high-tech s&op ie event on april 19

Supply Chain Insights, LLC © 2012

Supply Chain InsightsWhat does Good Look Like?

BRICKSMatterThe Role of Supply Chains in Building Market-Driven Differentiation

LORA M. CECERE CHARLES W. CHASE JR.

BookPublishes in August

2012


What’s in a name?

A rose by any other name would smell as

sweet.

William Shapespeare


Integrated business planning (IBP) refers to the technologies, applications and processes of connecting the planning function across the enterprise to improve organizational alignment and financial performance. IBP accurately represents a holistic model of the company in order to link strategic planning, and operational planning, with financial planning. By deploying a single model across the enterprise and leveraging the organization’s information assets, corporate executives, business unit heads and planning managers use IBP to evaluate plans and activities based on the true economic impact of each consideration.

Sales and operations planning (S&OP) is an integrated business management process through which the executive/leadership team continually achieves focus, alignment and synchronization among all functions of the organization. The S&OP plan includes an updated sales plan, production plan, inventory plan, customer lead time (backlog) plan, new product development plan, strategic initiative plan and resulting financial plan. Plan frequency and planning horizon depend on the specifics of the industry. Short product life cycles and high demand volatility require a tighter S&OP planning as steadily consumed products. Done well, the S&OP process also enables effective supply chain management.

What is in a name?

4


What is the goal?

How do we make decisions?

What do we measure?

The Questions to Ask

6


What is the goal?


What do we measure?


7

S&OP Evolution

Manufacturing-Driven

Deliver a Feasible Plan for Operations

Match Demand with Supply

Sales Driven

Match Demandwith Supply

Business-planning Driven

Maximize Profitability

Demand Driven

Maximize Opportunity Sense and

Shape Demand

Market Driven

Maximize Opportunity and Mitigate Risk. Orchestrate

DemandMarket to Market

Greater Benefit• Growth• Resilience• Efficiency

Yes 87%

No 10%

Not sure 3%

Have a Sales & Operations Planning Process

S&OP ProcessExistence, Goals & Processes

Base: Total Sample (117) Q17. Does your company have a Sales and Operations Planning (S&OP) process? A S&OP process is a tactical

planning process to forecast sales and plan operations.Base: Have a S&OP process (102)

Q18. Which one of the following best defines the goal of your current S&OP process? Q19. How many distinct S&OP processes does your company currently have? Your best estimate is fine. OPEN-

ENDED

Match demand with supply

Maximize opportunity and mitigate risk

Develop a feasible plan

Determine the most profitable plan

Other

43%

32%

14%

8%

3%

S&OP Process Goal

1 2 3 4 5 More than 5

27%14% 20%

12% 9%19%

# Distinct S&OP Processes

5 S&OP processes on average


What is the goal?


What do we measure?


10


CostVolumeGrowth

Typical Organization11

CEO

Chief Customer

Officer

Chief Marketing

OfficerSales

Account Teams

COO

VP of Supply Chain

Customer Service Procurement Logistics

CFO

CIO

VP of Manufacturin

g

Quality

Supply Chain Organization

Base: Total Sample (117)Q5. Please tell us how you define your company’s supply chain organization by selecting

which function(s) report through the supply chain organization. Please select all that apply.Q7. To whom does your supply chain organization report?

Supply Chain Planning (Supply)

Supply Chain Planning (Demand)

Inventory

Deliver (Distribution)

Transportation

Source (Procurement)

Make (Manufacturing)

Customer Service

80%

72%

63%

56%

52%

51%

38%

37%

Functions Reporting Through Supply Chain

Chief Operating Officer

Gen Mgr of Business Unit (P&L Owner)

Leader of Manufacturing

Chief Financial Officer

Head of Procurement

Chief Information Officer

43%

26%

12%

9%

3%

2%

Supply Chain Leader

69% Profit Center

Managers


A Supply Chain is a Complex System with Complex Processes with Increasing Complexity

Looking at Supply Chain as a Complex System

Inventory

Supplier Strategy

Growth

Revenue Cost of Goods

Working Capital

R&D Strategy and Investment Asset Strategy and Investment

Corporate Social Responsibility

Forecast Accuracy Customer Service

Channel StrategyProduct and Service

Portfolio

Sales Policies

Distribution Policies

ManufacturingPolicies

Procurement Policies

Logistics Policies

ReturnsBackorders

ObsolescenceFirst Pass

YieldMaterial

YieldEmpty Miles

Corporate Trade-offs

Investment Trade-offs

Supply Chain

Trade-offs

Supply Chain Waste

What is Agility?

