Post on 06-Mar-2018
Christian Heinrich Lehrstuhl für BWL und Wirtschaftsinformatik
Chapter 9: Sales & Operations Planning
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Learning Objectives
• In the previous sessions you have learned the basics of master planning in a Supply Chain and Demand Planning
• You focussed on determining a master plan from a supply perspective and a demand plan from a market perspective
• After completing this session you should be able to understand the methodology and impact of Sales & Operations Planning (S&OP)
• Main focus: • Responding to predictable variability in a supply chain • Managing supply & demand • Implementing solutions to predictable variability in practice
2 Dipl.-Kfm. Christian Heinrich
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Supply Chain Planning - Overview
Monitoring/Event Management
MaterialsManagement Production
Planning Sales & Distribution ERP*
Purchasing
*Relevant modules for Supply Chain Management
Strategic Network Design
SC Master Planning
Material Requirements
Planning&
Purchasing
ProductionPlanning
DistributionPlanning
Scheduling TransportationPlanning
DemandPlanning
OrderFulfillment
APS
Pla
nnin
g H
oriz
on
Monitoring/Event ManagementMonitoring/Event Management
MaterialsManagement Production
Planning Sales & Distribution ERP*
Purchasing
*Relevant modules for Supply Chain Management
MaterialsManagement Production
Planning Sales & Distribution ERP*
Purchasing
MaterialsManagement Production
Planning Sales & Distribution ERP*
Purchasing
MaterialsManagement Production
Planning Sales & Distribution ERP*
Purchasing
*Relevant modules for Supply Chain Management
Strategic Network Design
SC Master Planning
Material Requirements
Planning&
Purchasing
ProductionPlanning
DistributionPlanning
Scheduling TransportationPlanning
DemandPlanning
OrderFulfillment
APS
Strategic Network Design
SC Master Planning
Material Requirements
Planning&
Purchasing
ProductionPlanning
DistributionPlanning
Scheduling TransportationPlanning
DemandPlanning
OrderFulfillment
APS
Strategic Network Design
SC Master Planning
Material Requirements
Planning&
Purchasing
ProductionPlanning
DistributionPlanning
Scheduling TransportationPlanning
DemandPlanning
OrderFulfillment
APS
Pla
nnin
g H
oriz
onP
lann
ing
Hor
izon
Dipl.-Kfm. Christian Heinrich
You are here!
Supply Chain Planning requires coordination of key processes
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• Demand planning responsiveness
• Customer relationship collaboration
• Order fulfillment/service delivery
• Manufacturing customization • Supplier relationship
collaboration • Life-cycle support • Reverse logistics
Dipl.-Kfm. Christian Heinrich
Sales & Operations Planning
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• Sales & operations planning is an integrated combination of – Information systems (financial, marketing and supply
chain planning) – Organizational processes – Personal responsibility and
accountability • Using this S&OP combination, the
operations and sales groups must overcome conflicts to develop consensus and then execute their collaborative plans
Dipl.-Kfm. Christian Heinrich
Responding to Predictable Variability in a Supply Chain
• Predictable variability is a change in demand that can be forecasted
• Can cause increased costs and decreased responsiveness in the supply chain
• A firm can handle predictable variability using two broad approaches:
• Manage supply using capacity, inventory, subcontracting, and backlogs
• Manage demand using short-term price discounts and trade promotions
6 Source: Chopra, Meindl; Supply Chain Management Dipl.-Kfm. Christian Heinrich
Sales & Operations Planning
