1. Sales & Operations Planning
Charles Novak
Johnson & Johnson GCC
Forecasting Summitt, September 2007

2. Sales & Operations Planning
Approach to the Single Enterprise View
Departmental specialization supports/resulted in many independent spreadsheet based plans based on different set of assumptions, perspectives and needs.
These plans/spreadsheets are difficult to consolidate.
The answer to this problem is S&OP process that enables operational performance planning at both enterprise and departmental levels.
Source: VentanaResearch 2006
3. Sales & Operations Planning
Most of the organizations have no integrated planning framework. This leads to:
Difficulties reconciling functional views of the business.
Limited understanding of the impact that one functional decision has on others.
Delayed decision-making due to slow access to information.
Unreliable forecasts to the financial and customer communities.
Assumptions and insights that go unquestioned and are not updated and reviewed during budget creation.
No single financial view that shows top management all information and assumptions about revenue, margins and inventory.
Source: VentanaResearch 2006
4. Sales & Operations Planning
S&OP Keep it Simple!
New product introduction planning
Consensus demand planning
Supply and manufacturing planning
Formal demand, supply and capacity reviews
Financial plan reconciliation
Formal executive S&OP meetings
Source: VentanaResearch 2006
5. Sales & Operations Planning
Objectives:
Provide aggregate management control over the operational demand/supply planning process.
Understand the financial consequences and hence tie back to business plan.
Balance Supply and Demand, Volume and Mix.
Source: Oliver Wight
6. Sales & Operations Planning
Effective Sales & Operations Planning is Business Imperative
S&OP is a corporate imperative. It must become a core business discipline, yet most companies continue to struggle to make this a corporate core competence.
The need to improve S&OP effectiveness will force 70% of corporations to upgrade S&OP processes and technologies by 2008.
Source: Gartner Report January 2006
7. Sales & Operations Planning
70% of the respondents to Aberdeens survey are actively engaged in enhancing their S&OP processesand Enterprises that deploy S&OP programs strategically consistently outperform, by an average of 20% in % gross margin,those companies whose approach to S&OP is more tactical and less integrated.
Source: The Sales and Operations Planning Benchmark Report: Leveraging S&OP for Competitive Advantage The Aberdeen Group 2006
8. Sales & Operations Planning
Best in Class Enterprises operate an S&OP program with a focus on profitability and the integrated value chain, closed-loop analysis, and continuous improvement, integrated decision-making, and technology platform and systematic risk management.
Source: The Sales and Operations Planning Benchmark Report: Leveraging S&OP for Competitive Advantage The Aberdeen Group 2006
9. Sales and Operations Planning
The S&OP emphasizes the alignment of demand, supply, budget and strategic goals to improve efficiency, and optimize profit and growth.
The process starts with a review of product portfolio.
The next step is to generate unconstrained demand forecast to see if both supply and demand are in sync.
After the team decides on the course of action (GAP management), the plan is presented to the management for approval. The S&OP team not only reconciles demand and supply, but also sees to it that they are consistent with the financial plan and strategic goals.
The right People, right Tools, and a full support of top management are important aspects of a successful process.
Source: C. Jain, St. Johns University
10. Benefits of a Solid S&OP Process
Process Clarity
An effective Sales & Operations Planning process supports the needs of the business on both the strategic and tactical levels
11. Approaches to Forecasting Management
12. Approaches to Forecasting Management
13. Approaches to Forecasting Management
14. Approaches to Forecasting Management
15. Independent Forecast
15
P&L/Gross/Net $$$, DPC,
Net Sales/Trade Spend, .
Eaches/Cases/Pallets/STR,
Gross/Trade/Net Sales; Margins/Costs, .
Eaches/Cases/Pallets/Costs,
16. Concentrated Forecast
16
P&L/Gross/Net $$$, DPC,
Net Sales/Trade Spend, .
Eaches/Cases/Pallets/STR,
Gross/Trade/Net Sales; Margins/Costs, .
Eaches/Cases/Pallets/Costs,
17. Consensus Forecast Tactical S&OP
17
P&L/Gross/Net Sales, DPC, Trade Sales, Eaches/Cases/Pallets/STR, Costs
Gross/Trade/Net Sales; Margins/Costs, .
