Sales and Opera,ons Planning Worst Prac,ces

Interna'onalIns'tuteofForecasters“WorstPrac'ces”Conference

ChrisGray

GrayResearch

Good judgment comes from experience, and a lot of that comes from bad judgment.

WillRogers,20thCenturyAmericanHumorist

Similarly, good prac,ces come from experience, and a lot of that comes from bad prac,ces.

S&OP Worst Prac/ces

Or … It’s Inventory and Operations without involving Sales,

Or …

It’s Financial Planning without involving Sales, Inventory or the Operations,

Or … It’s S, I, and OP without even considering the New Products!

In our Company, Sales and Operations Planning is Sales (and Inventory) without involving Operations,

"It’seasytogettheplayers.Ge2ng‘emtoplaytogether,that’sthehardpart."

Casey Stengel

Putting the S and O in S&OP •  Towork–mustincludesiloandcross-silocommunica'onforalldemandandsupplygroups

•  Bringstogetherplanningprocessestocreateoneintegratedsetofplans•  Donemonthly,reviewedinaggregatebyseniormanagement•  Mustreconcilesupply,demand,newproductsatdetailandaggregate,BetoBusinessPlan•  Companyplanfornewandintermediateterm,coveringhorizonsufficientforresourceplanningandtheannualbusinessplanprocess

•  5Steps•  Mixofprocesses(gatherdata,demandplanning,supplyplanning)andmee'ngs(partnershipmee'ng/pre-mee'ngandexecu'vemee'ng)

Allmee'ngsareequal…exceptperhapsthePartnership/Reconcilia'on/Pre-Mee'ngAsDogbertsaid,totheCEOandpointyhairedboss,inarecentDilbertstrip:“Maybe Next Time You Won’t Skip The Pre-meeting.”

Five Step S&OP Process

Step #1Data

Gathering

End of Month

• Statistical Forecasts • Sales & Marketing Inputs

Step #5Executive

S&OP Meeting• Decisions • Authorized Game Plan

Step #4Partnership

Meeting•  Recommendations & Agenda for Exec Meeting •  3rd-pass time phased plan (consensus, alternatives, what-ifs)

Step #2Demand Planning

•  Management Forecast •  1st-pass time phased plan

(with new forecast)

Step #3Supply

Planning •  Capacity constraints •  2nd-pass time phased plan (with new production plan)

1

2

3

4 5

q To Make S&OP Work, We'll Need New Software q For Our Company, S&OP is S (and I) without the O!

S&OP Worst Prac/ces

q To Make S&OP Work, We'll Need New Software

ClassicApproachtoSystemImprovement

GetComputerGetSoZware

GetDisappointedGetNewSoZware

GetLargerComputerGetDiscouraged

S&OP Worst Prac/ces

q To Make S&OP Work, We'll Need New Software ClassicApproachtoSystemImprovement

GetSmallerComputersGetNewSoZwareGetFrustrated

GetNewUserInterfaceGetMoreandBiggerSmallerComputers

GetUpset

S&OP Worst Prac/ces

q To Make S&OP Work, We'll Need New Software

ClassicApproachtoSystemImprovement

GetBIGDATAGetEnraged

GetRidofComputers…GototheCloud

GetExasperatedGetaLife

S&OP Worst Prac/ces

q To Make S&OP Work, We'll Need New Software

ButtheTruthis…

themostwidelyusedsoZwareforS&OPiss'llMS-Excel.

Thoughtsandrecommenda'onsonS&OPSoZware.

S&OP Worst Prac/ces

q Cogito ergo sum q To Make S&OP Work, We'll Need New Software q For Our Company, S&OP is S (and I) without the O!

S&OP Worst Prac/ces

q Cogito ergo sum

•  S&OPMee'ngsTrumpS&OPNumbers

• WeCanHaveAnEffec'veStrategyEvenWithoutEffec'veSupply-DemandBalance

• MaketoStock,MaketoOrder:MakesNoDifference

S&OP Worst Prac/ces

We think we are doing S&OP, therefore we are!

q What Do You Mean, Time Fences? q Cogito ergo sum – I think we are doing S&OP, therefore we are! q To Make S&OP Work, We'll Need New Software q For Our Company, S&OP is S (and I) without the O!