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Demand forecast Capacity forecast
Sales plan Operations plan
Financial plan
Sales and Marketing
Downstream Upstream
Production and Logistics
Source Mentzer, 2004
Dipl.-Kfm. Christian Heinrich
Managing Supply
• Managing capacity • Time flexibility from workforce • Use of seasonal workforce • Use of subcontracting • Use of dual facilities – dedicated and flexible • Designing product flexibility into production processes
• Managing inventory • Using common components across multiple products • Building inventory of high demand or predictable demand
products
8 Source: Chopra, Meindl; Supply Chain Management Dipl.-Kfm. Christian Heinrich
Inventory/Capacity Trade-off
• Leveling capacity forces inventory to build up in anticipation of seasonal variation in demand
• Carrying low levels of inventory requires capacity to vary with seasonal variation in demand or enough capacity to cover peak demand during season
9 Source: Chopra, Meindl; Supply Chain Management Dipl.-Kfm. Christian Heinrich
Managing Demand
• Promotion • Pricing • Timing of promotion and pricing changes is important • Demand increases can result from a combination of three
factors: • Market growth (increased sales, increased market size) • Stealing share (increased sales, same market size) • Forward buying (same sales, same market size)
10 Source: Chopra, Meindl; Supply Chain Management Dipl.-Kfm. Christian Heinrich
Demand Management
• Pricing and aggregate planning must be done jointly • Factors affecting discount timing
• Product margin: Impact of higher margin ($40 instead of $31)
• Consumption: Changing fraction of increase coming from forward buy (100% increase in consumption instead of 10% increase)
• Forward buy
11 Source: Chopra, Meindl; Supply Chain Management Dipl.-Kfm. Christian Heinrich
Performance Under Different Scenarios
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Regular
Price
Promotion
Price
Promotion
Period
Percent
increase in
demand
Percent
forward
buy
Profit Average
Inventory
$40 $40 NA NA NA $217,725 895
$40 $39 January 10% 20% $221,485 523
$40 $39 April 10% 20% $211,283 938
$40 $39 January 100% 20% $242,810 208
$40 $39 April 100% 20% $247,320 1,492
$31 $31 NA NA NA $73,725 895
$31 $30 January 100% 20% $84,410 208
$31 $30 April 100% 20% $69,120 1,492
Source: Chopra, Meindl; Supply Chain Management Dipl.-Kfm. Christian Heinrich
Factors Affecting Promotion Timing
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Factor Favored timingHigh forward buying Low demand periodHigh stealing share High demand periodHigh growth of market High demand periodHigh margin High demand periodLow margin Low demand periodHigh holding cost Low demand periodLow flexibility Low demand period
Source: Chopra, Meindl; Supply Chain Management Dipl.-Kfm. Christian Heinrich
Factors Influencing Discount Timing
• Impact of discount on consumption
• Impact of discount on forward buy
• Product margin
14 Source: Chopra, Meindl; Supply Chain Management Dipl.-Kfm. Christian Heinrich
Implementing Solutions to Predictable Variability in Practice
• Coordinate planning across enterprises in the supply chain
• Take predictable variability into account when making strategic decisions
• Preempt, do not just react to, predictable variability
15 Source: Chopra, Meindl; Supply Chain Management Dipl.-Kfm. Christian Heinrich
Sales & Operations Planning links strategy and execution
16 Source: Ivanov, Adaptive Supply Chain Management , 2010, S. 182 Dipl.-Kfm. Christian Heinrich
S&OP process considers 5 major plans
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1
2
3 4
5
Dipl.-Kfm. Christian Heinrich
S&OP needs information from ERP and APS
18 Dipl.-Kfm. Christian Heinrich
Why is formal S&OP needed?
