Presentation on theme: "Sales & Operations Planning – Two Decades of Learning at BASF"— Presentation transcript:
1Sales & Operations Planning – Two Decades of Learning at BASF Advancing Productivity, Innovation, and Competitive SuccessSales & Operations Planning – Two Decades of Learning at BASFAlan L. Milliken CFPIM CIRM CSCPApril 14, 2007Region IV
2Alan L. Milliken CFPIM CIRM CSCP 20+ years at major manufacturing sites working in Production, Logistics, Process & Quality Control, Industrial Engineering, Training, and Scheduling11+ years as a Supply Chain Consultant and APICS Instructor including two years in Mexico City helping BASF Mexicana improve their supply chainIdentified 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
3Objectives 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 eachRelate the inputs and outputs of each step in the processIdentify the participants in and responsibilities for each primary stepDiscuss Key Performance Indicators (KPI’s) for each step in the process
5What is formal Sales & Operations Planning? 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.
6S&OP links Strategic Planning to Operations S&OP as part of ERPS&OP links Strategic Planning to OperationsSource: APICS Illustrated Dictionary
8S&OP in Product Hierarchy TotalCompanyForecasts are more accurate higher in the hierarchyToo AggregatedBusinessUnitFamilyS&OP LevelsActual Demand is collected at the detailed level.SubfamilyModel / BrandPackage SizeStock Keeping Unit (SKU)Too DetailedSKU by CustomerSKU by Customer by LocationS&OP is usually performed at an aggregated level (e.g. Product Family or Group)
9Pre-S&OP and Executive S&OP may be combined into one meeting S&OP is a Five-Step Process:Pre-S&OP and Executive S&OP may be combined into one meeting
10History is included to highlight past plan-to-actual performance The Basic S&OP Grid:History is included to highlight past plan-to-actual performanceInventory Plan = Planned Opening Inventory + Planned Production - Planned SalesActual Inventory = Opening Inventory + Actual Production - Actual Sales
11Must champion the process S&OP is a Cross-Functional ProcessEngineeringMarketing &SalesS&OP ProcessProductDefinitionProductDemandHumanResourcesWorkforceAvailabilityFinanceCapitalMasterScheduleCapacityBusinessPlanOperationsMaterialsManagementMust champion the process
12Benefits of S&OPIf implemented and used effectively, S&OP will yield major benefits to the firm:improved customer servicereduced inventorylower manufacturing & distribution costsbetter control of overall business performanceincreased team work within and across functions
14Step 1: Updating Input Data Remember the GIGO Principle. It takes much effort to ensure accurate & timely data is driving the process.REORRS&OP Planning ProcessResults:High InventoryLow ServiceHigh Unit CostPoor Decisions
15Step 1: Updating Input Data (Continued) Key input data (e.g. inventory, sales, production, KPI’s, 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 (KPI’s) for data gathering include:Accuracy of the dataTimeliness of sharing the dataHow well the data conforms to agreed upon formats“Take care to get what you like or you will be forced to like what you get.” George Bernard Shaw
16Review and update forecast Step 2: Demand Planning – Process OverviewMarketing & Sales are responsible for this step in the S&OP process. The output is used to drive supply planning.InputsProcessOutputsInternal DemandMarketIntelligenceCustomer OrdersSales ForecastReview and update forecast(Marketing & Sales)Demand PlanThe key performance measure for output is accuracy and for the process step is meeting timing commitments.
17Step 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 gridReview previous months’ forecasting performance and identify root causes for data outside toleranceProvide status for new product introductionsDocument assumptions and risks associated with new forecast
18Product Family or Group Management Overrides Go Here Step 2: Demand Planning – Sample PlanThe final plan is used to update the S&OP Grid and drive supply planning.Product Family or GroupHistoryManagement Overrides Go Here
19Step 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.
20Stuff Flows This Direction Step 2: Demand Planning –Symptoms You Need a Formal S&OP ProcessTop-Down Directives Conflict Significantly with Current Market Conditions:3-Year PlanProfitsRevenue ForecastActual SalesShareholder or OwnerBoard of DirectorsSales ManagerStuff Flows This DirectionA formal S&OP Process will ensure alignment across organization & planning levels.Sales Representative
21Marketing/Sales Suffer with the “Field of Dreams” Syndrome Step 2: Demand Planning –Symptoms You Need a Formal S&OP ProcessMarketing/Sales Suffer with the “Field of Dreams” Syndrome“If we make it, they will come!”InventoryOutputForecastManufacturingWell guess what, in many cases we made it and they did not come.A formal S&OP process will ensure cross-functional review of forecasting performance.
22The Scope of Marketing/Sales Participation is Limited Step 2: Demand Planning –Symptoms You Need a Formal S&OP ProcessThe Scope of Marketing/Sales Participation is LimitedSupply Chain ManagerBill, this is Jim. I want to make an appointment with you to discuss our Demand Planning process?InventoryThe Supply Chain Manager contacts the Marketing Manager.Forecast+10%Oh, Hi Jim. Actually we don’t have a formal Demand Planning process. However, I’m updating the latest forecast at this very moment.The Marketing Manager responds.
