3Maturity Scan How do you characterize the S&OP process in your team? Stage of EvolutionCharacteristicsAd hoc decisions, fire fighting problems, no specific sequenceFunctional organization with each function making separate decisions in its own silo, not sharing it with the othersJoint decision making with a rough logical sequence, not formalized or detailed. Limited preparation on trade offsFormalized logical sequence of joint decision making. Individual preparation of decisions and trade offs beforehandStage IReactStage IIAnticipateStage IIICollaborateStage IVOrchestrateHow do you characterize the S&OP process in your team?
4A definitionS&OP isa process discipline that brings together the sales & marketing ambitions, supply capabilities, customer needs and financial constraints and objectives to balance them and create a single, achievable plan for the tactical horizon
5Strategic Management / S&OP can be an effective bridge between Strategic Business Planning and ExecutionPredict and prepareStrategic Management /Business PlanningS&OPAlign functional plansCreate the right context2-18 months horizonPrepare for different scenariosRecognise and address gapsTactical Planning& Decision Making(Tactical) ExecutionSense and respond
6S&OP is business planning in 5 steps… From Forecasting to Demand ShapingGetting the right info to make decisions into the last 60 minutes of the processReconcile with financial plansSupplyReconcile demand and supplyDemandSales and Ops PlanningMeeting“What if?” Rather than “Yes/No”S&OP ultimately moves planning forward from a supply chain focused and supply chain driven activity to multidisciplinary business planning.The 5 basic steps are shown here : Demand, Supply, Reconcile them….. Then make them financial and consider a financial review. Concluding with a final meeting.[press space to get texts]In the development of S&OP this process links up and moves demand planning from forecasting into demand shaping and sensing, supply planning from etc…. (read texts)From Capacity Planning to Supply Network trade offs & design
7The process seems simple but some principles are a challenge…. Discussions should be fact-basedThere must be clear ownership of each element of the process and of the decisions madeThe operating plan must be formally linked by assumptions to a financial planThere needs to be a formal balancing of demand and supply across a rolling horizonGaps (vs set targets…) must be recognised and action plans formulated to close them taking into consideration the relevant lead timesTrade-offs must be clearly articulated and commercially evaluatedRead text and explain where necessary.Phil Heenen goes into fairly detailed do’s and don’ts, which may help you to address some of the hurdles you face in adhering to these principles
8Common pitfall: believing that S&OP is a monthly meeting If S&OP is only a monthly meeting, it will not deliver the targeted results: a good process consists of well-prepared and fact-based discussions on key topics only, resulting in optimal decisions for the company as a whole
9What do you think about this discussion? :Sales: “We have received a tough target of 5% additional sales next year and we have accepted the challenge”Marketing: “We are designing a new campaign and will invest €10m, so we think that volumes should increase by 6%”Supply Chain: “The statistical forecast indicates 2% growth”Compromise reached after long fight in S&OP meeting: 4% growth
10≠ ≠ Target Plan Forecast Aligning with finance does not mean that the forecast has to become the target!TargetA goal or objective (a desired future outcome)≠PlanA set of actions designed to achieve a defined outcome≠ForecastThe best estimate of anticipated events (a likely future outcome)
11Realising that there are gaps is good Realising that there are gaps is good! This helps to timely drive the right actionsGAPTargetGAPDemand planForecastRecognising that gaps exist between forecast and target is very useful:in the S&OP process you can decide to do something about it!Time HorizonHistoryShort term Next 3 MonthsMedium Term 3-18 monthsLong Term >18 months
12It is all about the gapsVolume planBottom-up financial forecastGaps?Business targetsPlanned net average sales pricesComparing the bottom-up forecast with financial targets will give better understanding of the expected outcomes
13Key decision making forum Manage together Sales: we can sell 200Marketing:the promotionwill sell 400Manufacturing: they willonly sell 150Finance:we havebudget of 300Source figure: Red Pepper. Modified E&Y 1999oneconsensusplanKey decision making forumManage togetherRoutine things done routinelyIssues addressed early – efficient response & anticipationFunctional silo approachIneffective behaviourFire fightingLots of ad-hoc meetingsLots of effort, little rewardResult of an effective implementation will take you from functional silo …To real collaboration
14Who Brings What to the Table? MarketingProductDevelopmentDemandCapitalMPS andSupplierConstraintsBusinessPlanWorkforceAvailabilityAdapted from: Launchbury, Keith J. Principles of Planning Omeric, 1999.FinanceMaterialsOperationsHumanResourcesEngineeringGeneralManagementCapacityCustomerInterfaceSalesIn fact it is not only about sales and operations, but can bring other disciplines/subjects to the table as well.Just to name some examples. It typically depend on the type of business you are in…
15How to translate this to The Fresh Connection PurchasingSalesServicelevelDemand patternShelflifeLeadtimesQualityReliabilityTrade UnitStrategyOperationsCapacityImprovementsFrequenciesStocklevelFixed periodWithin TFC environment there is a limited set of stakeholders, and limited set of decisions.But still pretty complicatedVery good envirinment to experience what a good S&Op process can bringSupplyChainAdapted from: Launchbury, Keith J. Principles of Planning Omeric, 1999.
16Decision making Decision making sequence Who is involved? SalesOperationsSupply chainPurchasingsequenceDecision makingWho is involved?What sequence makes sense?
17Set up a logical sequence of decisions and roles involved for The Fresh Connection SalesOperationsSupply chainPurchasingInventory policy raw mat. (batch size, safety stock)Production capacity plan (shifts/projects)Forecasting demand (pattern)Inventory policy finished product (safety stock)Supplier selection and agreementsProduction policy (interval / fixed period)Production resources and allocationDecide about portfolio/ customer serviceTypical decisions in TFC , now already or coming up in the next roundsNot organized it will be a mess- no logical orderJuming arounda lot of interrelationswho or what is leadingThe value propositionCapacity plan inbound warehouseCapacity plan outbound warehouse
1810 steps to success Iterate Sales Operations Supply chain Purchasing The value propositionPortfolio / customer serviceCus-tomerForecasting demandProduction resources and allocationProduct groupProduction capacity plan (shifts/projects)Production policy (interval / fixed period)Finished productCapacity plan outbound warehouseInventory policy finished product (safety stock)Finished productCapacity plan inbound warehouseInventory policy raw mat. (batch size, safety stock)Supplier selection and agreementsCompo-nentsIterate