1S&OP AND THE REAL COST OF INVENTORY| MAY 2, 2018

S&OP DefinedThe Real Cost of Inventory

Presented by: M. Scott MoonTompkins International

2S&OP AND THE REAL COST OF INVENTORY| MAY 2, 2018

What is S&OP?

S&OPKPI Measurement

Step AHistoricalAnalysis

Step CSupplyPlanning

Step FGlobal Alignment

Step DSupply & DemandBalancing

Step EExecutiveS&OP

Step BDemandPlanning

1.Site Performance2.Product Category

Performance3.Financial Performance4.Product Performance

1.Sales vs. Demand Forecast/Plan

2.Marketing Reconciliation

1.Production vs. Sales Plan2.Available Supply3.Available Production

Windows

1.Trade-off Reconciliation

2.Strategic Alignment

3.Market Positioning

1.Financial Review2.Cost of Trade-Off’s3.Planned Performance

1.Global Plan Alignment2.Global Positioning3.Future

Investment/Strategy

✓It is an Iterative Process✓Ensures Constrained

Sales/Manufacturing Forecasts Stay In-Sync✓Must Include Senior

Leaders Support✓Requires Trade-offs, are

Understood and Aligned with the Corporate Strategy✓Tactical Plan- Critical

Deliverable

3S&OP AND THE REAL COST OF INVENTORY| MAY 2, 2018

What if I am a Global Player?

Regional Analysis(Historical Data, Demand Plan)

Global Consolidation(Demand, Supply, Strategy)

Regional S&OP(Plan, Targets, Strategy)

Global S&OP(Strategy, Profit, Marketing, Shareholder Requirements)

Regional Supply Plan(Capacity, Staff Needs, Cost Profile)

CentrallyManaged

✓ Global Reconciliation Required → Plans Finalized to Sync with Global Strategy✓ Regional Plans Finalized After Global Alignment Achieved

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Keys to Success……..Trade-off Decision Making

1. There Must be an Owner of the Process2. Meetings Must be Planned, Managed,

and Purposeful3. Members Must do Homework to Drive

Solutions → Come Prepared4. Cross Functional Team Empowered to

Make Decisions5. Information Must be Unbiased and

Grounded on a Statistical Baseline6. Supply-Demand Planning Must be

Balanced and Includes Entire Team Input7. Business Trade-off’s Must be Clear

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Why is it so Difficult?

Metric Alignment

Understanding of Supply Chain Complexities

Acceptance of True Collaboration

All Roles Feel of Equal Importance

Clear Tactical Plans

1. True Collaboration Can Only Come From True Respect of Each Player By Each Player

2. All Voices Must be Viewed as of Equal Importance3. Risks Must be Clearly Defined and Accepted4. Clear Trade-off’s Should be Defined and Decisions Made5. Decisions Must Not be Second Guessed

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Supply Chain Extension

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Hidden Cost in Today’s Global Supply Chain……..

1. Vacillating Oil Prices Makes Cargo-ship Fuel Unpredictable2. Wages in China are now Five Times what they were in 2000 → Rising at an

Annualized Rate ~20 percent3. U.S. Labor Unions Are More Amenable now than in the Past4. U.S. Natural-Gas Availability has Dramatically Lowered Operating Costs5. Continued Process Improvements (e.g. Robots) Reducing Impact of Labor in Evaluation6. Low-Cost Country Costs Advantages Negated by Hidden Waste, Overhead, and

Increased Inventory Investment → Impacts Cost of Cash Flow7. Unplanned Demand (i.e. Air Freights) Drains Profit → Lack of eCommerce

Understanding Driving Confusion8. Quality Management Critical to Success9. Supplier Management More Complex → Driving Increased Cost and Time

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1. Tapping Into the Global Talent Pool Directly Impacts Your Corporate Culture

2. Clarity of Communication (i.e. Literal Word Translation) is Critical in Making it Successful

3. Lower Labor Cost May Come at the Cost of Lower Quality

4. Payments Made in Foreign Currency Introduces a Currency Risk

5. Reacting to Market/Demand Shifts are Slow and Costly

Global Outsourcing Market

Banks, Insurance & Financial Sector 35% Telecommunication & Information Technology 25% Manufacturing Industry 15% Retail Industry 7% Transportation & Sports 5% Miscellaneous 13%

Hidden Costs are Weighing on Outsourcing Decisions……

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✓ Since 1992, Retail Inventory (Excluding Auto) Levels have Doubled1

✓ Efficiency of Use to Support Sales has Increased

Inventory Levels Continue to Grow

1Adjusted for Inflation

✓ eCommerce Share of Retail Continues to Grow✓Growth Faster than the Rate of Retail

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10S&OP AND THE REAL COST OF INVENTORY| MAY 2, 2018

1. Demand Shifting Risk → Excess/Obsolescence2. Inability to Respond to New Trends (e.g. Color, Style, Features)→ Long Lead Time Means

Delayed Response3. Increased Cash Tied up in Finished Goods → Inability to Use Cash for Other Return

Generating Investments4. Increased Markdown Exposure to Respond to a Changing Market → Competitors are

Working to Steal Your Customers5. eCommerce Exposure → “Today’s Deal” Risk 6. Loss/Damage Exposure → More Hand-off’s the Greater

Opportunity for Damage/Loss/Theft7. Higher Owned Inventory…. Higher Insurance Protection

Increased Inventory Introduces Risk

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Increased Service Level Does Not Have to Result in More Inventory….

West Coast DC

East DC

Corporate

Customer DeliveryOcean FreightVendor

“A” Items…… Handled in Each DC“B” Items….... Localized Based on Planned Demand“C” Items…… Centralized

Your Service Model Defines the End Impact on Inventory Positioning & Transportation Network

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Critical Infrastructure

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S&OPKPI Measurement

Step AHistoricalAnalysis

Step CSupplyPlanning

Step FGlobal Alignment

Step DSupply & DemandBalancing

Step EExecutiveS&OP

Step BDemandPlanning

Consolidate Analysis → Structured Product Master

1. Product Hierarchy → Volume Roll-up2. Product Attribute Management → Demand

Attributes3. System Attribute Management4. Event Management → De-build Base Demand5. ERP/MRP → Component Uses/Demand De-

Build6. Demand Forecasting Tools/Skills

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S&OP…. Candid Discussion of Business Priorities

✓ Demand Aggregation → Seeing Trends in Behavior (e.g. Product Attribute, SC Support, etc.)

✓ Demand Predictability → Managing Risk✓ Competitive Position → Leader vs. Follower✓ New Product/Competitor Introduction

✓ E&O Exposure✓ Facility Storage Capacity✓ Working Capital Position → Future

Investment and the Cost of Borrowing Money

✓ Production Capacity → Cost of Idle Plants✓ Margin Exposure/Risk

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Your S&OP Journey….1. Define a Clear Mission → Have a Clear Owner2. Empower Quick Decision Making → Must Respect the Voice of ALL Players3. The Cheapest First Cost is not Always the Lowest Total Cost → Costs to Outsourcing4. Today’s Dynamic Market Does not Reward Excessive Forward Inventory → Customer

SLA is King5. There are Hidden Costs to Managing a Successful S&OP Process6. Clear Trade-off Clarification Key to Success in S&OP Process

Develop a Winner’s Mindset……

16S&OP AND THE REAL COST OF INVENTORY| MAY 2, 2018

Thank you!

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17S&OP AND THE REAL COST OF INVENTORY| MAY 2, 2018