S&OP What Works What Doesnt V2
- 1. Sales and Operations Planning What Works & What Doesn’t
- 2. Gain an understanding of the concepts of the S & OP process. Review Hard and Soft Benefits of S & OP. Identify S & OP Deliverables. Outline a typical S & OP Process . Review What Works and What Doesn’t Work. Review Ways to Improve Your Forecast Performance. Summary and Close. Presentation Objectives Sales &Operations Planning What Works and What Doesn’t
- 3. Sales and Operations Planning - Defined Definition source: www.oliverwight.com
- 4. Decision-Making Process to Balance Demand & Supply (at the Volume Level) and to Integrate Financial & Operating Plans
- 5. Characteristics Detail oriented Addresses today’s priorities 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 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?
- 6. 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 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?
- 7. 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
- 8. 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 Business
- 9. 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
- 10. Purchasing Supplier Performance Reporting Supplier Capacity Analysis Sourcing Plan Inventory Management Rolling 12 – 18 month inventory projections Deviation to budget Analysis of inventory turns and days’ coverage A More Accurate Forecast S&OP Deliverables
- 11. End of Month Step #1 Run Month End Reports Statistical Forecasts Field Sales Worksheets Step #5 Executive S&OP Meeting Decisions Company Game Plan Step #4 Pre-SOP Meeting Recommendations & Agenda for Exec Meeting 3 rd -pass spreadsheets ( consensus, alternatives, what-ifs ) Step #2 Demand Planning Management Forecast 1 st -pass spreadsheets (with new forecast) Step #3 Supply Planning Capacity constraints 2 nd -pass spreadsheets (with new production plan)
- 12. Bad News Change 6-12 Months (to get full results) Good News Few People (10 – 20) Early Results (2-3 Months) Low Cost
- 13. . . . is not in understanding S&OP. It’s simple The hard part is Behavior Change . . . . . . changing the way we do our jobs: Discipline Accountability Conflict Resolution
- 14. 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
- 15. 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
- 16. 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
- 17. 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
- 18. 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
- 19. 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.
- 20. Evaluate your forecasts EVERY month. Measure by ABC Class Review - in detail – the 20 items with the least accurate forecasts Review - in detail – the accuracy of all “A” items Evaluate forecast accuracy at the product family level. Review the 5 product families with the least accurate forecasts
- 21. Review in detail the 5 worst items in these 5 families. Don’t wait until the end of the month to review your forecasts Review month-to-date progress Use the Unsigned Error as a range to identify problem items (ABC Code = A and Unsigned Error > 25%) Determine if specific forecasting formulas are causing problems Determine how much forecast error you can tolerate and not Stock-out - Hint: It’s greater than you think!
- 22. Ask your key customers for their forecast – expect to find major discrepancies and work to resolve them CPFR Pilots – Collaborative Planning, Forecasting and Replenishment
- 23. 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.)
- 24. 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