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S&OP Process

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S&OP Process – what, where, when, which, who, why etc

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S&OP Process

  1. 1. Sales & Operational Planning Process S&OP Process – what, where, when, which, who, why etc Anand Subramaniam
  2. 2. <ul><li>“ To live through an impossible situation, you don’t need the reflexes of a Grand Prix driver, the muscles of Hercules, the mind of Einstein. You simply need to know what to do (next). ” </li></ul><ul><ul><li>- Anthony Greenback, The Book of Survival </li></ul></ul>
  3. 3. Highlights <ul><li>Current Challenges </li></ul><ul><li>S&OP - Overview </li></ul><ul><li>S&OP - Leaders </li></ul><ul><li>S&OP - Policies </li></ul><ul><li>S&OP – Process / Inputs / Outputs / Controls & Rules </li></ul><ul><li>S&OP - Cross Functional Teams </li></ul><ul><li>S&OP – Measures & Metrics </li></ul><ul><li>S&OP – Checklist </li></ul>
  4. 4. Current Challenges
  5. 5. <ul><li>“ There is no data on the future .” </li></ul><ul><ul><li>- Laurel Cutler </li></ul></ul>
  6. 6. Drivers for Change <ul><li>New competition </li></ul><ul><li>Price changes </li></ul><ul><li>Technology </li></ul><ul><li>Regulation </li></ul><ul><li>Consumer demand </li></ul><ul><li>New management </li></ul><ul><li>Mergers / acquisition </li></ul><ul><li>New product introduction </li></ul>
  7. 7. Current Demand & Supply Challenges Challenges Poor coordination of demand and supply: lost sales : incorrect inventories : loss / lower profitability Breakdown in communication due to the lack of quality and availability of data Lack processes to manage new product development, innovation and / or feasibility Lack the right metrics to drive value or to determine same Lack integration with the financial budgeting process Lack or no technology / systems to do the “what if” modeling and gaining agreement Lack of leadership in getting agreement on S&OP plans Lack coordination of multi site / cultural teams Internal business processes does not facilitate delivery of right - product / price / qty / qlty, at the right time, to the right customer
  8. 8. Department - Concerns & Questions What products, What price, What profitability Buying / Purchasing What products, What price, What profitability Finance What products, What quantity, Where, When, What price, What quality Sales What products, In what quantities, Where, When Distribution / Logistics What products, In what quantities, When, What quality, What price Production / Operations What products, When, Where, In what quantities Sales Planning (Forecasting) What products, Where, When, What quantity, What price, What quality Marketing Their concerns & questions Department
  9. 9. Need for S&OP To manage Absence of teamwork & shared risk management among internal functions Material / product shortages - increased expediting $ Lack of confidence in planning systems Supply Interruption, leading - to production delays, on-time delivery issues, lower profits and / or customer loss Ineffective bottleneck and constraints management on the supply side Unacceptable lead times Excessive on-hand inventories and obsolescence Poor collaboration among stakeholders - internal or external (finger-pointing) Ineffective utilisation of resources, and / or lack of resources when needed
  10. 10. S&OP - Overview
  11. 11. <ul><li>“As a young teacher I learned never to promise anyone instant success. Instant success does come for some gifted pupils, but for the average pupils, success is a journey of testing their intention.” </li></ul><ul><ul><li>- Harvey Penick </li></ul></ul>
  12. 12. S&OP – APICS Definition <ul><li>A process that provides management the ability to strategically direct its business to achieve competitive advantage on a continuous basis. </li></ul><ul><li>The process </li></ul><ul><ul><li>Is performed at least monthly </li></ul></ul><ul><ul><li>Brings together all functional plans </li></ul></ul><ul><ul><li>Reconciles supply, demand, and new product plans </li></ul></ul>Adapted from APICS Dictionary , 10th edition
  13. 13. Definition <ul><li>Backlog: An accumulation of customer orders that have been promised for delivery at some future date. </li></ul><ul><li>Backorder: A customer order that cannot be filled immediately but is filled as soon as possible. </li></ul><ul><li>Stock-out: An order that is lost and causes the customer to go elsewhere. </li></ul>
