Sales & Operations Planning

SALES AND OPERATIONS PLANNING - PROCESS

G.D.Pawan Kumar [email protected]

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SALES AND OPERATIONS PLANNING-PROCESS

Introduction:

Sales and Operation Planning is known as S&OP.

It has evolved out of SCM and aims at demand-supply management with active involvement by top Management .

It has a strong base in Production Planning techniques.

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SALES AND OPERATIONS PLANNING-PROCESS

Definition:

APICS Dictionary defines S&OP as a process that provides management the ability to strategically direct the businesses to competitive advantage on a continual basis by integrating customer focused marketing plans for new and existing products with the management of supply chain.

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WHAT EXPERTS SAY ABOUT S&0P

In the words of Majumdar & Fontanella (2006) , S&OP is a set of processes that enable a company to respond effectively to demand variability and take timely decisions which could have direct impact on profitability, customer satisfaction and the product portfolio.

In the view of Lapide (2004), S&OP process is a collaborative effort leading to consensus and accountability of a Cross Functional Team (CFT).

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SALES & OPERATIONS PLANNING (S&OP) PROCESS

The model designed is based on framework proposed by Thomas F. Wallace and Robert A. Stahl and comprises of five Phases

1. Data Collection Phase2. Demand Planning Phase3. Supply Planning Phase4. Pre- meeting Phase5. Executive meeting Phase

The Process is explained in the following slides.

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S&OP PHASE 1 - DATA COLLECTION PROCESS

Phase 5 Executive Meeting

Phase 4

Pre-meetingPhase 3

Supply PlanningPhase 2

Demand Planning

Phase 1

Data CollectionUpdating info with actual Demand & Supply data, incl Inventory , Generating info for new forecast etc.

Figure 1

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S&OP PHASE 1 - DATA COLLECTION PROCESS

This is the Phase 1 of the process which begins in the first week of each month .

Data on sales, production , inventory from plants , Internal requisitions from regional offices , direct customer orders and from warehouses is collected and compiled by sales planning department for preparing the new sales forecast .

The information is segregated under category ,customer and warehouse both in units and value terms.

(See Figure 2 on the next slide)

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S&OP PHASE 2- DEMAND PLANNING PROCESS


Phase 4

Pre-meetingPhase 3


Demand Planning

Phase 1

Data CollectionUpdating info with actual Demand & Supply data, incl Inventory, Generating info for new forecast etc.

First Cut Management Forecast in Units & Rupees for next 15 to 18 months is prepared., Assumptions and other info etc are listed out.

Figure 2

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S&0P PHASE 2 -DEMAND PLANNING PROCESS

From information received from Phase 1, sales team at the Head Office prepares new forecast spanning next fifteen to eighteen months. This is called Management Forecast.

All information available from trade, industry, competition

and customers are factored in while preparing the new forecast.

The data would be under different families both in units and rupees terms and covers After Market as well as OEM customers.

Contd…..

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S&OP PHASE 2- DEMAND PLANNING PROCESS CONTD…….

Assumptions made are noted and circulated as part of the report.

The demand planning phase is converted into rupee terms to compare with the Quarterly/Half yearly /Annual Business Plan.

Discussed at the VP-Sales level to check for veracity and to ensure ‘Ownership’ of the Forecast.

The Spread Sheet containing the updated management forecast becomes the input document for the Supply Planning which is Phase 3 of the process.

( See Figure 3 on the next slide).

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S&OPM PHASE 3 –SUPPLY PLANNING PROCESS


Phase 4

Pre-meetingPhase 3


Demand Planning

Phase 1


First Cut Management Forecasts in Units & Rupees for next 15 to 18 months is prepared . Assumptions and other info etc are listed out.

Resource Requirements plan ,capacity constraints, Vendor & RM issues etc are looked at .

Figure 3

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S&OP PHASE 3 - SUPPLY PLANNING PROCESS

Supply planning reflects the ability of the company to support the forecast. The activities involved are-

1.Review of Actual Supply with Plan ,2.Validate or Modify Assumptions 3. Prepare Rough cut Capacity Planning Other activities include - Review of forecast by the Production Planners of

plant(s) for availability of RM, capacity, labour and other relevant issues .

The internal and external constraints are studied carefully to ensure customer supplies and quality levels.

Issues involving financial outlay like capacity enhancement requiring approvals at Phase 4/5 are reviewed.

(See Figure 4 next slide)

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S&OP PHASE 4- PRE(LIMINARY) MEETING


Phase 4

Pre-meetingPhase 3


Demand Planning

Phase 1


First Cut Management Forecasts in Units & Rupees for next 15 to 18 months is prepared. Assumptions, and other info etc are listed out.

Resource Requirements plan ,capacity constraints, Vendor & RM issues etc looked at.

Decisions on balancing Demand /Supply, Recommendations, What if Scenarios, Agenda for the Phase5 meeting for Executive decisions, etc are worked out.

Figure 4

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S&OP PHASE 4 - PRE- MEETING PROCESS

Issues which are not resolved and agreement not reached due to serious concerns of delivery, capacity, quality etc are compiled by the Team in this Phase for decision at the Executive Meeting of Phase 5.

