evolving sales and operations planning: market conditions and needs

Evolving Sales and Operations Planning:Market Conditions and Needs

Copyright © 2009. Oracle Confidential. All rights reserved.

Agenda

• Quick S&OP review

• Current state of the market and challenges

• Needed capabilities and best in class examples

• Summary


S&OP Bridges the Gap between Strategic and Operational Decisions

APCIS Definition of Sales & Operations Planning (S&OP):

“A business process that creates a critical link between a company’s business plan and its operational plans”

• Involves general management, marketing, sales, operations, finance, promotions and product development

• Performed at aggregate level (product group/family)

• Includes marketing plan, sales plan, promotion plan, production plan, inventory plan, order backlog

• Covers both short and medium term time horizon

• Output drives departmental plans

•What is S&OP?


S&OP Optimizes Enterprise by Resolving Competing Objectives

Manufacturing: •“Maximize output”

Finance: •“Minimize manufacturing and distribution costs

•“Maximize profit”

Marketing/Sales: •“Increase Sales”

•Sales &

•Operations

•Planning

Engineering/Design: •“Increase speed to market”

Distribution: •“Maximize on-time delivery”


METRIC PERFORMANCE

Best In ClassIndustry Average

Performance Summary:

• Best-in-class companies have greater focus on S&OP

• Key S&OP metrics tracked by companies on a regular basis are:

–Return on net assets

–Customer service levels

–Cash conversion cycle

–Gross margin

–Demand forecast accuracy

Note: Best-in-Class = top 20% of performers; Industry Average = middle 50%, and Laggards = bottom 30% of performers.Source: Aberdeen Research, Sales & Operations Planning: Aligning Business Goals with Supply Chain Tactics; June, 2008. Results based on survey responses from over 300 companies across four manufacturing industries: process, consumer, discrete, high tech / electronics.

81% 91% 97%50% 100%

Customer service levels (on-time and complete to the customer’s request date)

120 60 15180 0

Average cash conversion cycle (days)

The Best-In-Class Companies Outperform Other Players Through Higher Focus on S&OP

Laggards

60% 74% 86%50% 100%

Average forecast accuracy at the product family level

15%5%-5% 20%

Return on Net Assets (RONA) -10%

KEY:

Gross Margin60%20% 55%40%30%


Agenda




• Summary


INFLATING MANUFACTURER INVENTORIES

U.S. Business Inventories / Sales Ratio(Period Average)

Sources: OneSource Reports, Hoovers; U.S. Department of the Treasury, Office of Economic Policy; U.S. Economic Statistics, Jun-09

Net Profit Margin % (5-Year Average 2005-09)

STAGNATING MANUFACTURING MARGINS

1.3%

4.0%

5.4%

6.0%

6.5%

7.4%

7.5%

8.1%

Auto Manufacturing

Auto & Truck Parts

Durables

Aerospace / Defense

Food & Beverages

Farm / Construction Machinery

Chemicals

Industrial Equipments

S&P 500Avg. 12.6%

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

2004

2005

2006

2007

2008

Dec

-08

Jan

-09

Feb

-09

Mar

-09

Ap

r-09

May

-09

• Economic and competitive pressures have stunted mfgr revenues and inflated inventories

• Manufacturers are forced to seek means to become more cost-effective and more nimble

Retailer

Manufacturer

Wholesale Trade

Monthly Yearly

Manufacturer’s Profitability Remains Low and Inventories Have Risen


Source: “Recession Survival Kit; cross-industry survey conducted for Supply Chain Management Review, on behalf of Oracle and IBM, by Reed Business Information; February, 2009. Response to question: “Which factors will enable your organization to achieve your primary business goal?” n = 430 responses

FACTORS ENABLING ATTAINMENT OF PRIMARY BUSINESS GOALS

Which of the following are you looking to accomplish as aresult of your S&OP? (Percentage of Survey Respondents)

• Overall the recession prompted 63% of companies to consider changes their supply chain networks

• Greatest focus of S&OPon cost and inventory management, and on improved customer service levels

• Overall, 60% of companies view S&OP as more important this year than last (vs. 3% claiming it’s less important)

52%

50%

49%

46%

43%

41%

39%

36%

35%

35%

30%

29%

22%

19%

35%

Improve inventory optimization

Cut costs without reducing customer service

Improve forecast accuracy

Gain better balance of supply and demand

Improve customer service

Increase profits

Ability to make more changes / Be more flexible

Reduce lost-sales opportunities

Minimize out-of-stock situations

Minimize risks

Provide real-time visibility into the supply chain

Improve ROI on assets

Improve customer retention

Produce / Introduce new products

Greater network optimization

To Address These Pressures, More Companies are Turning to S&OP for Cost and Asset Management


