Sales and Operations Planning – An entry Visa into the competitive PresentSAPICS Summer Conference, Cape Town 2008
Farayi Kambarami – 17 October 2008
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The Business Challenge(s)
Sales and Operations Planning as a co-ordinated response
How does it work
What benefits does it bring
Some concluding remarks
Business –
(qualified definition) “an activity carried out for profit”
“legally recognised entity designed to provide goods or services to consumers”
Two important factors – Consumers/Markets and Profit
Business Competition
Same consumers targeted by almost all businesses to buy their goods/services. (more important as economic crisis escalates)
Most important aspect happens at customer/consumer interface: 2 “moments of truth”
Purchase – do they buy it
Use – do they like it, and thus will they buy it again
Question around the extent to which Supply Chains must compete
To Compete
Business MUST meet consumer/customer demand profitably and consistently
Internal business processes must facilitate delivery of product
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Synchronise internal business processes with the customer/consumer demand so as to give them
What (product(s) /service(s)) they want
When they want it(/them)
Where they want it(/them)
In the right quantities
In a sustainably profitable manner.
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The Business Response
A subset of the synchronisation problems is typically answered through one of the business functions/departments e.g.
Department
Questions Answered
What products, Where, When, What Quantity, What Price, What Quality
What products, What Price, What Quality
Planning – Sales Forecasting
Production/Operations
What Products, In what quantities, when, what quality, what price
What Products, In what quantities, when, what quality, what price
Distribution/Logistics
What Products, In what quantities, where, when (What quality)
Sales
What Products, What Quantity, Where, When, What Price, What Quality
What Products, What Quantity, Where, When, What Price, [What Quality]
Finance
What Profitability
What Price, What Profitability
The existence of several potential respondents to the business challenge typically creates several “answers” within the same organisation.
Typically there is a proliferation of forecasts by function leading to poorly co-ordination action and huge cost in terms of either lost sales or incorrect inventories.
Financial Budgets
Strategic Plans
Sales Forecasts
Production Plans…
This results in waste and jeopardises the company’s ability to compete
Organisational design and processes need to co-ordinate the responses to the questions that the business faces in the market place.
Specifically how does the company ensure that all stakeholders have the same view of and response to the customer/consumer demand
Share the same understanding of the company’s profitable response to this demand
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Sales and Operations Planning as a co-ordinated response
Aims at aligning all stakeholders in the business towards one goal – meeting customer/consumer demand profitably in a manner that ensures delivery of the company’s strategic agenda
Clearly identifies the product domain in which the company plays through the Product Management Review –if done as part of an Integrated Business Management Process
Formalises the generation and adoption of a Company Demand Plan through the Demand Review
Provides a transparent view of the company’s response to the Company Demand through the Supply Review
Ensures that the Supply and Demand views are reconciled and evaluated against financial targets in the Management Review
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How does it work
Traditionally organised around four meetings with specific pieces of work being done in between them.
Demand Review Meeting
Supply Review Meeting
Executive S&OP/ Management Review Meeting
Evolving to include 5th meeting
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What products do we offer our customers/consumers?
What are the trends in the customer/consumer’s world that we need to keep in touch with?
What else could we offer them that is in line with our strategic intentions as an organisation?
How well are the products that we currently offer doing?
What changes, if any do we need to make, to our existing range going forward?
The outcome is a clear view of the products that the company will market, those that it will launch and when they will be launched, and the ones that it will discontinue complete with timings.
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Demand Review Meeting
With clarity on products to be marketed, the next set of questions answered in the S&OP process are:
What is the quantitative demand for each of the products that we market for any future given period?
How is this demand constituted by customer, region,…etc?
Critical for this review
some statistical baseline of the demand based on history
Input from Sales and Marketing about deals, promotions, competitor activity, the effect of launches on the projected statistical sales forecast – so called “market intelligence” – assumes pre-work
Each assumption that is made on the state of demand needs to be explicitly documented
The demand numbers should be challenged sufficiently during this meeting, but once agreed become binding for the whole organisation
Metrics Reviewed
Process output
Detailed Company demand plan – official view of unconstrained customer demand
Challenge is how to ensure demand is truly unconstrained if customer service is erratic – how do you capture true demand into your company?
(in my last job, this was in weekly buckets for the next 13 weeks, and in months from month 4 to 24.)
Plan is sales units (tons/kg/units and not rand/$)
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Supply Review Meeting
Once a view of the demand has been generated, focus is then on the supply chain components that create the needed products to fulfil this demand
The main questions answered here are
How shall we meet this demand at the appropriate times, and in the right places
A detailed supply plan (Depot Requirements Plans, Master Production Schedule, Materials Requirements Plans…) is drawn in an attempt to meet the demand.
The supply plan is based on the proven capacity of the manufacturing and delivery operations and on the basis of any known/anticipated improvement plans
Issues of plant/material constraints are discussed in this review.
Consistent shortfalls in meeting demand are reviewed and fed back into Capacity Improvement/ Capital Expenditure plans
Metrics Reviewed
Process Output
Company Supply Plan – company’s manufacturing response to the known demand
Detailed production plans for next four to six weeks, by week. (This is also a volumetric (i.e. sales units) plan
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Depending on tool availability/support
The outcome of the Supply Review are sent to the financial team for “financialisation”.
Pre-S&OP aims at resolving any discrepancies between Supply and Demand given the financial and other strategic implications
This review looks at the different prioritisations and makes recommendations to the senior management on the best options to take given the financial implications of each alternative.
Where the trade offs are pretty routine, this can be standardised/ incorporated into a template
Sometimes this is collapsed into the agenda of the Supply Review making it a longer meeting
This meeting serves as a preparation for the final Executive S&OP meeting run by the senior managers
The process output
Recommended final Company Sales and Operations Plan for discussion in the main S&OP meeting
Any unresolved issues/prioritisation for senior management’s attention/resolution
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Executive S&OP
The ultimate aim of the Sales and Operations Review is to sign off the final plan for the business for any given time period.
It answers all those fundamental questions that the business strives to solve:
What products will we be selling, in each of our markets at any given future time?
How much of each product do we hope to procure/produce and hence ultimately sell?
If this is different from what we need to meet our Strategic and other plans, what are we going to do to close the gap? (Who will do what?
When do we expect to sell what volume?
A review of the previous plan, any key performance indicators and key business and macro-economic and socio-political trends is carried out first
Based on the information provided from the Supply and demand review, senior management make final calls on specific prioritisation options.
The risks to the plan are discussed and contingencies put in place with clear accountabilities for delivering the plan.
Process Output
the demand that the company is aiming to meet
The manner in which it will meet this demand
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S&OP
Process Enablers
Executive Support – Must have the sponsorship of the most senior manager(s) in the business
Collaborative culture
Staff commitment to process
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S&OP – A Diagnostic Model JBF
Spring, 2005
“Journey to Excellence”
Source: Oliver Wight, Successful S&OP through Integrated Business Management
Phase 1 Co-ordination
Phase 2: Business Process Control
Eliminating failure in business process
Phase 3 Automation
Phase 4
Time
Process Map “as is” process
Share best practices and develop plan to assimilate these into org
Develop action plan to implement new process
Must be sensitive to “current” state of business
Should not seek immediate improvements, target sustainable change
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Benefits of S&OP
One Business – One Plan
Rallies all the troops towards one target – meeting consumer needs and making money out of this
Knock on effects on
Remember only products that the customer/consumer sees can compete
Cost
Oliver Wight’s “Successful S&OP through Integrated Business Management” ( www.oliverwight.com )
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