Download - 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


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]


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


Sales & Operations Planning

Demand Supply

Volume

Mix

Executive S&OP

Master SchedulingSupplier and Plant Scheduling

Distribution Scheduling

Demand Planning/Forecasting

Supply (Capacity) Planning

?????

bodell

I think the key thing to hit is "what is Executive S&OP"? Should we have some bullet points somewhere that give some basic description? And can we link this back to some key points:?1) This is about Executive" Decision Making"2) This is about" Business Performance" (not just demand/supply balancing)3) This is not "detailed execution review"


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


Last Time We Discussed . . .

• BASF• Cisco Systems• V&M Star• Dow Chemical


Executive S&OP in Retail Delivery

Staples, Inc.

Framingham, MA

Products: Office Equipment and Supplies

Corporate Annual Sales: $24.5 billion


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)



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)



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


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


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


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 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


PDC Employment: ~900


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


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.


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


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


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


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.


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



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 Support for Earnings Calls

The Procter & Gamble Company

Cincinnati, OH

Products: Consumer Packaged Goods



The Operating Environment

• 300 unique brands, sold worldwide• Plants in 40 countries• Operations in 80 countries• S&OP used throughout the company


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


27

Procter & GambleBusiness Unit and Region Integration

BU1 BU2 BU3 BU4

Reg1

Reg2

Reg3

X

Figure 12-1

x


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


P&G’s S&OP Assessment Tool

Six sections, ~ 20 items per section• Leadership• Operating Strategy• Initiative Planning• Demand Planning• Supply Planning• S&OP


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



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?


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


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