  14. 14. S&OP - Relationship with other Plans
  15. 15. Planning Hierarchy Business Plan Master Scheduling Material & Service Planning Annually Monthly Weekly Daily Sales Profits ROI Product Groups Product Models & Options Components & workload Planning Cycle Planning Output S&OP
  16. 16. S&OP @ 100,000 Feet Executive S&OP A process to reconcile, agree upon, and communicate the company game plan Product Development (New Product Introduction) Finance (Dollars) Sales & Marketing (Units/$$ by product family) Operations (Units/Hours/Materials)
  17. 17. S&OP @ 10,000 Feet Demand Planning / Sales Forecasting Supply Planning (Capacity / Constraints) Master Scheduling Plant & Supplier Scheduling Distribution Scheduling Executive S&OP Volume Mix Supply Demand
  18. 18. What is S&OP ? <ul><li>Deals with volume in both units and $$ </li></ul><ul><li>Is an executive decision-making process </li></ul><ul><li>Balances demand and supply : volume and mix </li></ul><ul><li>Ties operational plans to financial plans: ONE set of numbers </li></ul><ul><li>Is a forum for setting & executing the relevant strategy and policy </li></ul><ul><li>Monthly process reviewed by management at an aggregate level </li></ul><ul><li>Reviews assumptions, constraints, resources, risks & opportunities </li></ul>
  19. 19. Why S&OP ? Reasons Reviews done as part of an Integrated Business Management Process Clearly identifies the product domain in which the company competes through Product Management Provides a transparent view of the company’s response from Demand through to the Supply Review Aligns all stakeholders towards meeting customer demand / profitably & ensure delivery of the company’s strategic agenda Ensures that the Supply & Demand are reconciled & evaluated against financial targets in the Management Review Delivers one clear plan that answers all the customer demand questions that the organisation faces Formalises the generation and adoption of a Company Demand Plan through the Demand Review
  20. 20. S&OP - Objectives <ul><li>Consensus on managing gaps </li></ul><ul><li>Greater accountability of individual plans </li></ul><ul><li>Determine the resource capacity needed </li></ul><ul><li>Develop an economic strategy for meeting demand </li></ul><ul><li>Establish a company wide game plan for allocating resources to meet demand for product families over an intermediate time horizon </li></ul>
  21. 21. S&OP - Critical Success Factors <ul><li>Collaborative culture </li></ul><ul><li>Change management </li></ul><ul><li>Executive sponsorship </li></ul><ul><li>Relevant lead times </li></ul><ul><li>Tool to support sales forecasting </li></ul><ul><li>Tools for scenario planning (what if analysis) </li></ul><ul><li>Fact-based </li></ul><ul><li>Clear ownership </li></ul><ul><li>Formal assumptions </li></ul><ul><li>Rolling horizon </li></ul><ul><li>Trade-offs, clearly articulated, evaluated </li></ul><ul><li>Staff commitment to process, systems & procedures </li></ul>
  22. 22. S&OP - Challenges Challenges Senior leadership support & “walk the talk” Achieving process compliance Identifying S&OP Champion or expert to lead implementation Clear definition and acceptance of roles and responsibilities, including defining specific objectives in employee appraisals Establishing S&OP meetings as the business priority Adapting the process to the organisation Data accuracy and integrity Organisational silos IT enabling process with adequate tool functionality
  23. 23. Department – Concerns & the Answers What Price, What Profitability What Products, What Price, What Profitability Buying / Purchasing What Profitability What Products, What Price, What Profitability Finance What Products, What Quantity, Where, When, What Price, (What quality) What Products, In what quantities, where, when (What quality) What Products, In what quantities, when, what quality, what price What Products, When, Where, In what Quantities What products, What Price, What Quality Questions Answered What Products, What Quantity, Where, When, What Price, What Quality Sales What Products, In what quantities, where, when Distribution / Logistics What Products, In what quantities, when, what quality, what price Production / Operations What Products, When, Where, In what Quantities Sales Planning (Forecasting) What products, Where, When, What Quantity, What Price, What Quality Marketing Departmental concern & questions Department
