the myth of the one-number plan in supply chain management

Copyright © 2012 Kinaxis Inc. All Rights Reserved. 2 Copyright © 2012 Kinaxis Inc. All Rights Reserved.

Trevor Miles

vice president, thought leadership e: [email protected] | m: +1.647.248.6269 | t: @milesahead

The Myth of the One-Number Plan


Common (Mis-)Conceptions



• It brings in Sales, Marketing, Finance, Production,

Materials and Logistics department together for reconciling

their individual plans and create a ONE NUMBER plan

which will be agreed by all the stakeholders in the

Organization Sales and Operations Planning, ITToolBox, Wiki October 13, 2008

http://it.toolbox.com/wiki/index.php/Sales_and_Operations_Planning

http://it.toolbox.com/wiki/index.php/Sales_and_Operations_Planning



• “One number planning,” is a sign of excellence. Poor

companies produce a sales forecast that is a “tough but

achievable” target for the sales force. Production doesn’t

believe this forecast, so it generates its own, which usually

means large batches to reduce manufacturing costs.

Logistics is left to deliver whatever sales manages to sell.

Finance doesn’t believe the production or the sales

forecast, so it creates its own to manage the cash. 10 Symptoms of Poor Supply Chain Performance, ARC Insights, SIimon Bragg, June 20, 2002

http://www.idii.com/wp/arc_sc_perf.pdf

http://www.idii.com/wp/arc_sc_perf.pdf



• MetaChain helps clients to achieve a one-number

planning approach for financial and supply chain related

matters. Using this approach all business units are

using identical forecast information. In this case a

financial long term plan could be compared with an

inventory plan. The sales and operational planning

enables companies to see financial impacts based on

production and distribution plans. Supply Chain Planning & Optimization, MetaChain Supply Chain Management, Date unknown

http://www.metachain.com/services/supplychainplanningoptimization/supplychainplanningoptimization.html




Different Times; Different Tunes



• Using a demand forecasting tool to generate a one-

number forecast, and planning your supply chain

accordingly, is too simplistic of an approach to be

credible.

• To manage risk, solutions need to assess the risk

associated with an end-to-end goal and ensure that no

decision is made in isolation, without quantifying the

additional risks that it creates or the risks that it

eliminates. In Managing Recent Risk and Disruptions, Have Supply Chain Management Technologies Failed the Test?,

Gartner Inc., Noha Tohamy, June 6, 2011

http://www.gartner.com/id=1714623








• Five years ago, a number of companies taking the

traditional approach for sales and operations planning

(S&OP) asked AMR Research for help. The companies

felt that their organizations were stuck in a rut, not

maximizing true S&OP potential. They were right. The

concepts of one-number forecasting and matching

demand with supply were outdated. Sales and Operations Planning: Transformation From Tradition,

AMR Research, Lora Cecere, Jane Barrett, Hussain Mooraj, May 12, 2009

http://on-pointgroup.com/pdf/HowDemandCapableAreYou.pdf





What’s Driving the Need?


Demand Dynamics

• Top CPG companies forecast performance

– MAPE for a monthly lag was 33%

– MAPE for a weekly lag was 48%

– NPI with weekly item/location MAPE was 65% “2011 Forecasting Performance Benchmark Study”, Terra Technology, 2011

• High-Tech/Electronics – anecdotal

– Struggle to get better than 50% MAPE

• Where will breakthrough performance come from?

– Learning to forecast and plan better?

– Learning to respond profitably to real demand?

http://www.terratechnology.com/benchmark-study-welcome/


Companies can’t predict the

future,

…build organizations that will

survive and flourish under

…any possible future.

Dynamic management: Better decisions in uncertain times, McKinsey Quarterly, December 2009

Demand Dynamics

http://www.mckinseyquarterly.com/Dynamic_management_Better_decisions_in_uncertain_times_2475




2 YEARS 4 YEARS 0

Portfolio Dynamics

The Evolution of S&OP, IndustryWeek Webcast, Dick Ling, Mar 29, 2012

http://www.industryweek.com/EventDetail.aspx?EventID=1046


Portfolio Dynamics Make a Difference

2 YEARS 4 YEARS 0

5

2 YEARS 4 YEARS 0

4

2 YEARS 4 YEARS 0

2

1

Line Extension and Promos

2 YEARS 4 YEARS 0

Existing Portfolio

3

2 YEARS 4 YEARS 0

Dead next ‘month’

Dead next ‘year’

Surviving, just

Growing

Thriving




The Myth of the One-Number Plan

SHORT-

TERM 2-3

YEARS HISTORY

“Roughly Right

Not

Precisely Wrong”

Historic Data

Providing Trend

and Seasonality

‘Baseline’

Scenarios –

An

Integrated

Set of Plans;

Not

One Number

Detail

Operational

Focus




S&OP – Balancing Competing Goals

Adapted from AMR Research


So What’s the Solution?


Business

Planning

Planning Horizon

Sales &

Operations

Planning

Demand

Planning

Customer

Orders

Material

Requirements

Planning

Detailed

Scheduling

Rough Cut

Capacity

Planning

Capacity

Requirements

Planning

Purchasing/

Supplier Collab

Long

term

Medium

term

Short

term

0 - 1 year

Within 3 months months with weekly buckets

Outside 3 months quarters with monthly buckets

1 – 10 years

Within 1 year quarters with monthly buckets

Outside 1 year years with quarterly buckets

0 - 3 months

Weeks with daily / hourly buckets

Fixed horizon of 2 weeks

0 - 3 months

Months with weekly / daily buckets

Planned orders of 4 - 12 weeks

One Aggregate

Master Schedule Inventory Levels / Targets

Sales

History

It’s Not a Suite of Segmented Planning Solutions

Response

Management


Business

Planning

Planning Horizon

Sales &

Operations

Planning

Demand

Planning

Customer

Orders

Material

Requirements

Planning

Detailed

Scheduling

(Daily buckets)

Rough Cut

Capacity

Planning

Capacity

Requirements

Planning

PO Releases/

Expedites/Cancels

(Daily buckets)

Long

term

Medium

term

Short

term

0 - 1 year

Within 3 months months with weekly buckets

Outside 3 months quarters with monthly buckets

1 – 10 years

Within 1 year quarters with monthly buckets

Outside 1 year years with quarterly buckets

0 - 3 months

Weeks with daily / hourly buckets

Fixed horizon of 2 weeks

0 - 3 months

Months with weekly / daily buckets

Planned orders of 4 - 12 weeks

Inventory Levels,

Targets

Sales

History

Integrated Business Planning is the Goal

Response

Management

Capable to Promise

Clear to Build


creating MANY scenarios and a shared set of outcomes


Collapse time to

make profitable

course

corrections

Plan, monitor, and

respond to all

aspects of supply

and demand

balancing in minutes

- not days or weeks Reduce risk,

increase customer

satisfaction, and

improve

profitability


Thank you! Questions? Trevor Miles | e: [email protected] | m: +1.647.248.6269 | t: @milesahead

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