Businesswith Sales & Operations Planning --- Richard Ling andWalter E. Goddard )Sales & Operations Planning: The How-To Handbook 3 rdedition --- Wallace and StahlIntroduction to Operations and Supply ChainManagement, 2/e --- Bozarth and HandfieldExecutive S&OP How to implement it Successfully

Presentation by Bob Stahl at the The Best of the Best S&OP Conference sponsored by APICS and IBF on December 12, 2008,inDallas, TX .
http://www.apics.org/http://www.ibf.org/http://www.tfwallace.com/pages_blocks_v3/images/links/RSHowToImp.ppshttp://www.ibf.org/http://www.apics.org/

Executive Sales and Operations Planning

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