‘sales ’ and ‘operations · 2017-12-30 · ‘sales’ and ‘operations’ setting the...
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‘Sales’ and ‘Operations’ Setting The Foundation / 1
‘‘SalesSales’’ and and ‘‘OperationsOperations’’
Setting the Foundationfor Overcoming the Recession
Ian Henderson Partner, MLG Management Consultants
‘Sales’ and ‘Operations’ Setting The Foundation / 2
Sales & Operations Planning (S&OP)Sales & Operations Planning (S&OP)
� A set of management processes to:
� Establish medium-term projection of demand
� Macro level, product family rather than product
� Convert demand plan into resource requirements
� Create operations plan – perhaps with options
� Present plans to senior management for decision-making
� S&OP originated within Manufacturing / Supply Chain
� Manufacturing Resource Planning (MRPII)
� Equally applicable to service sector
� . . . and to areas where services are not ‘sold’
� . . . but provided by, for example, the state
‘Sales’ and ‘Operations’ Setting The Foundation / 3
Why Is Such Planning Needed?Why Is Such Planning Needed?
� All markets are subject to change
� Overall volume
� Product / service mix
� Demand on specific resources
� All organisations can react to change
� . . . given sufficient visibility
� . . . few can react to the degree of change to which they are exposed without medium-term planning
� If resources are set up for a medium-term plan put together with insufficient thought . . .
‘Sales’ and ‘Operations’ Setting The Foundation / 4
MediumMedium--Term PlanningTerm Planning
� What do we mean by ‘medium-term’?
� Varies from one business to another
� Must extend sufficiently to allow responsiveness to change in business levels or product / demand mix
� More than cover cumulative supply / service lead time
� May need visibility throughout the internal process and some window to suppliers of key raw materials / services
� Time for internal resource capacity to be amended
� Establishment of sales strategy to react to significant change in demand for particular products / services / resources
� Managing short-term change is limited to points of detail
‘Sales’ and ‘Operations’ Setting The Foundation / 5
Long, Medium And Short TermLong, Medium And Short Term
Years
StrategicPlanning
Sales & OperationsPlanning
(Every month as a
rolling process)
Annual Budget
Operational
Scheduling(Daily, Weekly
or Monthly)1 2 3 4
5 Year Outlook
‘Sales’ and ‘Operations’ Setting The Foundation / 6
Life Without MediumLife Without Medium--Term PlanningTerm Planning
� All changes in demand-supply balance pattern . . .
� . . . arrive in the present or the immediate future
� . . . require reaction-style management
� ‘Draining the swamp while fighting the alligators’
� Fire-fighting becomes the order of the day
� Crisis management = increased cost + poor service
‘Sales’ and ‘Operations’ Setting The Foundation / 7
““Our Demand CanOur Demand Can’’t Be Forecastt Be Forecast””
� A common theme
� A valid point in many markets
� So what should we do?
� Options:
1. Only react to demand when it appears
� Make resources available – invest in equipment and people
� Order materials / services (if required)
2. Set a plan based on best estimates
� Equipment installed, people recruited and trained
� Perhaps have stock on the shelf, maybe services committed
Customer service level?
Risk – costs, cash flow
‘Sales’ and ‘Operations’ Setting The Foundation / 8
Living Without Some Form Of PlanLiving Without Some Form Of Plan
Need we say more?
‘Sales’ and ‘Operations’ Setting The Foundation / 9
Most Organisations Need A PlanMost Organisations Need A Plan
� Without an Operations / Supply plan the service time for customer demand will be excessive
� Decisions are needed on:
� Capital equipment – investment in new / refurbishment of existing, setting up sub-contract relationships
� People – recruitment, training, maintenance of specialist capabilities
� Long lead time materials / services – only genuine ‘make to order’ operations can supply on full cumulative lead time
� Decisions must be based on an estimate of demand
‘Sales’ and ‘Operations’ Setting The Foundation / 10
Who Should Do The Estimating?Who Should Do The Estimating?
� Question with an obvious answer
� People exposed to / in contact with the market
� Those with ‘market intelligence’
� What happens if the people in contact with the market decline to prepare forecasts on the grounds that demand cannot be forecast?
� Operations people set up resources based on their perception of likely demand
� Supply chain people order materials / procurement team order services to meet plan driven by operations – or make their own assessment
� Revenue / profit forecasts, etc. set by Finance
Three, or more, distinct plans
‘Sales’ and ‘Operations’ Setting The Foundation / 11
Even Where Demand Is Hard To AssessEven Where Demand Is Hard To Assess
� One common vision, driven by the most appropriate function within the organisation, is better than each area working to disparate plans
� Need to recognise the key truths:
� “We need an operations plan extending beyond our visibility of customer commitments”
� “We either bury our heads in the sand and pretend we can all work without a common plan, or we set about putting such a plan together”
‘Sales’ and ‘Operations’ Setting The Foundation / 12
If The Forecast Is WrongIf The Forecast Is Wrong
� A key element of the order acceptance process has to be comparison with the operations plan
� Perhaps some mechanism for establishing product / service availability or lead time
� In Supply Chain system terms, ‘Available to Promise’ (ATP)
� Ongoing review of lead time and stock highlights performance against plan
� If making to order, lead time may be length of order book
� As it is if providing service (though ‘lead time’ may not the term adopted)
� If making to stock, stock levels indicate performance
‘Sales’ and ‘Operations’ Setting The Foundation / 13
Benefits Of S&OPBenefits Of S&OP
� Master plan, driving all subordinate plans, based on formal process for evaluating demand
� Senior management team directing and owning
� Driven from the front (the market)
� One hymn sheet
� When demand differs from the plan: alarm bells ring
‘Sales’ and ‘Operations’ Setting The Foundation / 14
Why Is S&OP So Important Why Is S&OP So Important
DuringDuring Recession?Recession?
