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Sales & Operations Planning Process Explains the level, range and basics of process of Sales & Operations Planning in organizations
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Sales & Operations Planning
A Centralized approach of Planning at all levels of
organizations
Harshal Badgujar
Learning Session
1
What are the conflicts in Traditional Planning Approach of working in SILOs
Marketing
Production
Finance
Function
High Revenues High Availability
Low Production cost Long production Runs
Low Investment & Cost Few Fixed Costs
Objectives Implications
Customer Service
High
Low
Disruption to Production
Many
Few
InventoriesHigh
Low
2
Let consider a case of conflict in Traditional Planning approach – A Video (
http://www.slideshare.net/JadeGlobal/oracle-sales-operations-planning-video)
3
1980’s – Need for Integrated Data systems for planning 1990’s – Birth of ERP systems Late 2000 – Birth of Planning Module software with ERP packages But the real Question is – Even after implementation of organization-wide ERP
Reason – Functions were still operating in SILOs
Have companies realized the proclaimed benefits of ERP and Return on huge investments made in its
implementation………
Hence the Need for a Collaborative Approach led to
Sales & Operations Planning
4
Agenda - Overview
What is S&OP? How does it differ from traditional Planning? Where does S&OP fit in levels of Planning? A case of Auto-Component Manufacturer S&OP Process Overview – how is it practiced by
organizations? Critical Success factors of S&OP implementation Benefits of S&OP
5
What is S&OP? A decision-making & Business Management process To ensures that the tactical plans in all business
functions are Aligned and in support of the company strategy
and the business plans and goals.
Single Environment for optimally synchronizing Demand, Inventory, and Supply plans While considering costs, revenue and profit objectives of
organization
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What is S&OP? Formal Business Process spread over 18-24 Months of
planning Horizon Product Families (not items) Volume (not Mix) Monthly review Cycle Both product and financial units
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What is purpose of S&OP? The objective is To reach consensus on a single
operating plan that allocates the critical
resources of people, capacity, materials, time, and money
to most effectively meet the marketplace in a profitable way. Demand
S&OP
Finance
Supply
Updated Forecasts
S&OP Process
Sales Plan Production Plan Inventory Plan Backlog Plan NPD Plan Strategic Initiatives Plan Financial Plan
8
Why is S&OP Planning? Factors responsible for imbalance between
Supply & Demand Promotions New Product Introductions Packaging Changes Changing demand patterns …Wreck havoc in planning
Companies that use S&OP – stand competitive advantage by gaining the visibility and agility to improve product management and
promotional planning, Help minimize unnecessary build-ups of inventory and better predict revenue
Gives a complete picture of forecasted demand, supply capacity and corresponding financial information
S&OP is a vehicle for communication that puts the vision, strategy, financial and tactical plans of a business into one unified operating plan in order to optimize the allocation of critical resources
9
How Does S&OP Differ from Traditional Planning?
Review of Planning activities happen at a Higher Level, on a monthly and yearly basis
Involves Senior Management to drive consensus
Review of Planning activities happen at a products Level, on a daily or weekly basis
Involves only department heads and managers
S&O Planning Traditional Planning
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Where does S&OP fit in Big Picture of Planning?
11
Hierarchical Nature of Planning
Items
Product lines or families
Individual products
Components
Manufacturing operations
Resource Level
Plants
Individual machines
Critical work
centers
Production Planning
Capacity Planning
Resource requirements
plan
Rough-cut capacity
plan
Capacity requirements
plan
Input/ output control
Sales and Operations
Plan
Master production schedule
Material requirements
plan
Shop floor
schedule
All work
centers
Medium Range
Short Range Planning12
Let us understand S&OP process through a case of Auto-Component Supplier manufacturer Imagine a case that President of Division – new to the position
He could not understand why with 15000 components, he heard problems like Shortage of few Items Incomplete production runs Excessive Inventory Unhappy customers with poor
delivery performance
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Case of Auto-component Supplier:
If he were introduced to 15000 people in stadium,…
15000 MRP Components
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Case of Auto-component Supplier:
How about he inviting 120 people into a large conference room?
120 MPS Items15000 MRP
Components
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Case of Auto-component Supplier:
Auto components
Family 1Alternators
Family 2Starter Motors
Family 3Wiper Motors
Family 4Ignition Coils
How if we brought FOUR people into his office..?