Base: Total Sample (117)Q11. How would you define what it means for your company’s supply chain to be “agile”?

Please select the one that fits best.

49%

38%

10%3%

How Define Supply Chain “Agility”Shorter supply

cyclesFlexibility to make and deliver whatever is

ordered

Ability to adapt to

variations in demand and

supply

Ability to recalibrate plans in the face of mar-ket, demand and supply volatility and deliver the

same or comparable cost, quality and cus-

tomer service

Agility Importance vs. Performance

Base: Total Sample (117)Q12. How important is it for your company’s supply chain to be “agile” in 2012? Please

base your answer on however your company defines agility.Q13. How would you currently rate your company’s supply chain in terms of being “agile”?

Importance Performance

89%

27%

5%

32%

6%

40%

Agility Importance vs. Performance (7-Point Scale)

Low (1-3)

Middle (4)

High (5-7)

62 % Points(Gap in Performance

vs. Importance)

Agility Today vs. Past

Base: Total Sample (117)Q14. How would you compare your supply chain’s current agility to 1 year ago? How about

compared to 5 years ago?

Vs. 1 Year AgoVs. 5 Years Ago

38%

68%

54%

17%

9%15%

Agility vs. 5 Years Ago, 1 Year Ago

LESS Agile

Just as Agile

MORE Agile

Ongoing Increases in Agility

Sell Deliver Make Source

Network Design: Probability of Demand

Channel Design. Cost-to-Serve Analysis

Network Design Supplier Network. Supplier Rationalization

Supply Chain TacticalPlanning: Demand Forecast

Category Management

Sales and Operations PlanningNew Product Launch

Category Management

Supply Chain Policy: Demand Shaping

Contract Management

Corporate Social ResponsibilityRevenue Management

Working Capital Management

Contract Management

Market-driven Signal Management

Demand/ Channel Sensing

Demand OrchestrationDemand Translation

Supplier Sensing

Transactional Processing: Order and Shipment Processing

Order Management

Order-to-CashProcure-to-Pay

Purchase Order Management

The Role of Demand Signals in Becoming Market Driven

Manufacturing View (

Units)

Sales View ($) Marketing View

($, U

nits)

Logistics View

(Units, Cases)

Ship-from Locations

Warehouses

Global

Production L

inesPlants

Global

Supply-side Views

Downstream Data

Account-LevelA

VMI C

DistributionNetwork

Supplier Supplier Supplier Supplier

DistributionNetwork

DistributionNetwork

Demand-side Views

Hole in Enterprise Architectures

Manufacturing View (

Units)

Channel View ($)

Accounts (Ship-to

locations

Countries

Global

Marketing View

($, U

nits)

Brands

Produ

ct

Catego

ries

Global

Logistics View

(Units, Cases)

Ship-from Locations

Warehouses

Global

Production L

inesPlants

Global

Supply-side Views

DemandTranslation

Downstream Data

Account-LevelA

VMI C

DistributionNetwork

Supplier Supplier Supplier Supplier

DistributionNetwork

DistributionNetwork

Demand-side Views


Business Planning

Forecasting

Constrained Forecast

Increasing levels of granularity

Increasing need for value network strategy alignment

A Forecast is not a Forecast is not a Forecast


Value: Price, trade incentives, new products, services, freshness, responsiveness

Variety: Configurations, items, platforms, components, brands, processing technologies

Velocity: Lead-times, order to delivery, inventory turns, time to market

Volatility: Demand, inventory, schedules, reliability, yields

Volume: Plants, warehouses, distribution centers/points, product flow

What drives Variability?


Getting to Letter Perfect….Common Practice Market-driven Focus

S Ask sales Focus on market drivers:How do we best shape demand?