‘Sales’ and ‘Operations’ Setting The Foundation / 15
S&OP Is . . . S&OP Is . . .
� The basis of all planning activities
� The process by which the ‘master’ plan is established
� The forum in which senior management take hold of the controls and fly the business
� Resources
� Opportunities
� Plans
‘Sales’ and ‘Operations’ Setting The Foundation / 16
Managing Through RecessionManaging Through Recession
� Getting through to the light at the end of the tunnel
� What is different during recession?
� Less business in the market
� Simply maintaining current business level requires increasing market share
� Pressure on prices (and thus on margins and profits)
� Demand for excellent customer service
The world is less tolerant of errors
The distinction between ‘right’ and ‘wrong’ is more acute
‘Sales’ and ‘Operations’ Setting The Foundation / 17
Walking On The EdgeWalking On The Edge
� Failure comes more easily
� Every decision is potentially calamitous
� Formal processes to drive a common plan are even more critical
� Forecasting may be even more difficult during recession
� But operating without a plan is even more dangerous
� Operating with several different plans even more so
� Planning at the detail level without first agreeing the summary can never hope to deliver success – it can only minimise degree of failure
‘Sales’ and ‘Operations’ agreeing a plan under the direction of the senior management team is even more important
‘Sales’ and ‘Operations’ Setting The Foundation / 18
Implementation Of S&OPImplementation Of S&OP
The Key Points
‘Sales’ and ‘Operations’ Setting The Foundation / 19
Typically A 5Typically A 5--Step ProcessStep Process
Step 1Data
gathering
Step 2DemandPlanning
phase
Step 3Supply &ResourcePlanning
phase
Step 4Integration
ReconciliationFinance
Pre-S&OP
Step 5S&OP
meeting
New product updatenew forecastfield sales & otherstakeholder input
Sales plan1st pass spreadsheetsunconstrained
Operations planResource plan2nd pass spreadsheets
Recommendations,agenda for S&OP
meeting
Decisions, agreed plans, authorise execution
Valid data
Supply plan
One plan
Communicate
Communicate
Communicate
Demand plan
‘Sales’ and ‘Operations’ Setting The Foundation / 20
Some Rules Of Some Rules Of ‘‘Text BookText Book’’ ApproachApproach
� Monthly process
� Demand assessment at family level
� Senior management working at detail level lose sight of the ‘bigger picture’
� Detailed plans driven by invalid summary are meaningless
� Rubbish in, rubbish out
� Data gathered in manner appropriate to the business
� Field sales reports based on contact with customers
� Marketing information and analysis
� Statistical forecasts
(1)(1)
‘Sales’ and ‘Operations’ Setting The Foundation / 21
Some Rules Of Some Rules Of ‘‘Text BookText Book’’ ApproachApproach
� ‘Demand Planners’ collate input from all sources
� ‘Plan’ set without consideration of resources
� So not a plan!
� Plan passed to ‘Operations Planners’
� Resource planning / ongoing review
� Financial impact assessed
� Comparison with budget, etc.
� ‘Pre-S&OP meeting’ prepares proposal for senior team
� Maybe several proposals – options / implications
(2)(2)
‘Sales’ and ‘Operations’ Setting The Foundation / 22
Some Rules Of Some Rules Of ‘‘Text BookText Book’’ ApproachApproach
� Sales & Operations Planning meeting
� Relatively short
� Options and agenda issued 2-3 days in advance
� Meeting doesn’t require all details to be explained in full
� Concludes with decisions
� “We will build stock then”
� “We will buy new equipment then”
� “We will reduce services prices then”
� May be decisions to investigate further, if so:
� Actions and responsibilities are allocated
� Timescales are agreed
� The follow-up meeting to reach the final decisions is scheduled
(3)(3)
‘Sales’ and ‘Operations’ Setting The Foundation / 23
S&OP Is Not Widely AdoptedS&OP Is Not Widely Adopted
� Perhaps seen as jargon-heavy
� Maybe managers see it as demanding on resources
� Does the Sales function have ‘demand planners’?
� Who in Operations will do resource planning?
� Senior management may be too busy
� They have a business to run!
‘Sales’ and ‘Operations’ Setting The Foundation / 24
How To Adopt S&OPHow To Adopt S&OP
� Recognise / communicate fallacies concerning resource demands and senior management time
� If we don’t plan, we fight fires
� Nothing is more demanding of resources!
� What can be more important for senior management than to agree the common plan that drives everybody else?
� Adopted properly S&OP does not require an excessive amount of senior management time
� Review processes critically
� Define the needs of the particular business
� Design tools to meet the needs
‘Sales’ and ‘Operations’ Setting The Foundation / 25
Begin With Standard ModelBegin With Standard Model
� Proven methodology – Oliver Wight, Tom Wallace, etc., has worked many times
� Text book ideas may not be universally applicable
� e.g. Company designing and making to order on a project basis may not choose to plan by product family
� Discussions may be about business on a project basis –
perhaps oil refinery build or refurbishment programmes which require products from many families
� The fact that not all elements / ‘rules’ are suited to a business does not mean that none are
� Objective is ‘planning process for this business’
� Not ‘S&OP’ as per any standard definition