• Executives cannot analyze their options fast enough

• Complexity of supply chains continues to grow, including

- Extension of supply chains to Asian sources

- Supplier bankruptcies

- Increased outsourcing

- Shorter product lifecycles

- Compression of “lean” supply chains limiting strategic flexibility

Situation Result

1. Broad S&OP scope required to manage risk and uncertainty

2. Changing business objectives

3. Limited cross-functional engagement and analytical scope

4. Rigid S&OP processes, with slow cadence

5. Volume balancing that ignores mix and profit optimization

6. Limited process and data integration

• Decisions made without full insight into impact

- Higher and / or obsolete inventories

- Increased manufacturing costs, increased expediting

- Lower service levels /lost sales

• Decision latency limits ability to avoid risks or to take advantage of opportunities

Traditional S&OP Processes are Challenged to Help Executives Make Both Informed and Timely Decisions

S&OP Challenges


Challenge #1: Broad S&OP Scope Required to Manage Risk and Uncertainty

• S&OP has to be comprehensive enough to address adequately many significant risk factors

• S&OP needs to be able to mitigate, or even to take advantage of predictable and controllable variability sources

Source: Accenture, “Supply Chain Risk Management,” Oracle Open World; November, 2007.

35%

24%

20%

13%

37%

29%

23%

23%

38%

33%

30%

27%

21%

Natural Disasters

Shortage of Skilled Resources

Geopolitical Instability

Terrorist Infiltration of Cargo

Volatility of Fuel Prices

Currency Fluctuations

Port Operations / Customers Delays

Customer Preference Shifts

Performance of Supply Chain Partners

Logistics Capability / Complexity

Forecasting / Planning Accuracy

Supplier Planning / Communications Issues

Inflexible Supply Chain Technology

CATEGORIES EXAMPLE FACTORS PERCENTAGE AFFECTED

Unpredictable

Predictable

Controllable


Challenge #2: Changing Business Objectives

Source: “Recession Survival Kit; cross-industry survey conducted for Supply Chain Management Review, on behalf of Oracle and IBM, by Reed BusinessInformation; February, 2009. Response to question: “Which factors will enable your organization to achieve your primary business goal?” n = 537 responses

• Business objectives and priorities behind S&OP change with time

• Environment requires flexible planning structures to assess and to enforce these shifting objective functions

Shift of Business Needs Supported by S&OP

When matching supply and demand plans, what was the most important objective 12 months ago vs. today? (Percentage of Respondents)

14%

8%

10%

23%

13%

22%

10%

8%

6%

26%

14%

32%

11%

2%

To maintain or improve customer service

To maximize utilization of plant anddistribution facilities

To optimize cash flow and working capital(including inventories)

To maximize profits and operating margins

To be cost-effective and lower costs

To maximize and grow revenues

No real objective or goal- just try to matchsupply and demand plans

= Year Ago

= This Year


Percentage of respondents running S&OP process without input from the following departments:

INCOMPLETE PARTICIPATION IN S&OP PROCESS CYCLE

30%

36%

43%

47%

48%

52%

Supply Chain

Sales

Logistics

Finance

Manufacturing

Marketing

Gaps in process participation and types of analysis included in the S&OP process

• Limit plan quality

Percentage of respondents conducting periodic S&OP process without the following steps:

INCOMPLETE ANALYSIS IN THE S&OP PROCESS CYCLE

44%

45%

47%

66%

66%

DemandPlanning

InventoryPlanning

Supply Planning

Supply / Demand Match

Performance Review

Source: “Recession Survival Kit; cross-industry survey conducted for Supply Chain Management Review, on behalf of Oracle and IBM, by Reed BusinessInformation; February, 2009. Response to question: “Which factors will enable your organization to achieve your primary business goal?” n = 537 responses.

• Limit ability to optimize given partial view of constraints

Challenge #3: Limited Cross-Functional Engagement and Analytical Scope


• Slow, infrequent planning cycles and inflexible planning structures lead to data latency, inaccuracy, and difficult simulation

• Weekly planning structures and event-driven decision support are desirable inmost industries

Challenge #4: Rigid S&OP Processes, Slow Cadence

Source: “Recession Survival Kit;” cross-industry survey conducted for Supply Chain Management Review, on behalf of Oracle and IBM, by Reed Business Information; February, 2009. Response to question: “Which factors will enable your organization to achieve your primary business goal?” n = 537 responses.

