Sales & Operations Planning

A Centralized approach of Planning at all levels of

organizations

Harshal Badgujar

Learning Session

1

What are the conflicts in Traditional Planning Approach of working in SILOs

Marketing

Production

Finance

Function

High Revenues High Availability

Low Production cost Long production Runs

Low Investment & Cost Few Fixed Costs

Objectives Implications

Customer Service

High

Low

Disruption to Production

Many

Few

InventoriesHigh

Low

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Let consider a case of conflict in Traditional Planning approach – A Video (

http://www.slideshare.net/JadeGlobal/oracle-sales-operations-planning-video)

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1980’s – Need for Integrated Data systems for planning 1990’s – Birth of ERP systems Late 2000 – Birth of Planning Module software with ERP packages But the real Question is – Even after implementation of organization-wide ERP

Reason – Functions were still operating in SILOs

Have companies realized the proclaimed benefits of ERP and Return on huge investments made in its

implementation………

Hence the Need for a Collaborative Approach led to

Sales & Operations Planning

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Agenda - Overview

What is S&OP? How does it differ from traditional Planning? Where does S&OP fit in levels of Planning? A case of Auto-Component Manufacturer S&OP Process Overview – how is it practiced by

organizations? Critical Success factors of S&OP implementation Benefits of S&OP

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What is S&OP? A decision-making & Business Management process To ensures that the tactical plans in all business

functions are Aligned and in support of the company strategy

and the business plans and goals.

Single Environment for optimally synchronizing Demand, Inventory, and Supply plans While considering costs, revenue and profit objectives of

organization

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What is S&OP? Formal Business Process spread over 18-24 Months of

planning Horizon Product Families (not items) Volume (not Mix) Monthly review Cycle Both product and financial units

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What is purpose of S&OP? The objective is To reach consensus on a single

operating plan that allocates the critical

resources of people, capacity, materials, time, and money

to most effectively meet the marketplace in a profitable way. Demand

S&OP

Finance

Supply

Updated Forecasts

S&OP Process

Sales Plan Production Plan Inventory Plan Backlog Plan NPD Plan Strategic Initiatives Plan Financial Plan

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Why is S&OP Planning? Factors responsible for imbalance between

Supply & Demand Promotions New Product Introductions Packaging Changes Changing demand patterns …Wreck havoc in planning

Companies that use S&OP – stand competitive advantage by gaining the visibility and agility to improve product management and

promotional planning, Help minimize unnecessary build-ups of inventory and better predict revenue

Gives a complete picture of forecasted demand, supply capacity and corresponding financial information

S&OP is a vehicle for communication that puts the vision, strategy, financial and tactical plans of a business into one unified operating plan in order to optimize the allocation of critical resources

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How Does S&OP Differ from Traditional Planning?

Review of Planning activities happen at a Higher Level, on a monthly and yearly basis

Involves Senior Management to drive consensus

Review of Planning activities happen at a products Level, on a daily or weekly basis

Involves only department heads and managers

S&O Planning Traditional Planning

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Where does S&OP fit in Big Picture of Planning?

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Hierarchical Nature of Planning

Items

Product lines or families

Individual products

Components

Manufacturing operations

Resource Level

Plants

Individual machines

Critical work

centers

Production Planning

Capacity Planning

Resource requirements

plan

Rough-cut capacity

plan

Capacity requirements

plan

Input/ output control

Sales and Operations

Plan

Master production schedule

Material requirements

plan

Shop floor

schedule

All work

centers

Medium Range

Short Range Planning12

Let us understand S&OP process through a case of Auto-Component Supplier manufacturer Imagine a case that President of Division – new to the position

He could not understand why with 15000 components, he heard problems like Shortage of few Items Incomplete production runs Excessive Inventory Unhappy customers with poor

delivery performance

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Case of Auto-component Supplier:

If he were introduced to 15000 people in stadium,…

15000 MRP Components

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Case of Auto-component Supplier:

How about he inviting 120 people into a large conference room?

120 MPS Items15000 MRP

Components

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Case of Auto-component Supplier:

Auto components

Family 1Alternators

Family 2Starter Motors

Family 3Wiper Motors

Family 4Ignition Coils

How if we brought FOUR people into his office..?

