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

2. 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. 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 (KPI’s) for each step in the process

4. S&OP Process Overview

5. What 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.

6. S&OP links Strategic Planning to Operations
S&OP as part of ERP
S&OP links Strategic Planning to Operations
Source: APICS Illustrated Dictionary

7. High Level Enterprise Resource Planning Model
Strategic
Planning
2-10 Years F O R E C A S T I N G
& D M C A P I T Y L N G
Forecast Only
Business
Planning
Annually
Forecast Only
Monthly
Sales & Operations
Planning
Resource Planning
Forecast Only
Rough-cut Capacity Planning
Weekly
Master
Scheduling
Forecast & Orders
Capacity Requirements Planning
Daily
Detailed Planning
& Scheduling
Orders Only 1

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

9. Pre-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

10. History is included to highlight past plan-to-actual performance
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. Must champion the process
S&OP is a Cross-Functional Process
Engineering
Marketing &
Sales
S&OP Process
Product
Definition
Product
Demand
Human
Resources
Workforce
Availability
Finance
Capital
Master
Schedule
Capacity
Business
Plan
Operations
Materials
Management
Must champion the process

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

13. Steps in the S&OP Process

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

15. Step 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 data
Timeliness of sharing the data
How 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

16. Review and update forecast
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.
Inputs
Process
Outputs
Internal Demand
Market
Intelligence
Customer Orders
Sales Forecast
Review and update forecast
(Marketing & Sales)
Demand Plan
The key performance measure for output is accuracy and for the process step is meeting timing commitments.

17. 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. Product Family or Group Management Overrides Go Here
Step 2: Demand Planning – Sample Plan
The final plan is used to update the S&OP Grid and drive supply planning.
Product Family or Group
History
Management Overrides Go Here

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

21. Marketing/Sales Suffer with the “Field of Dreams” Syndrome
Step 2: Demand Planning –Symptoms You Need a Formal S&OP Process
Marketing/Sales Suffer with the “Field of Dreams” Syndrome
“If we make it, they will come!”
Inventory
Output
Forecast
Manufacturing
Well 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.

22. The Scope of Marketing/Sales Participation is Limited
Step 2: Demand Planning –Symptoms You Need a Formal S&OP Process
The Scope of Marketing/Sales Participation is Limited
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 don’t have a formal Demand Planning process. However, I’m updating the latest forecast at this very moment.
The Marketing Manager responds.

23. Step 2: Supply Planning – Process Overview
Manufacturing operations and purchasing are responsible for the Supply Planning step of the S&OP process.
Inputs
Process
Outputs
Supply Plan by Production Family
Develop and Review Production & Purchasing Plans
Assess Manufacturing &
Supplier Capabilities
Demand Plan
Inventories
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.
Integration of Supply Planning

24. Step 2: Supply Planning – Activities
Key activities for the Supply Planning sub-process include:
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

25. Machine Hours & No. of Batches are Key Resources
Step 2: Supply Planning – Sample Plan
Machine Hours & No. of Batches are Key Resources

26. Manufacturing & Business Goals are not Aligned
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 I’ve been authorized to give you a bonus.
Plant Manager
JIM
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

27. Balance Demand/Supply Model / Option Against Inventory Policy
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.
Inputs
Process
Updated
Financial
View
Inventory
Targets
Resource
Recommend-
ations
S&OP
Meeting
Agenda
Outputs
Exceptions
Balance Demand/Supply
Demand
Plan
Demand
Plan
Balance 1
Balance 2
Balance 3
Model / Option Against Inventory Policy
Customer
Service vs. Inventory
Load vs.
Capacity
Supply
Plan
Supply
Plan
The primary objective is to resolve any imbalances at the least cost to do so.

28. 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. Sample Agenda – Executive S&OP Meeting
Step 5: Executive S&OP Meeting
The purpose of this meeting is to approve recommendations, make decisions, and issue the firm’s “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. 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. 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. Historical Performance
Step 5: Sample S&OP Plan in EXCEL
Plan
Historical Performance

33. Step 5: Sample S&OP Business Scorecard

34. Keys to Success

35. S&OP is Journey not a Destination
Continuous Improvement
Focus the S&OP Process
Learn by Doing /Align Efforts
Get the basics in order

36. S&OP Basics – Early Implementation Tasks
Get the Basics in Place:
S&OP Basics – Early Implementation Tasks
Responsible Person and Due Date required for each task.

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

38. Sample S&OP Grid with Financials
Learn by Doing/Align Financials:
Sample S&OP Grid with Financials
Includes 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

39. Sample Key Performance Indicators (KPI’s) for the S&OP Process
Continuously Improve:
Sample Key Performance Indicators (KPI’s) 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
Focus on Performance-to-Target and Trends in Performance

40. 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. 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. BASF 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