Sales & Operations Planning

What is happening 6-12 months from now?

Maturity Scan How do you characterize the S&OP process in your team? Stage of Evolution Characteristics Ad hoc decisions, fire fighting problems, no specific sequence Functional organization with each function making separate decisions in its own silo, not sharing it with the others Joint decision making with a rough logical sequence, not formalized or detailed. Limited preparation on trade offs Formalized logical sequence of joint decision making. Individual preparation of decisions and trade offs beforehand Stage I React Stage II Anticipate Stage III Collaborate Stage IV Orchestrate How do you characterize the S&OP process in your team?

A definition S&OP is a 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

Strategic Management / S&OP can be an effective bridge between Strategic Business Planning and Execution Predict and prepare Strategic Management / Business Planning S&OP Align functional plans Create the right context 2-18 months horizon Prepare for different scenarios Recognise and address gaps Tactical Planning & Decision Making (Tactical) Execution Sense and respond

S&OP is business planning in 5 steps… From Forecasting to Demand Shaping Getting the right info to make decisions into the last 60 minutes of the process Reconcile with financial plans Supply Reconcile demand and supply Demand Sales and Ops Planning Meeting “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

The process seems simple but some principles are a challenge…. Discussions should be fact-based There must be clear ownership of each element of the process and of the decisions made The operating plan must be formally linked by assumptions to a financial plan There needs to be a formal balancing of demand and supply across a rolling horizon Gaps (vs set targets…) must be recognised and action plans formulated to close them taking into consideration the relevant lead times Trade-offs must be clearly articulated and commercially evaluated Read 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

Common 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

What 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

≠ ≠ Target Plan Forecast Aligning with finance does not mean that the forecast has to become the target! Target A goal or objective (a desired future outcome) ≠ Plan A set of actions designed to achieve a defined outcome ≠ Forecast The best estimate of anticipated events (a likely future outcome)

Realising that there are gaps is good Realising that there are gaps is good! This helps to timely drive the right actions GAP Target GAP Demand plan Forecast Recognising that gaps exist between forecast and target is very useful: in the S&OP process you can decide to do something about it! Time Horizon History Short term Next 3 Months Medium Term 3-18 months Long Term >18 months

It is all about the gaps Volume plan Bottom-up financial forecast Gaps? Business targets Planned net average sales prices Comparing the bottom-up forecast with financial targets will give better understanding of the expected outcomes

Key decision making forum Manage together Sales: we can sell 200 Marketing: the promotion will sell 400 Manufacturing: they will only sell 150 Finance: we have budget of 300 Source figure: Red Pepper. Modified E&Y 1999 one consensus plan Key decision making forum Manage together Routine things done routinely Issues addressed early – efficient response & anticipation Functional silo approach Ineffective behaviour Fire fighting Lots of ad-hoc meetings Lots of effort, little reward Result of an effective implementation will take you from functional silo … To real collaboration

Who Brings What to the Table? Marketing Product Development Demand Capital MPS and Supplier Constraints Business Plan Workforce Availability Adapted from: Launchbury, Keith J. Principles of Planning Omeric, 1999. Finance Materials Operations Human Resources Engineering General Management Capacity Customer Interface Sales In 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…

How to translate this to The Fresh Connection Purchasing Sales Servicelevel Demand pattern Shelflife Leadtimes Quality Reliability Trade Unit Strategy Operations Capacity Improvements Frequencies Stocklevel Fixed period Within TFC environment there is a limited set of stakeholders, and limited set of decisions. But still pretty complicated Very good envirinment to experience what a good S&Op process can bring Supply Chain Adapted from: Launchbury, Keith J. Principles of Planning Omeric, 1999.

Decision making Decision making sequence Who is involved? Sales Operations Supply chain Purchasing sequence Decision making Who is involved? What sequence makes sense?

Set up a logical sequence of decisions and roles involved for The Fresh Connection Sales Operations Supply chain Purchasing Inventory policy raw mat. (batch size, safety stock) Production capacity plan (shifts/projects) Forecasting demand (pattern) Inventory policy finished product (safety stock) Supplier selection and agreements Production policy (interval / fixed period) Production resources and allocation Decide about portfolio/ customer service Typical decisions in TFC , now already or coming up in the next rounds Not organized it will be a mess - no logical order Juming around a lot of interrelations who or what is leading The value proposition Capacity plan inbound warehouse Capacity plan outbound warehouse

10 steps to success Iterate Sales Operations Supply chain Purchasing The value proposition Portfolio / customer service Cus-tomer Forecasting demand Production resources and allocation Product group Production capacity plan (shifts/projects) Production policy (interval / fixed period) Finished product Capacity plan outbound warehouse Inventory policy finished product (safety stock) Finished product Capacity plan inbound warehouse Inventory policy raw mat. (batch size, safety stock) Supplier selection and agreements Compo-nents Iterate