1 Sales and Operations Planning What Works & What Doesn’t
Nov 04, 2014
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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