Leveraging S&OP- Not Just Your Father's Supply/Demand Balance Anymore
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Transcript of Leveraging S&OP- Not Just Your Father's Supply/Demand Balance Anymore
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
Leveraging S&OP
A Webinar
by
Tom Wallace
sponsored by
Steelwedge Software
March, 2012
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
News Flash!
S&OP CertificationWhat: Become certified in S&OP
How: Pass the Certification Exam
Who: - The S&OP Institute - Ohio State University
When: Exams can be taken beginning Sept 1
More info: sopinstitute.com (after 3/20)[email protected]
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
The Four Fundamentals
Demand Supply
Volume
Mix
Sales & OperationsPlanningX
How Much?RatesThe Big PictureProduct FamiliesStrategy/Policy/RiskMonthly/18 months+Top Management
Which Ones?Timing/SequenceThe DetailsProducts, SKUs, OrdersTactics/ExecutionWkly/Daily, 2 days – 6 mos Middle Management
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
Sales & Operations Planning
Demand Supply
Volume
Mix
Executive S&OP
Master SchedulingSupplier and Plant Scheduling
Distribution Scheduling
Demand Planning/Forecasting
Supply (Capacity) Planning
?????
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
Step #5ExecutiveMeeting
Decisions &Game Plan
Step #4Pre-
MeetingConflict Resolution, Recommendations &
Agenda for Exec. Mtg.
Step #1Data
Gathering
End of Month
Sales Actuals, Statistical Forecasts
&Supply Actuals
Step #2DemandPlanning Management Forecast
1st-pass spreadsheets
Step #3Supply
Planning Capacity constraints2nd-pass spreadsheets
Heavy
Lifting
The Executive S&OP Process
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
Last Time We Discussed . . .
• BASF• Cisco Systems• V&M Star• Dow Chemical
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
Executive S&OP in Retail Delivery
Staples, Inc.
Framingham, MA
Products: Office Equipment and Supplies
Corporate Annual Sales: $24.5 billion
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
S&OP at Staples Delivery
Data Gathering
Aggregate Demand Process/Meeting
• Review recent performance to forecast
• Generate forecast for 12 future months
• ID “gaps” in the forecast and plans to mitigate(between Demand Planning and Merchant teams versus what’s been submitted to corporate)
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
S&OP at Staples Delivery
Aggregate Supply Process/Meeting
• Generate supply plans based on new demand plan
(vendor purchase plans and logistics plans)
• Review/resolve supply constraints (forecast translated
from $$$ into case counts, cubic feet, labor hrs)
• Capability updates (process improvement, new business
initiatives, shifts in suppliers/customers, cost/benefit analyses)
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
S&OP at Staples Delivery
STAPLES
• Data Gathering
• Demand Planning
• Supply Planning
• Core Team Meeting
• Exec Team Meeting– President, NA Delivery– Sr. VP Heads of 3 BU’s– Sr. VP Finance– Sr. VP Supply Chain
THE “STANDARD” MODEL• Data Gathering• Demand Planning• Supply Planning• Pre Meeting• Exec Meeting
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
Benefits
Krist Lutz, Director of Sales & Operations Planning for Staples Delivery:
Hard benefits include the traditional ones . . . : - higher in-stock positions with lower inventories - increased revenue due to lost sales avoidance- decreased service expense- better working capital and cash flow
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
Benefits, continued
Kris Lutz again:• Soft benefits are communication and teamwork.• Teams discuss items earlier and much better
than before.• This makes for a more nimble organization,
one where ideas and initiatives can be executed faster and with greater precision
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
The Moral of the Story
There are far more similarities than differences between Staples’ use of Executive S&OP and a how a manufacturing company does it.
Implications: if you have units in your corporation that do not produce physical products, they may still be candidates for S&OP.
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
Executive S&OP in Advanced New Product Launch
Applied Materials
Process Diagnostics and Control Business (PDC)
Rehovot, Israel
Products: Equipment for the manufacture of: Semiconductors
Flat Panel Displays
Photovoltaic Cells
Corporate Annual Sales: $9.5 billion
PDC Employment: ~900
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
Applied Materials: Process Diagnostic and Controls Business (PDC)
• S&OP user for over 10 years• New products dominate the business: over
40% of sales in 2010 (some years over 60%)• New products at PDC require strong
alignment between customer penetration strategy and build and supply chain plans
• Thus, they created a separate S&OP process for new products
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
The Stage-Gate Process (phase-gate)
The stage–gate model is a technique in which new product development (or other initiative) is divided into stages separated by gates.