18. Effective S&OP
18
P&L/Gross/Net Sales, DPC, Trade Sales, Eaches/Cases/Pallets/STR, Margins,
Pricing Policy, Costs Short/Long Term
- Tactical/Strategic Planning, .
19. Independent Forecast
19
20. Concentrated Forecast
20
21. ConsensusForecast
21
22. Effective S&OP
22
23. ForecastApproaches
23
24. The Resource Planning Model
More traditional view
MRP II / ERP model.
Strategic and Business Planning used as drivers of the process. Sales and Operations Planning acts as an essential linkage, tying the Strategic and Business Plans together with the Master Scheduling function.
In companies without S&OP, there is frequently disconnect between the Business Plan and the Master Schedule.
Strategic Planning
Business Planning
VOLUME
SALES & OPERATIONS PLANNING
Operations Plan
Sales Plan
FORECASTING AND DMD MANAGEMENT
CAPACITY PLANNING
MIX
MASTER SCHEDULING
Detailed Planning and Execution Systems
Source: T.F. Wallace
25. Monthly Sales & Operations Planning Process
Step 5
Exec SOP Meeting
Decisions
Authorized Game
Plan
Step 4
Pre-SOP Meeting
Recommendations and agenda
for Executive SOP
Step 3
Supply Planning Phase
Capacity Constraints
2nd pass Spreadsheets
Step 2
Demand Planning Phase
Management Forecasts
1st pass Spreadsheets
Step 1
Run Forecast Reports
Statistical Forecasts;
Field Sales Worksheets
End of Month
Source: T.F. Wallace
26. The role of Demand Planning
Forecasting: Inputs, Process, Outputs
Better processes yield better results and forecasting is no exception; better forecasting processes will yield better forecasts.
OUTPUTS
INPUTS
FORECASTS THAT:
Are Reasoned
Are Realistic
Are Reviewed Frequently
Represent the Total Demand
Current Customers
New Customers
Competition
Economy
New Products
Pricing
Promotions
Management Directive
History
Other
PROCESS
Source: T.F. Wallace
27. Class A Cross-Functional Integration
The Business Entity
Integrated Business Management
Demand
Supply
Product Management
Finance
Support
Marketing
Sales
Mfg.
Materials
Logistics
Purchasing
Distribution
Product Development
Portfolio Management
Promotional Activity
Value Engineering
Financial Planning
Accounting
Quality
HR
Administration
Customer Service
Source: Oliver Wight
Multiple plans in the business need to be integrated.
28. Effective S&OP MUST have all components linked.
Executive
S&OP
Business
Strategy
Market
Data
Financial
Planning
Statistical
Forecast
Business
Planning
Supply
Data
History
Operations
Meeting
Consensus
Process
One
Number
Forecast
Field
Sales
Fcst
Supply
Chain
Customer
Data
Resource
Capacity
Planning
Marketing
Forecast
Market
Data
MS
DRP
29. Effective S&OP MUST have all components linked.
X
?
Business
Strategy
Market
Data
Financial
Planning
Statistical
Forecast
Business
Planning
Supply
Data
!
History
Operations
Meeting
Consensus
Process
Forecast
?
Field
Sales
Fcst
?
?
Supply
Chain
Customer
Data
Resource
Capacity
Planning
Marketing
Forecast
Market
Data
MS
DRP
30. Role of Demand Planning (Example)
To find a completely unbiased process champion is often not an option. In our example, Demand Planning exists as a separate group under the Market Operations department. This allows for relatively low bias.
Demand Planning owns the Operational (supply constrained), Consensus (S&OP) and GAP (vs. Financial commitment) meetings.The Finance and President jointly own the Executive S&OP meeting and its outcomes.
31. Key points on One-Number Forecast
How was the forecast created?
The One-Number Forecast needs to be a compilation of insight, data, trends, and confirming facts.
The ideal demand plan synchronizes category trends, shipment trends, trends derived from POS or syndicated data.
The goal of the One-Number consensus process should be the creation of a reality based One-Number Forecast not a consensus planned forecast.