23Step 2: Supply Planning – Process Overview Manufacturing operations and purchasing are responsible for the Supply Planning step of the S&OP process.InputsProcessOutputsSupply Plan by Production FamilyDevelop and Review Production & Purchasing PlansAssess Manufacturing &Supplier CapabilitiesDemand PlanInventoriesThe 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.Integration of Supply Planning
24Step 2: Supply Planning – Activities Key activities for the Supply Planning sub-process include:Develop the preliminary supply plan based on the demand planPerform Resource Planning (Capacity Planning) for key resourcesIdentify and resolve imbalances in demand & supply as feasibleIdentify imbalances to be reviewed by management
25Machine Hours & No. of Batches are Key Resources Step 2: Supply Planning – Sample PlanMachine Hours & No. of Batches are Key Resources
26Manufacturing & Business Goals are not Aligned Step 3: Supply Planning –Symptoms You Need a Formal S&OP ProcessManufacturing & Business Goals are not AlignedCongratulations Fred, your unit cost in production was below plan last month and I’ve been authorized to give you a bonus.Plant ManagerJIMSupply Chain ManagerJim, 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.ProductionSalesInventory
27Balance Demand/Supply Model / Option Against Inventory Policy Step 4: Demand-Supply Balancing – Process OverviewThe Master Scheduler will typically facilitate the balancing of demands with supply once the preliminary S&OP plans are developed.InputsProcessUpdatedFinancialViewInventoryTargetsResourceRecommend-ationsS&OPMeetingAgendaOutputsExceptionsBalance Demand/SupplyDemandPlanDemandPlanBalance 1Balance 2Balance 3Model / Option Against Inventory PolicyCustomerService vs. InventoryLoad vs.CapacitySupplyPlanSupplyPlanThe primary objective is to resolve any imbalances at the least cost to do so.
28Step 4: Demand-Supply Balancing – Activities Make decisions regarding demand-supply balancingResolve issues and formulate recommendationsDocument the issues that could not be resolved and the alternatives for eachConvert the plans to financial units for management reviewDevelop the agenda for the executive S&OPNote: 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).
29Sample Agenda – Executive S&OP Meeting Step 5: Executive S&OP MeetingThe purpose of this meeting is to approve recommendations, make decisions, and issue the firm’s “game plan.”Sample Agenda – Executive S&OP MeetingReview of Overall Business PerformanceReview & Discussion of Key Performance IndicatorsDiscuss Status of New Product IntroductionsFamily-by-Family Review and DecisionsApprove Production/Supplier Rate ChangesCollective Impact on the Business PlanReview of Decisions Made & Action Items AssignedCritique of the Meeting
30Step 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 providedCompare 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.
31Step 5: Sample S&OP Plan in SAP DEMANDSUPPLYRESOURCE PLANNINGINVENTORYNote: Most ERP Systems provide a platform to enable S&OP
32Historical Performance Step 5: Sample S&OP Plan in EXCELPlanHistorical Performance
35S&OP is Journey not a Destination Continuous ImprovementFocus the S&OP ProcessLearn by Doing /Align EffortsGet the basics in order
36S&OP Basics – Early Implementation Tasks Get the Basics in Place:S&OP Basics – Early Implementation TasksResponsible Person and Due Date required for each task.
37Sample S&OP Planning Calendar Focus the Process:Sample S&OP Planning CalendarThe Journey Begins1 (1) (2)Update Actuals into FCST ModelMktg. Finalizes Demand FCSTDmnd Plng Mtg.- Final Plan Due(3) (4) (5) (6) (7)Supply Plan Finalized (Mtg.?)(8) (9) ( (11) (12)S&OP Mtg. - Exceptions ResolvedKPI Scorecard Available(13) (14) (15) (16) (17)Sr. Mgmt. Approves S&OP PlanApproved S&OP Plan to SAP(18) (19) (20) (21) (22)All team members must meet sub-process due dates to ensure success.
38Sample S&OP Grid with Financials Learn by Doing/Align Financials:Sample S&OP Grid with FinancialsIncludes planned and actual as well as volume and value.Only white rows require entry; other data is populated automatically or calculated automatically.Includes estimated profit margins.The S&OP Plan must be aligned with the Financial Business Plan
39Sample Key Performance Indicators (KPI’s) for the S&OP Process Continuously Improve:Sample Key Performance Indicators (KPI’s) for the S&OP ProcessOverall Process- Customer Satisfaction (e.g. OTD)- ROI/ROA/Cash Flow,etc..- Market Share- Inventory PerformanceNew Product Planning- Due Date (milestones)- Velocity (time to market)- Revenue/CostDemand Planning- Forecast Accuracy- Sales Plan PerformanceSupply Planning- Plnd. vs. Actual Production- On-time Supplier Delivery- Prime Yield- Cost to AcquireFocus on Performance-to-Target and Trends in Performance
40S&OP - Barriers to Success Process Ownership is with Planning not the Leadership TeamLack of understanding of the S&OP ProcessInsufficient resources for process implementationInadequate performance measurementResistance to giving up individual freedom to achieve best overall results
41S&OP is a Key Process at BASF 2006 Supply Chain ProjectThe 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.
42BASF Corporation – 5-Year Stock Performance (PPS in USD)S&OP is one of many things BASF Corporation has done well to improve overall performance.At BASF, “We don’t make a lot of the products you buy, we make a lot of the products you buy better.”Source: YAHOO.com