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Region IV Meeting New Orleans, LA Sales & Operations Planning – Two Decades of Learning at BASF Alan L. Milliken CFPIM CIRM CSCP April 14, 2007 Advancing.

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Presentation on theme: "Region IV Meeting New Orleans, LA Sales & Operations Planning – Two Decades of Learning at BASF Alan L. Milliken CFPIM CIRM CSCP April 14, 2007 Advancing."— Presentation transcript:

1 Region IV Meeting New Orleans, LA Sales & Operations Planning – Two Decades of Learning at BASF Alan L. Milliken CFPIM CIRM CSCP April 14, 2007 Advancing Productivity, Innovation, and Competitive Success Region IV

2 Region IV Meeting New Orleans, LA Alan L. Milliken CFPIM CIRM CSCP 20+ years at major manufacturing sites working in Production, Logistics, Process & Quality Control, Industrial Engineering, Training, and Scheduling 11+ years as a Supply Chain Consultant and APICS Instructor including two years in Mexico City helping BASF Mexicana improve their supply chain Identified by an independent consulting firm as one of three APICS members who best answer the question, What is a Supply Chain Manager? Served as an SME (Subject Matter Expert) on the team that developed the new Certified Supply Chain Professional (CSCP) program. Served as an SME on the team that developed the new Certified Forecasting Professional (CFP) for the Institute of Business Forecasting (IBF) Engineering Degree from Auburn University and MBA from Clemson University

3 Region IV Meeting New Orleans, LA Objectives of the Presentation Define formal Sales & Operations Planning (S&OP) Describe the primary steps in the formal S&OP Process and explain the purpose of each Relate the inputs and outputs of each step in the process Identify the participants in and responsibilities for each primary step Discuss Key Performance Indicators (KPIs) for each step in the process

4 Region IV Meeting New Orleans, LA S&OP Process Overview

5 Region IV Meeting New Orleans, LA S&OP is the process with which we bring together all the plans for the business (customers, sales, marketing, development, manufacturing, sourcing, and financial) into one integrated set of plans. The objective of Sales & Operations Planning is to arrive at a business Game Plan to help manage and allocate critical resources to meet the needs of the customer at the least cost to do so. What is formal Sales & Operations Planning?

6 Region IV Meeting New Orleans, LA Source: APICS Illustrated Dictionary S&OP links Strategic Planning to Operations S&OP as part of ERP

7 Region IV Meeting New Orleans, LA Sales & Operations Planning Master Scheduling Detailed Planning & Scheduling CAPACITYPLANNINGCAPACITYPLANNING F O R E C A S T I N G & D E M A N D Business Planning High Level Enterprise Resource Planning Model Annually Monthly Weekly Daily Strategic Planning 2-10 Years Forecast Only Forecast & Orders Orders Only Rough-cut Capacity Planning Capacity Requirements Planning Resource Planning

8 Region IV Meeting New Orleans, LA SKU by Customer by Location SKU by Customer Stock Keeping Unit (SKU) Package Size Model / Brand Subfamily Family Business Unit Total Company S&OP Levels Too Aggregated Too Detailed Forecasts are more accurate higher in the hierarchy Actual Demand is collected at the detailed level. S&OP in Product Hierarchy S&OP is usually performed at an aggregated level (e.g. Product Family or Group)

9 Region IV Meeting New Orleans, LA S&OP is a Five-Step Process: Pre-S&OP and Executive S&OP may be combined into one meeting

10 Region IV Meeting New Orleans, LA The Basic S&OP Grid: History is included to highlight past plan-to- actual performance Inventory Plan = Planned Opening Inventory + Planned Production - Planned Sales Actual Inventory = Opening Inventory + Actual Production - Actual Sales

11 Region IV Meeting New Orleans, LA Marketing & Sales Product Definition Product Demand Capital Master Schedule Business Plan Workforce Availability Finance Materials Operations Human Resources Engineering Management Capacity S&OP Process S&OP is a Cross-Functional Process Must champion the process

12 Region IV Meeting New Orleans, LA improved customer service reduced inventory lower manufacturing & distribution costs better control of overall business performance increased team work within and across functions Benefits of S&OP If implemented and used effectively, S&OP will yield major benefits to the firm:

13 Region IV Meeting New Orleans, LA Steps in the S&OP Process

14 Region IV Meeting New Orleans, LA Step 1: Updating Input Data Results: High Inventory Low Service High Unit Cost Poor Decisions Remember the GIGO Principle. It takes much effort to ensure accurate & timely data is driving the process. S&OP Planning Process Data E R R O R

15 Region IV Meeting New Orleans, LA Key input data (e.g. inventory, sales, production, KPIs, etc..) should be updated as soon after month-end as feasible. Typically, 2-3 business days are allowed for this sub- process. Key Performance Indicators (KPIs) for data gathering include: Accuracy of the data Timeliness of sharing the data How well the data conforms to agreed upon formats Step 1: Updating Input Data (Continued) Take care to get what you like or you will be forced to like what you get. George Bernard Shaw