S&OP Worst Prac/ces

YTD Oct Nov Dec Jan Feb Mar April May Dec

Demand Plan 550 550 550 550 550 600 600 600 600

Actual 500 600 600 550 550 600 600 600 600

Deviation -50 50 50

Supply Plan 600 550 550 550 550 600 600 600 600

Actual 600 500 550 ? ? ? ? ? ?

Deviation 0 -50 0

Inventory Plan 550 550 550 550 550 550 550 550 550

Actual 500 600 500 450 550 550 550 550 550 550

Deviation 50 -50 -100

ProductFamily:D2

MaketoStockAverageCumula'veLead'me:12

weeksCustomerDeliveryLead'me:3DaysDemandPlanPerformance50/1650=+3%

SupplyPlanPerformance-50/1700=-3%InventoryPlanPerformance450/550=80%

Last

New

Last

Prop

Last

New

S&OP Worst Prac/ces

Time Fence? What Time Fence? EMERGENCY

ONLYSTABLE FLEXIBLE

ChangesCostly

MaterialandCapacityLimited

ONLYCapacityLimited

Cri'calTimeFenceP+M+F

TIME

S&OP Worst Prac/ces

Fence? What Fence?

q To Make S&OP Work, We'll Need to Freeze the Forecast q What Do You Mean, Time Fences? q Cogito ergo sum – we think we are doing S&OP, therefore we are! q To Make S&OP Work, We'll Need New Software q For Our Company, S&OP is S (and/or I) without the O!

S&OP Worst Prac/ces

q We'll Need to Freeze the Forecast

S&OP Worst Prac/ces

Because we can get better performance with out-of-date data!

q We'll Need to Freeze the Forecast S&OP Worst Prac/ces

•  OZenpromotedbyMaterialsandOpera'ons•  ConnectedtoTimeFencemismanagement•  Some'meshandinhandwithmetricsbasedoncumlead'menotlastforecast

•  Createsdisincen'vesforforecastupda'ngandcross-silocommunica'on

•  Almostalwaysbecauseofbadassump'ons(forecastwillbegoinguponallfamilies)andlackofflexibilityorabilitytorespondtochange

FreezetheforecastattheCTF?Oralterna'vely:MeasureforecastperformancebasedontheforecastattheCTF?

q We'll Need to Freeze the Forecast S&OP Worst Prac/ces

Putting lies into the planning data is like putting a little horse puckey into ice cream!

q More S&OP Families Are Better Than Fewer Families q To Make S&OP Work, We'll Need to Freeze the Forecast q What Do You Mean, Time Fences? q Cogito ergo sum – I think we are doing S&OP, therefore we are! q To Make S&OP Work, We'll Need New Software q For Our Company, S&OP is S (and I) without the O!

S&OP Worst Prac/ces

q More Families Are Better Than Fewer Families

S&OP Worst Prac/ces

Often this is a misunderstanding about what S&OP is actually about.

Sometimes it is a reflection of an argument over Product versus Process families

q Laziness is a Virtue? q More S&OP Families Are Better Than Fewer Families q To Make S&OP Work, We'll Need to Freeze the Forecast q What Do You Mean, Time Fences? q Cogito ergo sum – I think we are doing S&OP, therefore we are! q To Make S&OP Work, We'll Need New Software q For Our Company, S&OP is S (and I) without the O!

S&OP Worst Prac/ces

q Laziness is a Virtue?

• WhatDoYouMean“DocumentAssump'ons”?

• WhatisanS&OPPolicy?

• S&OP=SumofMPSDetail

• WhenItComestoMetricsforS&OP-OneSizeFitsAll

S&OP Worst Prac/ces

An Effec/ve S&OP Process:

AggregateNOTDetailVolumeNOTSchedule

LongTermNOTShortTermHardNumbers

EveryonePreparedTrialing/NPDIntegrated

DecisionsNOTDiscussions

Thank you

Ques'ons?

Differen/ated S&OP Metrics for Different Strategies ProductLeadership/DifferenFaFon

Newproductsas%ofprofit/revenue

Newproduct'metoprofit

Profitbybrand/category

Brandhealth

Marketshare

CustomerInFmacy/RelaFonshipsCustomerreten'on/life'mevalue

Revenuebycustomer/channel

Customerprofitability

LowCostProducerCustomerservice

Assetu'liza'on

Forecaststability

Cost

CommontoAllInventoryproduc'vity(turns)

OTIF(DIFOT)

SalesPlanAchievement

ShippingPlanAchievement

SupplyPlanAchievement

Inventoryand/orBacklogAchievement

ClassA“VitalSigns”