  24. 24. S&OP - Benefits Benefits Improved coordination, communication and team work Improved utlisation of machines and resources Integration with the financial budget process & process automation Inventory & Cost Reduction Improvement in Perfect Order and an increase in revenue Ability to perform “what if” modeling and competing on products that the customer requires Improvement in Logistics / Distribution Improved forecast accuracy & processes around it Improved new product launches: Internal efficiency and effectiveness
  25. 25. S&OP - Leaders
  26. 26. S&OP - Leaders <ul><li>Profit focus (not just demand/supply balance) </li></ul><ul><li>Value Chain Focus (customers and suppliers) </li></ul><ul><li>Continuous Improvement Focus </li></ul><ul><li>Decision-Making – Teams Empowered </li></ul><ul><li>Technology Enablers – Integrated Systems </li></ul><ul><li>Risk Management – Multiple “What-If” Choices </li></ul>Aberdeen Group identified 6 common characteristics among S&OP leaders
  27. 27. S&OP - Implementation Benefits <ul><li>Forecast error reduction……20-25% </li></ul><ul><li>Inventory reduction………...…5-10% </li></ul><ul><li>Inventory turns increase….….5-10% </li></ul><ul><li>Service level increase………..5-10% </li></ul><ul><li>Top line revenue growth.…..…2-5% </li></ul><ul><li>SKU rationalisation……….…10-20% </li></ul>Source: IBM
  28. 28. Forecast Accuracy yields SC Performance <ul><li>High forecast accuracy and yields tangible benefits in the supply chain performance </li></ul><ul><li>Companies that are best at demand forecasting average </li></ul><ul><ul><li>15% less inventory </li></ul></ul><ul><ul><li>17% higher perfect order fulfillment </li></ul></ul><ul><ul><li>35% shorter cash-to-cash cycle times </li></ul></ul><ul><ul><li>1/10 the stock-outs of their peers </li></ul></ul><ul><li>1% point improvement in forecast accuracy can yield a 2% point improvement in perfect order fulfillment </li></ul><ul><li>3% increase in forecast accuracy increases profit margin 2% </li></ul><ul><li>Companies with higher forecast accuracy also achieve better delivery performance </li></ul>Source: AMR Research 2008
  29. 29. S&OP – Policies
  30. 30. <ul><li>“ History is a stern judge .” </li></ul><ul><ul><li>- Svetlana Alliluyeva </li></ul></ul>
  31. 31. S&OP – Policies Policies Planning process & how demonstrated capacities by product family will be maintained and utilised Schedule of future meetings, attendees, & an agenda for a monthly review meeting Inventory, backorder, backlog plan, planning fences, service levels, new product intro, promotion, special offers etc Product families & variances analysis how the plans will be used to establish financial plans, budgets and detailed MPS and line item forecasts Team Charter & Responsibilities Forecasting, demand management, RCCP, inventory techniques Guideline for developing and approving various changes to the plans Rolling forecasts / sales plans - shipment forecast / plan to be maintained for the horizon Planning Horizon, Time Zones, Metrics, UOM
  32. 32. S&OP – Principles
  33. 33. <ul><li>“ Today’s problems are the results of yesterday’s solutions.” </li></ul><ul><ul><li>- Peter Senge </li></ul></ul>
  34. 34. S&OP – Principles <ul><li>Sales and operations must work together </li></ul><ul><li>S&OP performance must be measured against the plan </li></ul><ul><li>Differences should be highlighted for corrective action </li></ul><ul><li>S&OP communication should be formalised by a monthly meeting </li></ul><ul><li>Product groups and performance measures must be established </li></ul>
  35. 35. S&OP – Principles (Contd.) <ul><li>Resource Capacity must be planned </li></ul><ul><li>S&OP must include all input from all groups </li></ul><ul><li>Resource issues must be resolved before the S&OP is communicated </li></ul><ul><li>S&OP establishes the boundaries for the Master Scheduler </li></ul><ul><li>The S&OP provides the basic information for financial planning </li></ul>