& Direct integration to supply Design of the value chain to optimize trade-offs, minimize risk, balance cycles, and orchestrate demand

OP Manufacturing plan Trade-offs between make, source and deliver

23


The Need for Balance

24

S: Go-to-Market

Strategies

OP: Demand Orchestration

Commodity Strategies

Network Strategies: Make/Source & Deliver

Inventory: Form & Function

Competition

Market Drivers

&

Goal


What is the goal?


What do we measure?


25

S&OP ProcessPlan Execution

Base: Have a S&OP process (102)Q25. After your S&OP plan is generated, how is it executed? Please pick the one that

describes it best.

Execution is not connected to S&OP plan

We try to execute the S&OP plan, but hardly do in practice

We execute the S&OP plan most of the time

We execute the S&OP plan nearly all of the time

We monitor market events and adjust to S&OP plan within limits

9%

25%

35%

19%

13%

S&OP Plan Execution


Historically, we have:

• Tried to get precise on inaccurate data.

• Believed that the most efficient supply chain is the most effective supply chain.

• Built efficient chains, but not effective networks.

• Focused inside-out, not outside-in.

• Rewarded the urgent, not the important.

27

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

100

200

300

400

500

600

700

Comparison of Revenue/Employee for the Period of 2000-2011

P&G Colgate Unilever Kimberly-Clark Nestle Kraft

Re

ve

nu

e/T

ho

us

an

ds

of

Em

plo

ye

e

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

Comparison of EBIT/Employee for the Period of 2000-2011

P&G Colgate UnileverKimberly-Clark Nestle Kraft

EB

IT/E

mp

loye

e

2002 2003 2004 2005 2006 2007 2008 2009 201050

55

60

65

70

75

80

Consumer Products: Comparison of Days of Inventory

P&G Colgate Unilever Nestle Kraft

2002 2003 2004 2005 2006 2007 2008 2009 2010 201140%

45%

50%

55%

60%

65%

70%

Consumer Products: Cost of Sales as a Percentage of Revenue

Unilever Kellogg Kraft General Mills Campbell HersheyP & G

Co

st

of

Sa

les

as

a %

of

Re

vn

ue

2005 2006 2007 2008 2009 2010 20110.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

Comparison of Days of Working Capital in High-tech and Electronics for the Period of 2005-2011

Apple Motorola Solutions SamsungCisco Intel DellRIM Average

Axis Title

2005 2006 2007 2008 2009 2010 20110.0

200.0

400.0

600.0

800.0

1000.0

1200.0

1400.0

1600.0

1800.0

High-tech and Electronics Revenue/Employee

Apple Motorola Solutions SamsungCisco Dell RIMAverage

2003 2004 2005 2006 2007 2008 2009 2010 2011 0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Cost of Sales as a Percentage of Revenue in High-tech

Apple Motorola Solutions Samsung CiscoIntel Dell *cost of revenue* RIM Average

Goal

A feasible plan • Model the network• Recognize and respect

constraints• Gain plan visibility

Match demand with supply • What-if analysis• Multi-tier inventory analysis• Network design

Deliver the most profitable Plan

• Demand translation• Supply orchestration• Optimize financial drivers

Demand-driven • Sense channel demand• Shape demand• Drive the most profitable

response

Market-driven • Sense buy and sell-side market conditions

• Bi-directionally orchestrate demand

Technology

35Demand Planning Supply Planning Inventory Planning Demand Translation Platform

Key: Financial Planning Market Sensing


What is the goal?


What do we measure?

Ask the Right Questions

36


Who is Lora?•Founder of Supply Chain Insights

•Partner at Altimeter Group (leader in open

research)

•7 years of Management Experience leading

Analyst Teams at Gartner and AMR Research

•8 years Experience in Marketing and Selling

Supply Chain Software at Descartes Systems

Group and Manugistics (now JDA)

•15 Years Leading teams in Manufacturing and

Distribution operations for Clorox,

Kraft/General Foods, Nestle/Dreyers Grand

Ice Cream and Procter & Gamble.


Where do you find Lora?

Contact Information:

[email protected]

Blog: www.supplychainshaman.com

(3500 pageviews/month)

Twitter: lcecere 2900 followers. Rated

as the top rated supply chain social

network user.

Linkedin:

linkedin.com/pub/lora-cecere/0/196/573

(2300 in the network)