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• Customer Expectations
• Competition
• Product Life Cycles
• Environmental Change
• Pressure on Inventories
• Price & cost Pressure
• Regional & Global Issues
• High Level of Uncertainty
Today’s Business Realities Demand Better Planning:
“If the rate of change inside your organization is slower than the rate of change outside, the end is near.” Jack Welch
Dipl.-Kfm. Christian Heinrich
Example: DAIMLER
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Objectives
• Synchronization of customer-order and procurement process
• Production supply at new start-ups, change years and in the serial operation
• Avoidance respective control of complexity
• Transparent communication platform
-> Support of suppliers in their process responsibility Source:
Daimler
Dipl.-Kfm. Christian Heinrich
PROCESS: DAIMLER
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Source: Daimler
Product development process
Development
Product creation process
Sales Production
Supplier
Customer-order process Material
purchasing process
Sales
Dipl.-Kfm. Christian Heinrich
PROCESS: DAIMLER
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Produkt- entstehungs- prozess
Source: Daimler
Product development process
Customer-order process
Material purchasing process
Product creation process
40 innovations inside the new S-class ca. 2.000 part changes per year due to the updating of models ca. 4000 new parts per type
Development
Sales Production
Supplier
Sales
Dipl.-Kfm. Christian Heinrich
PROCESS: DAIMLER
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Kundenauftrags- prozess
Source: Daimler
Customer-order process f.e. C-class limousine
Engines 9 Steerings 2 Gears 2 Country variants 3
96 feasible variants (of 108) additionally 80 special equipments 14 liveries 5 interior paints 3 textiles -> 1.612.800 variants
Development
Sales Production
Supplier
Sales
Product development process
Material purchasing process
Product creation process
Dipl.-Kfm. Christian Heinrich
PROCESS: DAIMLER
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Kundenauftrags- prozess
Lieferanten Source: Daimler
Serial parts Special equipment
ca. 20.000 purchased parts (without in-house parts) of ca. 1.000 suppliers
Procurement process chains
Development
Sales Production Sales
Product development process
Product creation process
Material purchasing process
Dipl.-Kfm. Christian Heinrich
PROCESS: DAIMLER
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Source: Daimler
Daimler
Module supplier
Explaining Supply Chain taking the example interior door panelling
1st tier Simulation of the procurement network
-> critical branches -> Sensitivity concerning demand changes
Dipl.-Kfm. Christian Heinrich
PROCESS: DAIMLER
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Source: Daimler
Daimler
Module Supplier
f.e. ready-to-assemble door linings
1st tier 2nd tier 3nd tier 4nd tier 5nd tier 6nd tier 7nd tier
f.e. to dye leather 60 days until assembly Supplier in South Africa
Dipl.-Kfm. Christian Heinrich
Daimler: Solution
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Measures • Top-level-demand is stored into one central system
• Consequently every supplier calculates its own demand
• Forecast and target figures will be provided on a timeline
• Every supplier observes its time slot and can perceive the
“own“ demand and stock
-> Self-demand assessment Source: Daimler
Dipl.-Kfm. Christian Heinrich
8 KEYS TO SUCCESSFUL S&OP IMPLEMENTATION
• Executing the process every month
• Process ownership and clarity of roles and responsibilities
• Organizational commitment to achieve high forecast accuracy
• Focus should be on the next 3 to 12 months
• One integrated plan that integrates the actions of the entire organization
• Senior management decision making
• Measuring end-to-end supply chain performance
• S&OP forecast versus operating plan or budget 28
Dipl.-Kfm. Christian Heinrich
Goals of S&OP
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• Customer driven processes
• Ensure that plans are integrated & realistic
• Drive internal change through continuous improvement
• Support inventory & lead time objectives by managing supply & demand
• Manage total delivered cost
• Improve management of resources
• Improve overall business performance
Dipl.-Kfm. Christian Heinrich
Discussion
1. What are some obstacles to creating a flexible workforce? What are the benefits?
2. Discuss why subcontractors can often offer products and services to a company more cheaply than if the company produced them themselves?
3. In what industries would you tend to see dual facility types (some facilities focusing on only one type of product and others able to produce a wide variety)? In what industries would this be relatively rare? Why?
4. Discuss how you would set up a collaboration mechanism for the enterprises in a supply chain.
5. What are some product lines that use common parts across many products? What are the advantages of doing this? 30
Dipl.-Kfm. Christian Heinrich
Discussion
6. Discuss how a company can get marketing and operations to work together with the common goal of coordinating supply and demand to maximize profitability.
7. How can a firm use pricing to change demand patterns? 8. Why would a firm want to offer pricing promotions in its peak-
demand periods? 9. Why would a firm want to offer pricing promotions during its low-
demand periods?
31 Dipl.-Kfm. Christian Heinrich