  36. 36. S&OP – Principles (Contd.) <ul><li>S&OP is the vital link between long range and short range planning </li></ul><ul><li>S&OP are established at the Product Group level </li></ul><ul><li>S&OP includes management targets </li></ul><ul><li>S&OP is monitored and revised monthly </li></ul>
  37. 37. S&OP – Principles (Contd.) <ul><li>S&OP is the Company’s Game Plan </li></ul><ul><li>Resources are checked at the macro level </li></ul><ul><li>S&OP is based on a rolling 18~24 month horizon </li></ul><ul><li>S&OP must be communicated to all impacted stakeholders </li></ul><ul><li>S&OP establishes the boundaries for master scheduling & financial planning </li></ul>
  38. 38. S&OP – Process / Inputs / Outputs / Controls & Rules
  39. 39. <ul><li>“ Perfection is not attainable. But if we chase perfection, we can catch excellence.” </li></ul><ul><ul><li>- Vince Lombardi </li></ul></ul>
  40. 40. S&OP – Input & Output Process Company Policies Strategic Objectives Financial Constraints Capacity Constraints Demand Forecasts Sales Plan Operations Plan Sales per month by product family Customer service levels Workforce & inventory levels Backlogs, backorders & lost sales Demand management ( including new product introduction, promotions, special offers etc Production per month by product family (including regular & overtime, sub-contract work) Sales & Operational Planning
  41. 41. Plans – Sales & Operations <ul><li>Sales </li></ul><ul><li>Market Plan </li></ul><ul><li>Product Plan </li></ul><ul><li>Sales Plan </li></ul><ul><li>Distribution Plan </li></ul><ul><li>Operations </li></ul><ul><li>Resource Plan </li></ul><ul><li>Inventory Plan </li></ul><ul><li>Shipment Plan </li></ul><ul><li>Operations Plan </li></ul>
  42. 42. S&OP - Inputs by Function Finance Business Unit Manufacturing / Engineering Sales <ul><li>Unconstrained Forecast </li></ul><ul><li>Execution to Plan </li></ul><ul><li>Buffer Targets </li></ul><ul><li>Time to Volume </li></ul><ul><li>Materials Plan </li></ul><ul><li>New Products </li></ul><ul><li>Capacity </li></ul><ul><li>Preliminary Revenue Plan </li></ul><ul><li>Revenue objectives </li></ul><ul><li>Profitability scenarios </li></ul><ul><li>Preliminary Budgets/ Targets </li></ul><ul><li>Return on Invested </li></ul><ul><li>Market Trends </li></ul><ul><li>Share expectations </li></ul><ul><li>Customer expectations </li></ul><ul><li>Roadmaps and Transitions </li></ul>
  43. 43. S&OP - Inputs <ul><li>Input Responsibility </li></ul><ul><li>Demand forecast Marketing </li></ul><ul><li>Market intelligence Marketing </li></ul><ul><li>Actual sale Sales </li></ul><ul><li>Capacity information Manufacturing </li></ul><ul><li>Management targets Management </li></ul><ul><li>Financial requirements Finance </li></ul><ul><li>New product information R&D </li></ul><ul><li>New process information Process engineering </li></ul><ul><li>Workforce availability Human resources </li></ul>
  44. 44. S&OP - Output <ul><li>Output Responsibility </li></ul><ul><li>Sales plan Marketing & sales </li></ul><ul><li>Production plan Manufacturing </li></ul><ul><li>Inventory plan (MTS) Management </li></ul><ul><li>Backlog plan (MTO) Management </li></ul><ul><li>Purchasing plan Purchasing </li></ul><ul><li>Financial plan Finance </li></ul><ul><li>Engineering plan Engineering </li></ul><ul><li>Workforce plan Human resources </li></ul><ul><li>Contingency plan Management </li></ul>
  45. 45. S&OP - Controls <ul><li>Challenge </li></ul><ul><li>Respond quicker </li></ul><ul><li>Reduce costs </li></ul><ul><li>Improve quality </li></ul><ul><li>Manage change </li></ul><ul><li>Improve workforce </li></ul><ul><li>Improve systems </li></ul><ul><li>Reduce inventory </li></ul><ul><li>Solution </li></ul><ul><li>Cut lead times </li></ul><ul><li>Reduce batch & cycle time </li></ul><ul><li>Eliminate waste </li></ul><ul><li>Empower people </li></ul><ul><li>Commit to lifelong learning </li></ul><ul><li>Upgrade networks </li></ul><ul><li>Improve forecast accuracy </li></ul>
  46. 46. S&OP - Rules <ul><li>Product Groups (defined in terms of the manufacturing process), agreed upon </li></ul><ul><li>Planning units of measure, agreed upon </li></ul><ul><li>Planning horizon includes new product development time </li></ul><ul><li>Performance review periods for plan vs. actual comparison, agreed upon </li></ul>