How Rigid is Your S&OP Process?

INFLEXIBLE S&OP PROCESSES

Somewhat

Not Very

Not at AllExtremely

Very

43%

22%22%

6% 7%

S&OP Planning Frequency

SLOW S&OP PLANNING CYCLES

6%

13%

45%

28%

8%

Annual Quarterly Monthly Weekly Other


S&OP Competitive Framework

Challenge #5: Volume Planning that Ignores Mix and Profit Optimization

Source: Aberdeen Group, 2004

Percentage of Survey Responses

0% 10% 20% 30% 40% 50% 60%

Laggard

Industry Norm

Best-in-class

Spreadsheets plus some individual demand and supply planning applications

Demand planning applications feed supply chain planning; also manufacturing and distribution planning linked dataflow

Optimized, integrated demand and supply applications

Business Information Architecture in Place


What Data is Most Challenging? % Greatest Impediment to Data Collection %

LACK OF SYSTEMS

LONG TIME TO GATHER REQUIRED DATA

Time Required for Exec S&OP Preparation %

Challenge #6: Limited Process and Data Integration

Source: AMR Research

Pre-work Activities %

LACK OF PROCESS INTEGRATION

5

11

12

18

22

Other

NPI Status

Orders Review

Capacity Review

Forecast Review 18+ days

27%

46%9%

18%

12-17 days

6-11 days

1-5 days

64%

27%

9%Systems

Expertise

Master Data Mgt

LIMITED ACCESS TO THE RIGHT DATA

32%

50%

9%Other

Demand

SupplyFinancial 9%


Many Challenges related to S&OP Technology Gaps

Except forecasting, less than 16% identified that their systems fully meet their requirements

Virtually all capabilities / enablers have room for improvement

Current state indicates that companies are missing some core capabilities required for success

•Executive Sales & Operations Planning: Process & Technology Strategies. Survey of 380 companies. Aberdeen Group 2007


Today’s Integrated Planning Systems Blood, Sweat, Email and Excel

Functional Operational PlanningFunctional Operational Planning

Demand

Management

Demand

ManagementCustomer

Management

Customer

Management

Human Resources Planning

Human Resources Planning

Supply

Planning

Supply

Planning

Product

Performance

Management

Product

Performance

Management

Logistics

Planning

Logistics

Planning

Financial PlanningFinancial Planning

Long-Term

Financial Planning

Long-Term

Financial Planning

Treasury

Management

Treasury

Management

Financial

Planning & Budgeting

Financial

Planning & Budgeting

WorkingCapital

Planning

WorkingCapital

Planning

Profitability

Management

Profitability

ManagementPerformance

Scorecards

Performance

Scorecards

Financials SCMHuman Resources CRM Manufacturing


Agenda




• Summary


To Achieve Maximum Planning Effectiveness, Manufacturers Must Excel at Certain Capabilities

Pursue Closed-Loop Synchronization with

Financial Plan

Rapidly Assess Constrained, Profit-

Optimized Scenarios

IncorporateForward-Looking

Analytics

Automate Collaborative Planning Processesfor Maximum Agility

Integrate Plansand Planning

Processes

Align operational plans and execution with budget and financial plans

1

Enable event-driven S&OP by employing robust "what-if" capabilities

2

Enable executives to quickly understand recommendations and to make informed decisions

3

Accelerate response to threats, risks, or changes in both operations and the market

4

Enforce executive / strategic S&OP decisions at the operational planning level

5


•<Insert Picture Here>

Definition of S&OP: A business process that creates a critical link

between a company’s business plan and its operational plans


Align Operational Plans and Execution with Budget and Financial PlansPursue Closed-Loop Synchronization with Financial Plan

“Integrated business planning…fills the gap between the strategic and financial planning handled by corporate performance management suites and operational planning focused on the supply chain. S&OP has failed to bridge this gap and has remained rooted at the operational level.”

- Tim Payne and Nigel Rayner Gartner, October, 2007

“What for decades has been a financial budget exercise to manage expenses has morphed to a continuous, integrated business planning process that aligns the entire business toward operational and financial excellence.”