The output documents of Phase 4 would contain.1. A recommendation on increasing or decreasing the sales

plan.2. A recommendation on increasing or decreasing the

Production plan.3. NP Development Issues.4. Resource requirements in terms of manpower, number of

shifts offloading downsizing etc.

Contd….

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S&OP PHASE4 - PRE-MEETING PROCESS CONTD……

The discussions would be family wise as well as individual sizes critical in nature.

Decisions for balancing of demand with supply are taken. Where conflicts persist, recourse to yield management is

taken by playing ‘What-if’ scenarios. Finally, the financial outlook of the sales plan with Annual Business Plan is compared. The Agenda for Phase 5 ( Figure 5 on the next slide) is

prepared by team and should cover industry review , sales and production review, customer ratings review etc.

Should be considered as a ‘ownership’ taking meeting by all concerned. ( See Figure 5 on the next slide)

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S&OP PHASE 5 - EXECUTIVE MEETING PROCESS


Phase 4

Pre-meetingPhase 3


Demand Planning

Phase 1

Data CollectionUpdating info with actual Demand & Supply data , Inventory, Generating info for new forecast etc.

First Cut Management Forecasts in Units & Rupees for next 15 to 18 months is prepared. Assumptions, and other info etc are listed out.

Resource Requirements plan ,capacity constraints, Vendor & RM issues etc are looked at .

Decisions balancing Demand /Supply, Recommendations, What if Scenarios, Agenda for the Phase5 meeting for Executive decisions, etc are worked out.

Decisions of Phase 4 are reviewed, Changes authorized , decisions to adjust S&OP with Business Plan and updated Rolling Plan Etc. are undertaken

Figure 5

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S&OP PHASE 5- EXECUTIVE MEETING PROCESS

Executive Meeting is held once a month and is chaired by the President / President designate. The Agenda of this meeting could be :

Review of outstanding issues of the previous month. Review of KPI’s which include important operational, financial and

strategic indicators. Authorize expenditures. Review of products-wise sales , demand , inventory , assumptions ,

scenarios worked out etc. Review of NP and Special Projects against resources, attainments

etc. Accept, reject or alter the decisions of the Preliminary Meeting. Review strategies and policies in order to balance demand

and supply.

Contd…..

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S&OP PHASE 5 - EXECUTIVE MEETING PROCESS CONTD.....

The minutes of the meeting should be sent out within 2 days to all the concerned for effective communication and implementation of the decisions taken.

Attendees of Executive Meeting would be VP’s of sales &

marketing, heads of production, planning , R&D, finance, head strategic sourcing, sales planner and S&OP champion ,process owner and IT rep .

Schorr (2008), calls the executive meeting as Management

Business Review (MBR) and informs that the meeting is not meant to be a “discovery meeting but rather a decision making and direction setting meeting”.

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IMPLEMENTATION OF S&OP- TIME FRAME

Stage 1 meeting of Data Collection should be held around 3rd

of every month, Stage 2 meeting of Demand Planning should be held around

7th, Stage 3 of Supply Planning is to be targeted around 13th , Stage 4 of Preliminary Meeting is to be held after 5 to 6 days,

that is around 18th of the month and Stage 5 of final Executive S&OP Meeting is to be planned

around 25th of the month .Alternatively , a particular day in respective weeks may be selected.

The Participation of President or her designate is

essential.

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S&OP PROCESS - ADVANTAGES

The forward planning by fifteen to eighteen months beyond the current month( in total 24 – 27 months) provides greater visibility for taking timely corrective action.

KPI’s like delivery compliance , profit margins per family or customer, inventory turns, variance from ABP and a host of other things could be tracked /monitored for assessing the performance .

As the data is captured in a single sheet it helps in highlighting only necessary information avoiding unnecessary elements.

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S&OP PROCESS - EXPECTED BENEFITS

1. Higher Productivity with stable production.2. Improved Team Work.3. Better Demand – Supply balance.4. A single plan with one set of numbers guide the company.5. Better visibility of future opportunities and threats.6. Improved control of business.7. Greater accountability of each department.8. Improved customer service.9. Lower inventory levels.10. A monthly snap shot of business plan.11. Improved communication between suppliers and

customers.12. Faster decision making by top management.

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S&OP AS MANAGEMENT BY EXCEPTION

Reekie(2005),has a final word when he says that effective exception management is a key to successful implementation of S&OP process as it is impractical to go through and resolve issues for thousands of products on monthly basis. The solution would be to prioritize and focus on issues falling beyond pre defined boundaries.

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REFERENCES

Majumdar Maha and Fontanella John, “The Secrets to S&OP Success” ,Supply Chain Management Review,(2006)

Lapide ,Larry, “Sales & Operations Planning Part I: The Process” The Journal Of Business Forecasting,(2004)

Wallas Thomas F and Stahl Robert A.,” Sales & Operations Planning- The How -to Handbook”, T.F.Wallace & Company, (2008)

Schorr John,” Integrated Business Management”, Business Excellence,(2007)

Reekie, Stuart ,”How to Extend SAP to Create a Global, Integrated S&OP Process, Integrated Supply Chain”, Air Products, Steelwedge, Inc, (2005)

END

G.D.Pawan Kumar [email protected]

mailto:[email protected]