  47. 47. S&OP – Planning Fences No Changes to plan accepted – “frozen” Customer Order Daily Production Schedule FG Ship Weekly Schedule Issued Changes to plan accepted – 5% Changes to plan accepted – 10% Changes to plan accepted – 20% Emergencies only accepted Forecast Monthly S&OP
  48. 48. S&OP – Concurrent Planning (Iterative) <ul><li>Develop production plan </li></ul><ul><li>Check implications for inv entory/backlog plan </li></ul><ul><li>If necessary, adjust production plan </li></ul><ul><li>Check against resource plan and availability </li></ul><ul><li>If necessary, adjust production plan </li></ul><ul><li>Recheck against inventory/backlo g and resources </li></ul><ul><li>Continue (go to 5) until you meet all constraints </li></ul>
  49. 49. S&OP - Cross Functional Teams
  50. 50. <ul><li>“ Real communication is an attitude, an environment. It’s the most interactive of all processes. It requires countless hours of eyeball-to-eyeball back and forth. It involves more listening than talking. It is a constant, interactive process aimed at [creating] consensus.” </li></ul><ul><ul><li>Jack Welch </li></ul></ul>
  51. 51. S&OP - Meeting Agenda <ul><li>Review Revenue / Profit Performance </li></ul><ul><li>Review New Product Development </li></ul><ul><li>Review Manufacturing Performance </li></ul><ul><li>Review Inventory Levels </li></ul><ul><li>Review External Factors </li></ul><ul><li>Review Future Plans </li></ul><ul><li>What has changed since last month? </li></ul><ul><li>Are we on plan financially? </li></ul><ul><li>How are we performing to performance metrics? </li></ul><ul><li>What new risks do we need to consider? </li></ul><ul><li>What decisions need to be made now? </li></ul><ul><li>What decisions need to be made in the near future? </li></ul><ul><li>How are product families performing? </li></ul><ul><li>Are we on track with product development? </li></ul><ul><li>Do we have any critical constraints? </li></ul><ul><li>Is there any need to revise long term plans? </li></ul><ul><li>Review </li></ul><ul><ul><li>Orders Booked </li></ul></ul><ul><ul><li>Sales & Shipments </li></ul></ul><ul><ul><li>Backlogs </li></ul></ul><ul><ul><li>Finished Goods Inventory </li></ul></ul><ul><ul><li>Production </li></ul></ul><ul><ul><li>Performance Measures by Product Group </li></ul></ul>
  52. 52. Meeting Outcome (Min / Max) <ul><li>Maximise Profits </li></ul><ul><li>Maximise Customer Service </li></ul><ul><li>Maximise utilisation of Plant & Equipment </li></ul><ul><li>Minimise Costs </li></ul><ul><li>Minimise Inventory Investment </li></ul><ul><li>Minimise Changes in Production Rates </li></ul><ul><li>Minimise Changes in Workforce Levels </li></ul>
  53. 53. S&OP - Functional Manager’s Inputs Sales & Operations Plan
  54. 54. S&OP – Month End Review Pre-S&OP Review (include what If) Review -Alternates / Trade-offs / What If / Constraints Executive Management Plan Review (Communicate) <ul><li>Game Plan - Next Month </li></ul><ul><li>Agreed Revenue / Profit Plan </li></ul><ul><li>Master Build Schedule </li></ul><ul><li>Contingency plans </li></ul><ul><li>Documented agreements and planned outcomes </li></ul>= Cross Functional Team Reviews Actual Demand & Supply Statistical Forecasts Revenue / Sales Forecast Resource / Capacity Constraints Product Portfolio Review All Constraints & Risks Conflicts Resolved Agenda & Recommendation Data / Month End Reports Demand Review (include what If) Product Mngt Review (include what If) Supply Review (include what If)
  55. 55. Communication - Cross Functional Teams S&OP Meetings Demand Review Executive S&OP / Management Review Pre-S&OP (Integrated reconcilia-tion) Supply Review Product Management Review
  56. 56. Checklist - Demand Review <ul><li>Has the market and sales events, been considered? </li></ul><ul><li>Has the demand baseline forecast ( based on history) done, based on market, product, sales, distribution plan inputs (using time series modelling)? </li></ul><ul><li>Has the quantitative future demand for each of the product family / category, been done? </li></ul><ul><li>Has the demand drivers by customer, region, channel…etc, been undertaken? </li></ul><ul><li>What assumptions, constraints, risks and opportunities, been identified? </li></ul>