Does the One-Number Forecast have a well defined set of underlying assumptions?
Does the One-Number Forecast have a feeling of reality built into it?
Are aspirational volume activities well documented?
Does the forecast have sales insight derived from talking with the customer or consumer?
Is the One-Number Forecast well communicated so that supply believes in the plan, and does not hedge the plan on its own?
Source: P. Bower, Plan4Demand
32. Key points on One-Number Forecast
The One-Number Forecast MUST be based on a reality. It also should be UNCONSTRAINED so the management understands what the business can sell given unlimited supply. This aids in capacity and resourcing decisions.
A separate formal process is used to determine the executibility of the forecast. (operations meeting)
The supply planners asses their ability to deliver the proposed demand. The forecast is eventually constrained, but not until the gapping process has been completed. The gapping process, for example, helps to protect future revenue by pointing todays lost opportunities.
The striving for a One-Number Forecast has an important place in S&OP, buy it shouldnt be the only focus of the entire process. The One-Number Forecast should be assumption based, realistic, executable and forward reaching as well.
Source: P. Bower, Plan4Demand
33. The role of process champion
Ideally, the leader of the process should NOT be responsible for the success of areas that participate in the process. In reality, it is seldomly possible to find a completely unbiased process champion.
The process requires unbiased measurement, evaluation, and action, credibility and authority of the leader.
The ideal leader should be a process facilitator and manager. That is why it is important to seek a leader who has a direct involvement in determining the strategic direction of the organization.
Source: P. Bower, Plan4Demand
34. 12 Most Common Threats to S&OP
There is a disconnect between S&OP and corporate strategy
Senior management indecision
The One-Number forecast is not reality based
We meet every month more or less
The process focuses on the balance of the year
The S&OP leader also owns supply or demand planning
Leaders are obsessed with last months sales
S&OP ignores product life cycle management
S&OP ignores or excludes extrinsic business trends
Failure to measure and monitor progress
No understanding about proper meeting procedures
Office politics undermines progress
Source: P. Bower, Plan4Demand
35. The Role of Demand Planning
36. S&OP Maturity Model
PEOPLE, PROCESS, TECHNOLOGY, PERFORMANCE MANAGEMENT
Tactical the company does only the basics of S&OP, such as demand and supply balancing.
Advanced the company has progressed in knowledge and skill of S&OP beyond the basics, for example, to formal planning and review meetings.
Strategic the company uses S&OP to align operational planning with corporate strategic objectives.
Innovative the company runs S&OP using a variety of performance management techniques.
Source: VentanaResearch 2006
37. Recommendations for users
People
Broaden deployment to include executive management, finance, manufacturing, demand planning, supply planning, marketing, product engineering and design and IT functions.
Use a cross-functional team for plan development and reporting.
Have all departments use S&OP as the plan of record including FINANCE.
Engage the CEO or CFO as a sponsor.
Source: VentanaResearch 2006
38. Recommendations for users
Process
Use S&OP to align operations with corporate strategic objectives.
Have regular formal demand and supply review meetings and look at actual-vs.-forecast targets.
Plans should cover 18 months and include multiple lines of business or brands and multiple factories or regional operational facilities across product lines.
Source: VentanaResearch 2006
39. Recommendations for users
The S&OP process itself should include these steps:
New product (or service) introduction planning
Consensus demand planning
Supply and manufacturing planning
Formal demand, supply and capacity reviews
Financial plan reconciliation
Formal executive S&OP meetings that
Review demand and supply trade-offs
Track progress of strategic initiatives and projects
Included balanced scorecards or performance reviews
Assign action items and set follow-up assessments
Source: VentanaResearch 2006
40. Recommendations for users
Technology
Actively evaluate vendor-provided dedicated solutions
Look for software that has what-if scenario planning, real-time dashboards, collaborative demand planning, automated financial planning reconciliation and profit-based solving
Consider supporting technologies like EAI and BI platforms
Performance management
Match S&OP metrics with corporate goals
Integrate S&OP with Balanced Scorecard
Source: VentanaResearch 2006
41. Sales & Operations Planning
Charles Novak
Johnson & Johnson GCC
Forecasting Summitt, September 2007
Thank you!