16 Region IV Meeting New Orleans, LA Step 2: Demand Planning – Process Overview Marketing & Sales are responsible for this step in the S&OP process. The output is used to drive supply planning. The key performance measure for output is accuracy and for the process step is meeting timing commitments. Review and update forecast (Marketing & Sales) Demand Plan Internal Demand Market Intelligence Customer Orders Sales Forecast Inputs Outputs Process

17 Region IV Meeting New Orleans, LA Step 2: Demand Planning – Activities Generate new forecast (IT if automated) Marketing/Sales: Review new forecast, revise if needed, and approve for updating of S&OP grid Review previous months forecasting performance and identify root causes for data outside tolerance Provide status for new product introductions Document assumptions and risks associated with new forecast

18 Region IV Meeting New Orleans, LA Management Overrides Go Here Product Family or Group History Step 2: Demand Planning – Sample Plan The final plan is used to update the S&OP Grid and drive supply planning.

19 Region IV Meeting New Orleans, LA Step 2: Demand Planning – Forecastability The accuracy of the forecast depends heavily on whether or not the forecasting tool is applicable to the history data. One test to determine this is the Coefficient of Variation (COV). COV = Standard Deviation of Period-to-Period Sales/ Average Period Sales. If COV >0.8, conventional forecasting such as moving average should not be used.

20 Region IV Meeting New Orleans, LA Step 2: Demand Planning –Symptoms You Need a Formal S&OP Process Shareholder or Owner Board of Directors Profits Revenue Forecast Sales Manager 3-Year Plan Sales Representative Stuff Flows This Direction Actual Sales Top-Down Directives Conflict Significantly with Current Market Conditions: A formal S&OP Process will ensure alignment across organization & planning levels.

21 Region IV Meeting New Orleans, LA Marketing/Sales Suffer with the Field of Dreams Syndrome If we make it, they will come! Well guess what, in many cases we made it and they did not come. Output Forecast Manufacturing Inventory Step 2: Demand Planning –Symptoms You Need a Formal S&OP Process A formal S&OP process will ensure cross-functional review of forecasting performance.

22 Region IV Meeting New Orleans, LA Supply Chain Manager Bill, this is Jim. I want to make an appointment with you to discuss our Demand Planning process? Inventory The Supply Chain Manager contacts the Marketing Manager. Forecast +10% Oh, Hi Jim. Actually we dont have a formal Demand Planning process. However, Im updating the latest forecast at this very moment. The Marketing Manager responds. The Scope of Marketing/Sales Participation is Limited Step 2: Demand Planning –Symptoms You Need a Formal S&OP Process

23 Region IV Meeting New Orleans, LA Step 2: Supply Planning – Process Overview Supply Plan by Production Family Demand Plan Develop and Review Production & Purchasing Plans Assess Manufacturing & Supplier Capabilities Integration of Supply Planning Inputs Outputs Process Inventories Manufacturing operations and purchasing are responsible for the Supply Planning step of the S&OP process. The key KPI for the process output is the deviation between planned and actual supply. For the process itself, timely & accurate data to drive the next step is most important.

24 Region IV Meeting New Orleans, LA Step 2: Supply Planning – Activities Develop the preliminary supply plan based on the demand plan Perform Resource Planning (Capacity Planning) for key resources Identify and resolve imbalances in demand & supply as feasible Identify imbalances to be reviewed by management Key activities for the Supply Planning sub- process include:

25 Region IV Meeting New Orleans, LA Step 2: Supply Planning – Sample Plan Machine Hours & No. of Batches are Key Resources

26 Region IV Meeting New Orleans, LA Supply Chain Manager Jim, what is going on in Production. Fred did not make the rate decrease we had in the S&OP Plan and Inventory is out-of-control. Production Sales Inventory Step 3: Supply Planning –Symptoms You Need a Formal S&OP Process Manufacturing & Business Goals are not Aligned Congratulations Fred, your unit cost in production was below plan last month and Ive been authorized to give you a bonus. Plant Manager JIM

27 Region IV Meeting New Orleans, LA Step 4: Demand-Supply Balancing – Process Overview The Master Scheduler will typically facilitate the balancing of demands with supply once the preliminary S&OP plans are developed. The primary objective is to resolve any imbalances at the least cost to do so. Demand Plan Supply Plan Balance Demand/Supply Balance 1 Load vs. Capacity Model / Option Against Inventory Policy Customer Service vs. Inventory Balance 2 Balance 3 Supply Plan Demand PlanUpdatedFinancialViewUpdatedInventoryTargets ResourceRecommend-ations S&OPMeetingAgenda Exceptions Inputs Outputs Process

28 Region IV Meeting New Orleans, LA Step 4: Demand-Supply Balancing – Activities Make decisions regarding demand-supply balancing Resolve issues and formulate recommendations Document the issues that could not be resolved and the alternatives for each Convert the plans to financial units for management review Develop the agenda for the executive S&OP Note: Depending on the size and complexity of the business, this step may require a formal meeting or may be done leveraging communications technology (e.g. shared files).