At each gate, a manager or a steering committee decides on whether or not the project should go forward.
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
The Stage-Gate Process at PDC
• Gate 3: project approval received
• Gate 3.5: product can enter S&OP
• Gate 4: product ready to ship as alpha and then beta test version
• Gate 5: product ready to move from new product status to the
ongoing (“sustaining”) product line
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
SUSTAINING PRODUCTS
S&OP BUILD PLAN
NEWPRODUCTS
S&OP BUILD PLAN
COMBINED PDC S&OP BUILD PLAN
Products between
Gates 3.5 and 5
Products beyondGates 5
Gate 5Transition fromNew Product to
Sustaining Product
SUPPLY REVIEW MTGTEST FOR CAPACITY
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
The Stage-Gate Process at PDC
• Gate 3: project approval received
• Gate 3.5: product can enter S&OP
• Gate 4: product ready to ship as alpha and then beta test version
• Gate 5: product ready to move from new product status to the
ongoing (“sustaining”) product line
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
Benefits
As cited by Shelly Zafrir, Director of Sales & Operations Planning, Silicon Systems Group in Santa Clara (formerly head of S&OP at PDC)
NEW PRODUCT LAUNCH
In new product launch, perhaps the most important metric is lead times to customers.
It was more than one year before S&OP. It is now 3 - 5 months and less on occasion.
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
Benefits, continued
As cited by Shelly Zafrir:
MANUFACTURING CYCLE TIME
Down 15 - 20% on ongoing products, more on new products, while volume increased four-fold since 2009
EXCESS & OBSOLETE INVENTORY
Less than half of 2009 level and expected to drop even more
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
The Moral of the Story
Three points:
1. New Product Launch is filled with uncertainty and change
2. S&OP helps companies deal with uncertainty and change
3. The larger the role that New Products play in your company, then the larger the role that S&OP should have in New Product Launch.
A classic example: Applied Materials PDC
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
Executive S&OP Support for Earnings Calls
The Procter & Gamble Company
Cincinnati, OH
Products: Consumer Packaged Goods
Corporate Annual Sales: $82.6 billion
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
The Operating Environment
• 300 unique brands, sold worldwide• Plants in 40 countries• Operations in 80 countries• S&OP used throughout the company
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
A Single S&OP Process
• Only one standard S&OP process for all businesses and “regions”
• Only one standard set of metrics• Each business evaluated once per year to:
– Insure compliance–Provide road map for improvement
• S&OP done on two axes:business unitregion
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
27
Procter & GambleBusiness Unit and Region Integration
BU1 BU2 BU3 BU4
Reg1
Reg2
Reg3
X
Figure 12-1
x
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
Alignment
Region 1’s forecast of what it expects to sell of Business Unit 1’s Products
=What Business Unit 1 expects Region 1
to sell of its products
This alignment is the foundation for:• Running the business internally with one set of
numbers• Using S&OP as an important foundation for
quarterly earnings calls to Wall Street
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
P&G’s S&OP Assessment Tool
Six sections, ~ 20 items per section• Leadership• Operating Strategy• Initiative Planning• Demand Planning• Supply Planning• S&OP
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
1. Self-assessment by the BU’s and Regionsusing the Assessment Tool
2. Self-assessment validated by qualified assessors from outside that business
3. Assessment interviews and document reviews by the “outsiders”:
1. With business leaders
2. Assessors may attend Exec meeting
4. Assessment summarya. Set final score
b. Strengths and improvement opportunities
c. Action Plan
The Annual Assessment Process
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
The Moral of the Story
Companies should have a formal assessment process to:• maintain the integrity of its S&OP processes• improve those processes
Are your earnings calls (to corporate or the financial community) based on S&OP?
If not, why not?
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
Summary – S&OP at P&G
• One of the very best S&OP processes in the world
• Made possible by the Assessment Process• A quote from Dick Clark, formerly Associate
Director, Global Network Supply Operations:S&OP plays a substantial role at P&G. It is
one of the – some might say the – primary planning processes used to run the business.
In Memory
Richard A ClarkAssociate Director,
Global Network Supply OperationsThe Procter & Gamble Company
1953 – 2011
EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM
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