I2 U Intelligent Supply Chain Management Course Module Nine: Sales & Operations Planning.

i2 UIntelligent Supply Chain Management

Course

Module Nine:Module Nine:Sales & Operations PlanningSales & Operations Planning

2© 2001 i2 Technologies Inc CONFIDENTIAL

Supply Chain Management Key Processes

Sales & Operations Planning

Demand Planning

Inventory Planning

Supplier Scheduling

Production Scheduling

Inventory Deployment

Transportation Scheduling

Demand Fulfillment

Supply Chain Execution Monitoring

Strategic Supply Chain

Planning

Master Supply Planning

Procurement

Production Distribution

Transportation

Impact of decisions

_

+

Num

ber o

f dec

isio

ns

+

_

Spec

ifici

ties

by in

dust

ries Length of Planning horizon

Fu

lly

Inte

gra

ted

to

p-d

ow

n d

irec

tio

ns

Fu

lly

Inte

gra

ted

bo

tto

m-u

p f

eed

bac

k

Reaction to changing supply conditions


After Completing This Module,You are Expected to:

Identify the types of decisions being made during the S&OP process Understand the interactions between the S&OP process and the Strategic

Planning process on one side, and the tactical planning processes on the other side

Explain the negative consequences of not having a consistent S&OP process in place

Understand how linear programming tools can allow companies to reach maximum financial optimization

Explain vertical planning integration vs. horizontal planning integration Identify S&OP key enablers and their resulting business value Identify S&OP excellence criteria Define a typical tactical planning / S&OP workflow


Sales & Operations Planning Process Positioning

hou

rs

days

wee

ks

mon

ths

year

+

buy

make

move

sell

store

operational tactical strategicscheduling


Sales & Operations Planning Process Workflow (Typically Monthly)

Validate Master Plans changes, publish and

disaggregate to lower levels

Company game plan

Monthly updated budget

Review Master SupplyPlans

Identify supply constraints and opportunities

Review new product introduction schedule

Updated supply plans and mismatches with demand

Review Master Demand Plans

Top down / bottom-up forecasting

Consensus forecast (sales, marketing, finance)

Review past performance of demand and supply plans + Supply Chain KPIs

Identify root causes

Review business assumptions


Typical Decisions Taken During a Sales & Operations Planning Process

Marketing actions to boost lagging demand (compared to business plan)

Increases in capacity to satisfy increasing demand (internal, subcontract)

Decisions on new product introduction (anticipation or postponement)

Redefinition of inventory policies Sourcing decisions Financial optimization (selection of the most profitable plan

among a population of possible solutions)


Sales and Operations Planning Process:Functions Involved

Capacity constraints Current plan Use of inventory

ManufacturingManufacturing

Weekly actual sales Upcoming promotions

SalesSales

Valid demand forecasts

Upcoming promotions

MarketingMarketing

Price information Availability of inputs

Sourcing &Procurement

Sourcing &Procurement

Cash flow analysis Profitability measures Adherence to budgets

FinanceFinance

24

Hours

Agreement on Updated Master Schedule&

Update to Master Production Schedule

Agreement on Updated Master Schedule&

Update to Master Production Schedule


BUDGET

MARKETINGMARKETING

R&DR&D

PRODUCTIONPRODUCTION

M+3

PURCHASINGPURCHASING

FINANCEFINANCE

M+6 M+9 M+12

What You Get if You Don’t Have an Effective S&OP Process in Place


Monthly S&OP processes

M+1

MARKETINGMARKETING

R&DR&D

PRODUCTIONPRODUCTION

PURCHASINGPURCHASING

FINANCEFINANCE

M+2 M+3 M+4M

Peace Restored With an Efficient S&OP Process


Sales & Operations Planning Financial Optimization

Through the use of Linear ProgrammingLinear Programming based solutions


Linear Programming Defined

Mathematical models for solving linear optimization problems through minimization or maximization of a linear function subject to linear constraints

– APICS Dictionary

An optimization technique that identifies the optimal trade off between:

– Potential sales revenues– Inventory carrying costs– Production and logistics costs


Which source is more cost effective?

Linear Programming Typical Usage

SUPPLIERS

PLANTS

DCs

CUSTOMERS

Considering… Transportation costs Inventory carrying

costs Standard Production

costs Overtime costs


What is the best productionCurve in a seasonal

business?


Time

Demand

Overtime

Inventory build up

Inventory build up



Max total capacity

What is the most

profitable product mix?

time


The Problem With Linear Programming

Linear Programming reduces the Supply Chain financial optimization to a mathematical equation

Supply Chains rarely are amenable to being treated as a mathematical equation!

Pure Linear Programming doesn’t work for Supply Chain Management. It must be complemented by other algorithms to fit specific business conditions


Required Capabilities in an LP-Based S&OP Solution

Ability to respect business preferences even if they are not cost optimal

Ability to evenly deploy limited supply through inventory bands

Ability to communicate seamlessly with an interactive planning environment


Bounding Financial Optimization Through Hierarchical Optimization

Optimize objectives in a user-customizable sequence that reflects business preferences like :

–E.g. 1) maximize customer service 2) minimize non-preferred lanes 3) ship on time but as late as possible 4) minimize cost

Another positive consequence of hierarchical optimization is the limitation of planning nervousness


Hierarchical Optimization: Restriction of the Solution

Space

1 23

4

Traditional Linear Programming

=> Reduction of the magnitude of the changes generated

© 2001 i2 Technologies Inc CONFIDENTIAL

LP Based Global Optimizers Enable Fast Financial Analysis of Alternative Plans

How much money do we forego by setting a minimum volume production requirement for Product A? (Is this strategic long term contract worthwhile?)