  57. 57. Checklist - Demand Review (Contd.) <ul><li>Has the market intelligence (deals, promotions, competitor activity) that could effect the product launches on the projected statistical sales forecast, been completed? </li></ul><ul><li>What demand, metrics (service levels, perfect order), forecast (accuracy / error / bias), processes, p rice, market share and volume analysis etc, being utilised? </li></ul><ul><li>Has the projected / planned sales in units (kg/ meters) and $, been completed? </li></ul><ul><li>To determine demand - has shipment, order, customer pulls, customer consumption, promotional activities, consumer point of sale etc, been considered? </li></ul>
  58. 58. Checklist - Product Management Review <ul><li>Has current and future customer trends, been identified? </li></ul><ul><li>Has the frequency for product management review meetings, been defined? </li></ul><ul><li>What products are offered to customers at present? </li></ul><ul><li>Has the perception in the market place (customer / competition), been identified? </li></ul><ul><li>What changes should be made to the existing product range, going forward? </li></ul><ul><li>What products should be launched / discontinued and when? </li></ul>
  59. 59. Checklist - Product Mngt Review (Contd.) <ul><li>What additional products / services should be offered in line with the strategic goals? </li></ul><ul><li>With the launch of new product , what is the timing and its impacts on market, channel and demand for current product mix? </li></ul><ul><li>Has the integration of product lifecycle phasing and decisions being made especially with regard to cross functional process of product lifecycle “new” and “decline”? </li></ul><ul><li>Has the impacts including risk (sales / quantity impacts), supply commitments and / or axing the product on the product portfolio profitability etc, been considered? </li></ul><ul><li>Has the product data management, been synchronised? </li></ul><ul><li>Is there an inventory rationalisation process for phase out or phase over product transitions? </li></ul>
  60. 60. Checklist - Supply Review <ul><li>What process, systems, improvement plans, resources, supply response capabilities will be required to meet the forecasted demand with the right quantity, quality, price, time, place etc? </li></ul><ul><li>Has the details (MPS, MRP, DRP, CRP etc) to meet the demand, been reviewed? </li></ul><ul><li>What constraints ( manufacturing capacities, suppler lead times, distribution capacities and transportation capacities ) have been fed into the capacity improvement / capital expenditure plans (CAPEX)? </li></ul><ul><li>What metrics and measures including definition of them will be used to track progress? </li></ul><ul><li>What is the manufacturing response to the known demand for the next 4 ~ 8 weeks? </li></ul>
  61. 61. Checklist - Supply Review (Contd.) <ul><li>What cost elements, are considered for supplier commitment, asset utlisation and product cost? </li></ul><ul><li>What inventory levels and deployment approaches are required to support service and profitability objectives? </li></ul><ul><li>Has the planning horizon been determined to cater for all elements of S&OP decision making? </li></ul><ul><li>What simulation will be undertaken on physical supply capabilities to support potential changing product mix concurrently with unchanged products? </li></ul>
  62. 62. Checklist - Pre S&OP (Integration) Review <ul><li>Has the product family (< 10), sub family (<25), been rationalised? </li></ul><ul><li>Have the outcome of the Supply Review been validated by the financial team? </li></ul><ul><li>What strategic initiatives have been prioritised and included, as the best option? </li></ul><ul><li>What trade-offs and recommendation has been put forward to senior management for decision making including finance and non finance implications? </li></ul><ul><li>Has the pre-S&OP been communicated ahead of time to the senior managers to facilitate the final discussion? </li></ul>
  63. 63. Checklist - Executive S&OP Review <ul><li>What key external (PEST) factors will affect the S&OP and what are the priorities? </li></ul><ul><li>Has the following questions been addressed: </li></ul><ul><ul><li>What products will be sold, in each of the markets at any given future time? </li></ul></ul><ul><ul><li>What products will be procured / produced and hence ultimately sell? </li></ul></ul><ul><ul><li>Who will be responsible in closing the gap if there is a difference between the S&OP and the Strategic plans? </li></ul></ul><ul><ul><li>When and what do we expect to sell including $$ and volume? </li></ul></ul><ul><li>What are the risks and contingencies that have been considered along with clear accountabilities for delivering the plan? </li></ul><ul><li>What are the financial implications of meeting this demand, as planned? </li></ul><ul><li>Has the finalised S&OP, been signed off? </li></ul>