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So, Goal of the Company was decided –Understand Demand for each of these 4 Families and then supply accordingly

15000 MRP Components

120 MPS Items

4 S&OP Families Rate of

Production

Product Mix

Performance

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How is it practiced by organizations? The monthly sales and operations planning process

End of month

STEP 1Data

Gathering

STEP 5Exec SOPMeeting

STEP 4Pre-SOPMeeting

STEP 3Supply

Planning

STEP 2DemandPlanning

Statistical forecastsField sales worksheet

Management forecast1-st pass spreadsheets

Capacity constraints2-nd pass spreadsheet

RecommendationsFor executive S&OP

Decisions

Wallace: 2nd edition Sales & Operations Planning18

Step 1 – Data gathering

Month end data Actual sales Inventory Production

Sales and marketing

All pertinent information

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Who brings what to the Table?

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Sales Product Family A

  Jan Feb Mar Apr May June Jul Aug

Forecast 100 100 100 120 120 120 120 130

Actual sales 90 95 85          

Difference -10 -5 -15          

Cum. difference   -15 -30          

Wallace: 2nd edition Sales & Operations Planning 21

Production Product Family A

  Jan Feb Mar Apr May June Jul Aug

Planned production 100 100 100 110 120 120 120 130

Actual production 98 100 101          

Difference -2 0 1          

Cum. difference   -2 -1          

Wallace: 2nd edition Sales & Operations Planning 22

Inventory Product Family A

  Jan Feb Mar Apr May June Jul Aug

Planned inventory 100 100 100 142 142 142 142 142

Actual inventory 111* 116 132          

Difference 11 16 32          

*January Inventory = 103 Wallace: 2nd edition Sales & Operations Planning 23

Jan Feb Mar Apr May June Jul AugForecast 100 100 100 120 120 120 120 130Acutal sales 90 95 85Difference -10 -5 -15Cum. difference -15 -30

Jan Feb Mar Apr May June Jul AugPlanned production 100 100 100 110 120 120 120 130Actual production 98 100 101Difference -2 0 1Cum. difference -2 -1

Jan Feb Mar Apr May June Jul AugPlanned inventory 100 100 100 142 142 142 142 142Actual inventory 111* 116 132Difference 11 16 32

*January Inventory=103

Comparing actual to forecast Product Family A

Wallace: 2nd edition Sales & Operations Planning24

Step 2 – Demand planning

Sales and marketing review information received from Step 1

Sales forecast By product By family Total

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Demand planning team

Demand manager

Product manager

Forecast analyst

Sales manager

Salesperson

Customer service

Accounting manager

Supply chain manager

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Forecasting: Inputs, Process, OutputsINPUTS OUTPUTS

Forecasts That:

•Are reasoned

•Are realistic

•Are reviewed

•Represent demand

THEPROCESS

Current Customers

New customers

Competition

Economy

New products

Pricing

Bids

Promotions

Management directive

History

Other

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Step 3 – Supply planning

Bill of resources

Rough-cut capacity

Demand/Supply Strategies

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Resource Planning Process

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Bill of Resource

Wallace: 2nd edition Sales & Operations Planning30

Resource Planning Process

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Rough-cut capacity planning

Wallace: 2nd edition Sales & Operations Planning

Total Load

% Load = Total Load / Available Capacity

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Resource Bill

Demand/Supply Strategies-Constraint Management Product Family: 1

1. Make-to-stock

2. Target customer service level 99%

3. Target finished goods inventory 1 month

Product Family: 21. Make-to-order

2. Target customer service level 98%

3. Target customer lead time 2 weeks

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Step 4 – Pre-SOP meeting

Make decisions to balance supply/demand

Resolve differences where possible

Identify areas of disagreement

Develop scenarios

Set agenda for Executive S&OP meeting

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Step 5 – Executive S&OP meeting Make decisions

Authorize changes in S&OP plan

Relate Rup version

Resolve issues

Review performance, product issues, special projects, etc.

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What are critical success factors for S&OP?

CSF for S&OP

Top Management Involvement

Ongoing Routine S&OP Meetings

Structured meeting agendas

Cross-functional

participation

Participants empowered to take decisions

Internal Collaborative process

Measurement of

Process

Supported by Integrated Supply-Demand Planning

Technology

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Benefits of S&OP Process Links business plan to departmental operations Provides a means to work for a common goal Eliminates counterproductive hidden or unilateral

decisions Greater visibility of demand and supply across the

company Improved Product Lifecycle Management process Better communication between groups Improved inventory management More predictable revenue management

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Summary

Thank You…

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