- John Hagerty AMR Research, November, 2007

2 3 4 51



“The only way to predict the future is to have power to shape the

future”

Eric HofferPresidential Medal of

Freedom recipient


Enable Event-Driven S&OP by Employing Robust “What-If" CapabilitiesRapidly Assess Constrained, Profit-Optimized Scenarios

BEST PRACTICE EXAMPLE

Company Overview• Holcim is one of the largest suppliers of Portland

and blended cements and related mineral components in the U.S., with 16 plants and around 76 distribution centers

Focused on• Optimizing sourcing with full consideration of

transportation costs and make-vs.-buy options• Managing higher and volatile costs• Synchronizing its strategic sourcing modeling with

its S&OP process to ensure that it was perpetually running with optimum network and sourcing models

Resulting in• Significant reduction of barge demurrage fees• Improved supply chain risk management• Quickly evaluated supply/demand options for

minimizing the impact of natural disasters and other supply chain disruptions (such as strikes)

• Cost optimization across the supply chain

Source: Tim Payne, Gartner. “Case Study: Holcim Uses Network Optimization to Manage Supply Chain Risk and Optimize Costs;” July 6, 2009

2 3 4 51


<Insert Picture Here>

“The successful business executive is a forecaster first, everything else follows”

Peter Bernstein‘Against the Gods: The

Remarkable Story of Risk’

Copyright © 2009. Oracle Confidential. All rights reserved. 25

Enable Executives to Quickly Understand Recommendations and to Make Informed DecisionsIncorporate Forward-Looking Analytics


Company Overview

• Leading producer of juices and jams

Focused on

• Sales reps drive forecasting process from trade promotion planning process

• What-if scenario planning enables sales reps to test promotion before selecting it

Resulting in

• Increased forecast accuracy at SKU level

• Enables trade promotion planning to be integrated with RT S&OP

• Reduced supply chain costs

• Improved HQ and sales planning productivity

2 3 4 51



“The world is changing very fast. Big will not beat small anymore. It will be the fast beating the slow.”

•Rupert Murdoch

•Chairman & CEO,

•News Corporation



Company Overview• Sony SNC manufactures ultra high speed Static

Random Access memory (SRAM), products

Focused on• Reduction of wafer shortages and excess inventory• Automation of manual forecast, S&OP processes

– Increasing frequency of monthly planning cycle

– Providing accurate order promise dates• Integration of planning with execution systems and

between Fabrication and Assembly plans

Resulting in• Reduced planning cycle time from monthly to

holistic daily optimized plan for 24 facilities, with demands from 1000+ customers

• Use of substitute components, simultaneous and alternate resources, co-product planning, alternate bills, routings, and sources, and process yields

• Use of complex allocation rules for order promising• Integrated planning and execution model,

providing global supply and demand visibility

2 3 4 51

Accelerate Response to Threats, Risks, or Changes in Both Operations and the MarketAutomate Planning Processes for Maximum Agility



“Vision without execution is hallucination”

Albert Einstein Nobel Laureate


Enforce Executive / Strategic S&OP Decisionsat the Operational Planning LevelIntegrate Plans and Planning Processes


Company Overview

• Leading producer of aluminum and aluminum products, with annual revenues over $20 billion

Focused on

• Determining profit-optimized mix of products to produce on bottleneck equipment, managing around

– High relative cost of transportation for shipping aluminum

– Risks posed by due to commodity market price fluctuations

– Widely varying margins of products produced on common capital equipment such as smelters and rolling mills

• Improving forecasting process integration, accuracy

• Ensuring smelters execute to strategic, globally profit-optimized production and transportation plan

Resulting in

• Scheduling cycle time cut from 1-2 weeks to minutes

• Reduction in inventory and transportation costs

• Increased profitability of products produced in smelters; mitigating risk of commodity price changes

• Improved customer svc: more accurate ship dates based on supply and resource allocations in the S&OP process

Source: Tim Payne, Gartner. “Case Study: Alcoa Leverages Oracle to Enable Its Demand Planning and S&OP Processes”; February 5, 2009

2 3 4 51


Agenda




• Summary


Summary: Challenges with Traditional S&OP

• Economic and competitive pressures are compelling manufacturers to refocus and to augment their S&OP processes

• Companies face barriers to effectiveness of current, traditional S&OP processes

–Broad S&OP scope required to manage risk and uncertainty

–Changing business objectives

–Limited cross-functional engagement and analytical scope

–Rigid S&OP processes, with slow cadence

–Limited process and data integration

–Volume balancing that ignores mix and profit optimization


Summary: Required Capabilities

To excel at S&OP, manufacturers must:

• Align operational plans and execution with budget and financial plans

• Enable event-driven S&OP by employing robust "what-if" capabilities: rapid, constrained, profit-optimized

• Enable executives to quickly understand recommendations and to make informed decisions with forward-looking analytics

• Accelerate response to threats, risks, or changes in both operations and the market

• Enforce executive / strategic S&OP decisions at the operational planning level

evolving sales and operations planning: market conditions and needs

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