  64. 64. Checklist – Information Flows <ul><li>Has the information flow - bottom up (sales, customer, VMI, POS data, supply chain capacities), been identified? </li></ul><ul><li>Has the information flows - top down (budget, business plan, category plans, market share objectives), been identified? </li></ul><ul><li>Has the reconciliation of information flows been done, to provide actionable planning? </li></ul><ul><li>Does the planning component and iterative feedback loops use a common business language? </li></ul>
  65. 65. S&OP – Planning Worksheet
  66. 66. S&OP – Information Flow S&OP Spreadsheet Demand Information Supply Information Summarised by family, sub family, by month, In lbs. Order fill % Shortages KPI Actuals Prod. Pln KPI Forecasts Actuals Util. % OT Inventory Ad. To Plan Capabilities Outages Constraints Production Distribution Inventory Issues Orders Shortages Issues Orders New Products Spec Changes New customers Accuracy % DP Accuracy % Achievement of Plan
  67. 67. S&OP – “What If” Model As-Is Impacts To-Be As-Is Lost Orders To-Be Data Entry 87.0% On Time Shipments 91.3% 75.5 Lost Order Count 56.0 Monthly M lbs. Orders Grade Production-Plan 86000 1623 Reduction in Lost Orders 19.5 Grade Production-Actual 78000 1472 Recovered Margin - monthly $154,950 Grade Production -To Be 81700 1542 Adh. to Plan - % Calc 90.7% M Lbs. As-Is Current OT Cost To-Be Adh. to Plan - % Actual 87.0% 74820 $55,000 Adh. to Plan To-Be - % 95.0% 81700 $249 Std.OT/order Base (15% of orders) 220.8 Lbs.AS-Is due to SKU miss 3180 New OT orders (10% of orders) 147.2 % due to SKU miss 3.7% Savings in OT - monthly $18,333 Summary - Annual Savings Actual Savings As-Is Inventory To-Be Inventory Carrying Costs $107,774 71 Current Level-million Lbs OT Costs $220,000 Production (diff - act v tobe) 4.74% New Inventory (reduced by difference) 67.6 Total Actual Cost Savings $327,774 Annual Carrying Cost Savings (10%) $107,774 Recovered Margin (.15) As-Is SKU Mismatch To-Be Recovery of Lost Orders $1,859,400 60.0 Lost Orders Count 60.0 $477,000 Lost Order Cost $477,000 Total Annual $ $2,187,174 Inventory % 4.08% Les SKU miss $1,706,988 New Inventory Lbs. 70.5 Not Included Note: Added cost above To-Be $15,147 Rush transportion cost Entered Numbers OT Assumes no reduction) -$18,333 Decrease in days late Calculated Numbers Total Added Cost to To Be $480,187
  68. 68. S&OP – Measures & Metrics
  69. 69. S&OP - KPIs <ul><li>Forecast Accuracy (%) </li></ul><ul><li>Production Plan Adherence (%) </li></ul><ul><li>Inventory - Days of Supply (DOS) </li></ul><ul><li>Inventory Turns </li></ul><ul><li>Financial Forecast Accuracy (%) </li></ul>
  70. 70. S&OP - Performance Measurement <ul><li>Sales versus forecast </li></ul><ul><li>Cost versus plan </li></ul><ul><li>Profit versus plan </li></ul><ul><li>Customer service versus target </li></ul><ul><li>Inventory versus plan </li></ul><ul><li>Backlog versus plan </li></ul><ul><li>Production versus plan </li></ul>
  71. 71. S&OP – Checklist
  72. 72. S&OP - Checklist <ul><li>Is the data accurate and timely? </li></ul><ul><li>Are accountabilities clearly defined? </li></ul><ul><li>Does it cover a 18~ 24 month time horizon? </li></ul><ul><li>Is volume expressed in units as well as $$$? </li></ul><ul><li>Does your S&OP actively involve senior members of the leadership team? </li></ul>
  73. 73. S&OP - Checklist (Contd.) <ul><li>Does it include a capacity review? </li></ul><ul><li>Are decisions being made proactively? </li></ul><ul><li>Does it include actual Vs. forecasted sales? </li></ul><ul><li>Does the S&OP meeting occur on a monthly cycle? </li></ul><ul><li>Is the financial difference between S&OP plan and financial plan, evaluated monthly? </li></ul>
  74. 74. <ul><li>“ One half of knowing what you want is knowing what you must give up before you get it.” </li></ul><ul><ul><li>- Sidney Howard </li></ul></ul>
  75. 75. <ul><li>Good Luck </li></ul><ul><li> </li></ul>