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EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM

Leveraging S&OP

A Webinar

by

Tom Wallace

sponsored by

Steelwedge Software

March, 2012


News Flash!

S&OP Certification

What: Become certified in S&OP

How: Pass the Certification Exam

Who: - The S&OP Institute

- Ohio State University

When: Exams can be taken beginning Sept 1

More info: sopinstitute.com (after 3/20)

[email protected]


The Four Fundamentals

Demand Supply

Volume

Mix

Sales &

Operations

PlanningXHow Much?Rates

The Big PictureProduct FamiliesStrategy/Policy/Risk

Monthly/18 months+

Top Management

Which Ones?

Timing/Sequence

The DetailsProducts, SKUs, OrdersTactics/Execution

Wkly/Daily, 2 days – 6 mos

Middle Management


Sales & Operations Planning

Demand Supply

Volume

Mix

Executive S&OP

Master Scheduling

Supplier and Plant Scheduling

Distribution Scheduling

Demand Planning/Forecasting

Supply (Capacity) Planning

?????


Step #5

ExecutiveMeeting

Decisions &Game Plan

Step #4

Pre-Meeting

Conflict Resolution, Recommendations &Agenda for Exec. Mtg.

Step #1

DataGathering

End of Month

Sales Actuals, Statistical Forecasts

&Supply Actuals

Step #2

DemandPlanning Management Forecast

1st-pass spreadsheets

Step #3

Supply Planning Capacity constraints

2nd-pass spreadsheets

The Executive S&OP Process


Last Time We Discussed . . .

• BASF

• Cisco Systems

• V&M Star

• Dow Chemical


Executive S&OP in Retail Delivery

Staples, Inc.

Framingham, MA

Products: Office Equipment and Supplies

Corporate Annual Sales: $24.5 billion


S&OP at Staples Delivery

Data Gathering

Aggregate Demand Process/Meeting

• Review recent performance to forecast

• Generate forecast for 12 future months

• ID “gaps” in the forecast and plans to mitigate

(between Demand Planning and Merchant teams

versus what’s been submitted to corporate)



Aggregate Supply Process/Meeting

• Generate supply plans based on new demand plan

(vendor purchase plans and logistics plans)

• Review/resolve supply constraints (forecast translated

from $$$ into case counts, cubic feet, labor hrs)

• Capability updates (process improvement, new business

initiatives, shifts in suppliers/customers, cost/benefit analyses)



STAPLES

• Data Gathering

• Demand Planning

• Supply Planning

• Core Team Meeting

• Exec Team Meeting– President, NA Delivery

– Sr. VP Heads of 3 BU’s

– Sr. VP Finance

– Sr. VP Supply Chain

THE “STANDARD” MODEL

• Data Gathering

• Demand Planning

• Supply Planning

• Pre Meeting

• Exec Meeting


Benefits

Krist Lutz, Director of Sales & Operations

Planning for Staples Delivery:

Hard benefits include the traditional ones . . . :

- higher in-stock positions with lower inventories

- increased revenue due to lost sales avoidance

- decreased service expense

- better working capital and cash flow


Benefits, continued

Kris Lutz again:

• Soft benefits are communication and teamwork.

• Teams discuss items earlier and much better

than before.

• This makes for a more nimble organization,

one where ideas and initiatives can be executed

faster and with greater precision


The Moral of the Story

There are far more similarities than differences

between Staples’ use of Executive S&OP and a

how a manufacturing company does it.

Implications: if you have units in your corporation

that do not produce physical products, they may

still be candidates for S&OP.


Executive S&OP in Advanced

New Product Launch

Applied Materials Process Diagnostics and Control Business (PDC) Rehovot, Israel

Products: Equipment for the manufacture of:

Semiconductors

Flat Panel Displays

Photovoltaic Cells


PDC Employment: ~900


Applied Materials: Process Diagnostic and

Controls Business (PDC)

• S&OP user for over 10 years

• New products dominate the business: over

40% of sales in 2010 (some years over 60%)

• New products at PDC require strong

alignment between customer penetration

strategy and build and supply chain plans

• Thus, they created a separate S&OP process

for new products


The Stage-Gate Process (phase-gate)

The stage–gate model is a technique in which

new product development (or other initiative) is

divided into stages separated by gates.