How much additional cash flow could we generate with more capacity at this critical resource?

How much cash flow would we generate by increasing demand for Product B?


Financial analysis provided at the end of

the solve


Product mix decisions made by the solver

considering both margin / unit and run rate at

constrained resources


How to Use LP-Based Global Solvers?

Identify adequate periodicity to run the solvers (e.g., monthly, weekly...)

Solve minor de-synchronizations with local problem solving capabilities (manual re-planning, heuristics)

Keep the original plan generated by the solver visible as a soft constraint, and set a tolerance for deviation

Execute global solver only if a problem is flagged on this soft constraint


Optimized Sales & Operations Planning Process Key Enablers and Related Benefits

Linear Programming optimization capabilities

Hierarchical optimization and inventory bands capabilities

Global solvers embedded into an interactive planning environment

Unleashing the benefits of LP logic for global Supply Chain optimization

Total Supply Chain costs (best possible financial trade off between inventory, transportation, and production costs)


Major Roadblocks to Remove to Enable a Fully Optimized S&OP Process

Lack of senior executive involvement and leadership

Lack of integration between the different layers of planning


One of S&OP Toughest Challenge: Vertical Planning Integration of Various Levels of

Data Granularity

StrategicStrategic

TacticalTactical

OperationalOperational

Horizontal CommunicationHorizontal Communication

Ver

tica

l Com

mun

icat

ion

Ver

tica

l Com

mun

icat

ion


Vertical Integration is Generally a Huge Problem

Rigid……Hard Coded……Pre-defined……Inflexible……Limited Capability Modeling

Strategic Planning Strategic Planning ModelsModels

Tactical Planning Tactical Planning ModelsModels

Operational Planning Operational Planning ModelsModels

Multiple planning engines representing different aggregation levels and probably different product lines

One top level planning engine used for corporate level capacity planning

Leg

acy

Leg

acy

Syst

ems

Syst

ems

Hard Coded Data Adapters

Other Other SourcesSources

X

X Multiple planning engines representing different plants and probably different product lines


Integration of Strategic, Tactical and Operational Planning

Variable time buckets and levels of aggregation must allow near-term detailed execution plans to mesh seamlessly with

longer term master plans

Yesterday's Plan

Today's Plan

yest

erda

y

toda

y

near

-ter

m

long

-ter

m


Sales and Operations Planning Integrated Approach

Use of a single, consistent data repository that describes the relationship between levels of aggregation. Typical process:

– Starts at the 30,000 feet view in terms of• financial plans in dollar terms• market segment/product families/product group level• major manufacturing resource group level

– then goes down to the dirty details• to schedules by the hour by the machine by the items in

number of fractional units• to distribution plans by the truck by the load by the standard

packs of items– then goes back to the 30,000 feet view to measure the

impact of operational issues on overall business plans


Sales & Operations Planning Excellence Criteria (1/3)

There is a Sales & Operations Planning process in place that maintains a valid, current operating plan in support of customer requirements and the business plan. This process includes a formal meeting each month run by the general manager and covers a planning horizon adequate to plan resources effectively.

There is a concise written S&OP policy that covers the purpose, process and participants

Sales & Operations Planning is truly a process and not just a meeting. Preliminary activities include: Sales plan update by Sales & Marketing, new product development update by R&D, new production plan by Manufacturing, etc…

The process includes both a review of past performance and future plans for sales, production, inventory, backlog, shipments, and new product activity.

Key performance measures (delivery performance, forecast accuracy, velocity, inventory turns, schedule adherence, capacity utilization, ...) are reviewed during the process. Agreed targets are aggressive but realistic. Any significant deviation triggers appropriate root cause analysis and corrective actions.



Inventory and/or delivery lead time (backlog) strategies are reviewed each month as part of the process

During the S&OP process, the Master Plans (Sales, Inventory and Supply) are systematically compared with the company’s business plans. In case of differences, the plans are realigned.

Simulation is actively used to convert operating data into projected financial results quickly for the purpose of decision making and contingency planning.

Financial optimization (based on Linear Programming algorithms) is used to make decisions such as sourcing decisions, product mix decisions, or production rate decisions. The Linear Programming logic is coupled with adequate heuristics that ensure compliance with business rules that are not necessarily aligned with pure cost minimization.

Any information regarding Supply Chain activities used in financial reporting is directly obtained from the Supply Chain Planning system. This should be the case, for example, for the projected inventory balance (finished goods, WIP, purchased items) and for the total cost of future purchases by period.



Projected production costs integrate the impact of planned overtime, additional shifts, outsourcing, ….

When the annual budget is created, the future sales registered in the budget equals the consensus forecast used to drive all Supply Chain operations.

Inventory analysis (month on hand coverage by item) is based on future demand or requirements. The provision for slow moving inventories derives directly from these analysis

A cash flow plan is generated at least monthly using data coming from the planning system, offset by the payment conditions.

Product costing uses bills of materials compatible with the ones used in the planning process. Where applicable, a single bill serves all relevant purposes.


Typical S&OP / Tactical Planning Workflow

Negotiate additional capacity

Analyze % completed vs planned

Check problem window

Negotiate additional materials

Run LP solver to turn the

above feasible plan in an

optimal plan

Generate allocations by sales channels

for products with limited supply

Generate new sales forecast

Recalculate safety stocks

Propagate new sales forecast

in authority domain

I2 U Intelligent Supply Chain Management Course Module Nine: Sales & Operations Planning.

Documents

Transcript of I2 U Intelligent Supply Chain Management Course Module Nine: Sales & Operations Planning.