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So, Goal of the Company was decided –Understand Demand for each of these 4 Families and then supply accordingly
15000 MRP Components
120 MPS Items
4 S&OP Families Rate of
Production
Product Mix
Performance
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How is it practiced by organizations? The monthly sales and operations planning process
End of month
STEP 1Data
Gathering
STEP 5Exec SOPMeeting
STEP 4Pre-SOPMeeting
STEP 3Supply
Planning
STEP 2DemandPlanning
Statistical forecastsField sales worksheet
Management forecast1-st pass spreadsheets
Capacity constraints2-nd pass spreadsheet
RecommendationsFor executive S&OP
Decisions
Wallace: 2nd edition Sales & Operations Planning18
Step 1 – Data gathering
Month end data Actual sales Inventory Production
Sales and marketing
All pertinent information
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Who brings what to the Table?
20
Sales Product Family A
Jan Feb Mar Apr May June Jul Aug
Forecast 100 100 100 120 120 120 120 130
Actual sales 90 95 85
Difference -10 -5 -15
Cum. difference -15 -30
Wallace: 2nd edition Sales & Operations Planning 21
Production Product Family A
Jan Feb Mar Apr May June Jul Aug
Planned production 100 100 100 110 120 120 120 130
Actual production 98 100 101
Difference -2 0 1
Cum. difference -2 -1
Wallace: 2nd edition Sales & Operations Planning 22
Inventory Product Family A
Jan Feb Mar Apr May June Jul Aug
Planned inventory 100 100 100 142 142 142 142 142
Actual inventory 111* 116 132
Difference 11 16 32
*January Inventory = 103 Wallace: 2nd edition Sales & Operations Planning 23
Jan Feb Mar Apr May June Jul AugForecast 100 100 100 120 120 120 120 130Acutal sales 90 95 85Difference -10 -5 -15Cum. difference -15 -30
Jan Feb Mar Apr May June Jul AugPlanned production 100 100 100 110 120 120 120 130Actual production 98 100 101Difference -2 0 1Cum. difference -2 -1
Jan Feb Mar Apr May June Jul AugPlanned inventory 100 100 100 142 142 142 142 142Actual inventory 111* 116 132Difference 11 16 32
*January Inventory=103
Comparing actual to forecast Product Family A
Wallace: 2nd edition Sales & Operations Planning24
Step 2 – Demand planning
Sales and marketing review information received from Step 1
Sales forecast By product By family Total
25
Demand planning team
Demand manager
Product manager
Forecast analyst
Sales manager
Salesperson
Customer service
Accounting manager
Supply chain manager
26
Forecasting: Inputs, Process, OutputsINPUTS OUTPUTS
Forecasts That:
•Are reasoned
•Are realistic
•Are reviewed
•Represent demand
THEPROCESS
Current Customers
New customers
Competition
Economy
New products
Pricing
Bids
Promotions
Management directive
History
Other
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Step 3 – Supply planning
Bill of resources
Rough-cut capacity
Demand/Supply Strategies
28
Resource Planning Process
29
Bill of Resource
Wallace: 2nd edition Sales & Operations Planning30
Resource Planning Process
31
Rough-cut capacity planning
Wallace: 2nd edition Sales & Operations Planning
Total Load
% Load = Total Load / Available Capacity
32
Resource Bill
Demand/Supply Strategies-Constraint Management Product Family: 1
1. Make-to-stock
2. Target customer service level 99%
3. Target finished goods inventory 1 month
Product Family: 21. Make-to-order
2. Target customer service level 98%
3. Target customer lead time 2 weeks
33
Step 4 – Pre-SOP meeting
Make decisions to balance supply/demand
Resolve differences where possible
Identify areas of disagreement
Develop scenarios
Set agenda for Executive S&OP meeting
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Step 5 – Executive S&OP meeting Make decisions
Authorize changes in S&OP plan
Relate Rup version
Resolve issues
Review performance, product issues, special projects, etc.
35
What are critical success factors for S&OP?
CSF for S&OP
Top Management Involvement
Ongoing Routine S&OP Meetings
Structured meeting agendas
Cross-functional
participation
Participants empowered to take decisions
Internal Collaborative process
Measurement of
Process
Supported by Integrated Supply-Demand Planning
Technology
36
Benefits of S&OP Process Links business plan to departmental operations Provides a means to work for a common goal Eliminates counterproductive hidden or unilateral
decisions Greater visibility of demand and supply across the
company Improved Product Lifecycle Management process Better communication between groups Improved inventory management More predictable revenue management
37
Summary
Thank You…
38
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