At each gate, a manager or a steering committee

decides on whether or not the project should go

forward.


The Stage-Gate Process at PDC

• Gate 3: project approval received

• Gate 3.5: product can enter S&OP

• Gate 4: product ready to ship as alpha and

then beta test version

• Gate 5: product ready to move from new

product status to the ongoing

(“sustaining”) product line


SUSTAINING

PRODUCTS

S&OP BUILD PLAN

NEW

PRODUCTS

S&OP BUILD PLAN

COMBINED PDC

S&OP BUILD PLAN

Products

between

Gates 3.5 and 5

Products

beyond

Gates 5

Gate 5

Transition from

New Product to

Sustaining Product

SUPPLY REVIEW MTGTEST FOR CAPACITY


The Stage-Gate Process at PDC

• Gate 3: project approval received

• Gate 3.5: product can enter S&OP

• Gate 4: product ready to ship as alpha and

then beta test version

• Gate 5: product ready to move from new

product status to the ongoing

(“sustaining”) product line


Benefits

As cited by Shelly Zafrir, Director of Sales &

Operations Planning, Silicon Systems Group in

Santa Clara (formerly head of S&OP at PDC)

NEW PRODUCT LAUNCH

In new product launch, perhaps the most

important metric is lead times to customers.

It was more than one year before S&OP. It is now

3 - 5 months and less on occasion.


Benefits, continued

As cited by Shelly Zafrir:

MANUFACTURING CYCLE TIME

Down 15 - 20% on ongoing products, more on

new products, while volume increased four-fold

since 2009

EXCESS & OBSOLETE INVENTORY

Less than half of 2009 level and expected to drop

even more



Three points:

1. New Product Launch is filled with uncertainty

and change

2. S&OP helps companies deal with uncertainty

and change

3. The larger the role that New Products play in

your company, then the larger the role that

S&OP should have in New Product Launch.

A classic example: Applied Materials PDC


Executive S&OP Support for Earnings Calls

The Procter & Gamble Company

Cincinnati, OH

Products: Consumer Packaged Goods



The Operating Environment

• 300 unique brands, sold worldwide

• Plants in 40 countries

• Operations in 80 countries

• S&OP used throughout the company


A Single S&OP Process

• Only one standard S&OP process for

all businesses and “regions”

• Only one standard set of metrics

• Each business evaluated once per year to:

– Insure compliance

– Provide road map for improvement

• S&OP done on two axes: business unit

region


27

Procter & Gamble

Business Unit and Region Integration

BU1 BU2 BU3 BU4

Reg1

Reg2

Reg3

X

Figure 12-1

x


Alignment

Region 1’s forecast of what it expects to sell of

Business Unit 1’s Products

=What Business Unit 1 expects Region 1

to sell of its products

This alignment is the foundation for:

• Running the business internally with one set of

numbers

• Using S&OP as an important foundation for

quarterly earnings calls to Wall Street


P&G’s S&OP Assessment Tool

Six sections, ~ 20 items per section

• Leadership

• Operating Strategy

• Initiative Planning

• Demand Planning

• Supply Planning

• S&OP


1. Self-assessment by the BU’s and Regions

using the Assessment Tool

2. Self-assessment validated by qualified assessors from

outside that business

3. Assessment interviews and document reviews by the

“outsiders”:

1. With business leaders

2. Assessors may attend Exec meeting

4. Assessment summary

a. Set final score

b. Strengths and improvement opportunities

c. Action Plan

The Annual Assessment Process



Companies should have a formal assessment

process to:

• maintain the integrity of its S&OP processes

• improve those processes

Are your earnings calls (to corporate or the

financial community) based on S&OP?

If not, why not?


Summary – S&OP at P&G

• One of the very best S&OP processes in the

world

• Made possible by the Assessment Process

• A quote from Dick Clark, formerly Associate

Director, Global Network Supply Operations:

S&OP plays a substantial role at P&G. It is

one of the – some might say the – primary

planning processes used to run the business.

In Memory

Richard A ClarkAssociate Director,

Global Network Supply Operations

The Procter & Gamble Company

1953 – 2011


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