29 Region IV Meeting New Orleans, LA Step 5: Executive S&OP Meeting The purpose of this meeting is to approve recommendations, make decisions, and issue the firms game plan. Sample Agenda – Executive S&OP Meeting Review of Overall Business Performance Review & Discussion of Key Performance Indicators Discuss Status of New Product Introductions Family-by-Family Review and Decisions Approve Production/Supplier Rate Changes Collective Impact on the Business Plan Review of Decisions Made & Action Items Assigned Critique of the Meeting

30 Region IV Meeting New Orleans, LA Step 5: Outputs & Objectives of Executive S&OP Meeting The outputs of the meeting are the Meeting Minutes, modifications to the Business Plans, and the finalized S&OP Plan. Collectively, these are referred to as the Game Plan. Objectives for the meeting include: Make final decisions for issues raised during the S&OP process - accept or change proposals - choose from alternatives provided Compare the financial numbers from the S&OP Plan to the current Business Plan and reconcile the two. Finalize the S&OP Plan. Review current performance for Customer Service, Inventory, etc.., and make any necessary changes to plans or targets. Review New Product Issues, Special Projects, and Business Level Issues and make the necessary decisions.

31 Region IV Meeting New Orleans, LA Step 5: Sample S&OP Plan in SAP DEMAND SUPPLY RESOURCE PLANNING INVENTORY Note: Most ERP Systems provide a platform to enable S&OP

32 Region IV Meeting New Orleans, LA Step 5: Sample S&OP Plan in EXCEL Historical Performance Plan

33 Region IV Meeting New Orleans, LA Step 5: Sample S&OP Business Scorecard

34 Region IV Meeting New Orleans, LA Keys to Success

35 Region IV Meeting New Orleans, LA S&OP is Journey not a Destination Get the basics in order Continuous Improvement Learn by Doing /Align Efforts Focus the S&OP Process

36 Region IV Meeting New Orleans, LA S&OP Basics – Early Implementation Tasks Responsible Person and Due Date required for each task. Get the Basics in Place:

37 Region IV Meeting New Orleans, LA Sample S&OP Planning Calendar 1 (1) 2 (2) (3) 6 (4) 7 (5) 8 (6) 9 (7) (8) 13 (9) 14 (10 15 (11) 16 (12) (13) 20 (14) 21 (15) 22 (16) 23 (17) (18) 27 (19) 28 (20) 29 (21) 30 (22) 31 The Journey Begins Update Actuals into FCST Model Mktg. Finalizes Demand FCST Dmnd Plng Mtg.- Final Plan Due Supply Plan Finalized (Mtg.?) S&OP Mtg. - Exceptions Resolved Sr. Mgmt. Approves S&OP Plan Approved S&OP Plan to SAP KPI Scorecard Available All team members must meet sub-process due dates to ensure success. Focus the Process:

38 Region IV Meeting New Orleans, LA Includes planned and actual as well as volume and value. Includes estimated profit margins. Sample S&OP Grid with Financials Only white rows require entry; other data is populated automatically or calculated automatically. The S&OP Plan must be aligned with the Financial Business Plan Learn by Doing/Align Financials:

39 Region IV Meeting New Orleans, LA Sample Key Performance Indicators (KPIs) for the S&OP Process Overall Process - Customer Satisfaction (e.g. OTD) - ROI/ROA/Cash Flow,etc.. - Market Share - Inventory Performance New Product Planning - Due Date (milestones) - Velocity (time to market) - Revenue/Cost Demand Planning - Forecast Accuracy - Sales Plan Performance Supply Planning - Plnd. vs. Actual Production - On-time Supplier Delivery - Prime Yield - Cost to Acquire Continuously Improve: Focus on Performance-to-Target and Trends in Performance

40 Region IV Meeting New Orleans, LA S&OP - Barriers to Success Process Ownership is with Planning not the Leadership Team Lack of understanding of the S&OP Process Insufficient resources for process implementation Inadequate performance measurement Resistance to giving up individual freedom to achieve best overall results

41 Region IV Meeting New Orleans, LA S&OP is a Key Process at BASF 2006 Supply Chain Project The Supply Chain Project of the Year 2006 Award goes to the Implementation of a Global Sales & Operations Planning Process in the EVN Business. The award pays tribute to innovative supply chain solutions and outstanding performance in the implementation of supply chain concepts. The award is sponsored by Dr. Kurt Bock, CFO for BASF Group.

42 Region IV Meeting New Orleans, LA BASF Corporation – 5-Year Stock Performance At BASF, We dont make a lot of the products you buy, we make a lot of the products you buy better. (PPS in USD) Source: YAHOO.com S&OP is one of many things BASF Corporation has done well to improve overall performance.

43 Region IV Meeting New Orleans, LA


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