Chapter 9: Sales & Operations Planning - WueCampus2 · PDF fileChapter 9: Sales & Operations Planning 1 . ... *Relevant modules for Supply Chain Management ... Chopra, Meindl; Supply

Christian Heinrich Lehrstuhl für BWL und Wirtschaftsinformatik

Chapter 9: Sales & Operations Planning

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Learning Objectives

• In the previous sessions you have learned the basics of master planning in a Supply Chain and Demand Planning

• You focussed on determining a master plan from a supply perspective and a demand plan from a market perspective

• After completing this session you should be able to understand the methodology and impact of Sales & Operations Planning (S&OP)

• Main focus: • Responding to predictable variability in a supply chain • Managing supply & demand • Implementing solutions to predictable variability in practice

2 Dipl.-Kfm. Christian Heinrich

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Supply Chain Planning - Overview

Monitoring/Event Management

MaterialsManagement Production

Planning Sales & Distribution ERP*

Purchasing

*Relevant modules for Supply Chain Management

Strategic Network Design

SC Master Planning

Material Requirements

Planning&

Purchasing

ProductionPlanning

DistributionPlanning

Scheduling TransportationPlanning

DemandPlanning

OrderFulfillment

APS

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Monitoring/Event ManagementMonitoring/Event Management



Purchasing




Purchasing



Purchasing



Purchasing



SC Master Planning


Planning&

Purchasing

ProductionPlanning



DemandPlanning

OrderFulfillment

APS


SC Master Planning


Planning&

Purchasing

ProductionPlanning



DemandPlanning

OrderFulfillment

APS


SC Master Planning


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Purchasing

ProductionPlanning



DemandPlanning

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APS

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Dipl.-Kfm. Christian Heinrich

You are here!

Supply Chain Planning requires coordination of key processes

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• Demand planning responsiveness

• Customer relationship collaboration

• Order fulfillment/service delivery

• Manufacturing customization • Supplier relationship

collaboration • Life-cycle support • Reverse logistics


Sales & Operations Planning

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• Sales & operations planning is an integrated combination of – Information systems (financial, marketing and supply

chain planning) – Organizational processes – Personal responsibility and

accountability • Using this S&OP combination, the

operations and sales groups must overcome conflicts to develop consensus and then execute their collaborative plans


Responding to Predictable Variability in a Supply Chain

• Predictable variability is a change in demand that can be forecasted

• Can cause increased costs and decreased responsiveness in the supply chain

• A firm can handle predictable variability using two broad approaches:

• Manage supply using capacity, inventory, subcontracting, and backlogs

• Manage demand using short-term price discounts and trade promotions

6 Source: Chopra, Meindl; Supply Chain Management Dipl.-Kfm. Christian Heinrich

Sales & Operations Planning

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Demand forecast Capacity forecast

Sales plan Operations plan

Financial plan

Sales and Marketing

Downstream Upstream

Production and Logistics

Source Mentzer, 2004


Managing Supply

• Managing capacity • Time flexibility from workforce • Use of seasonal workforce • Use of subcontracting • Use of dual facilities – dedicated and flexible • Designing product flexibility into production processes

• Managing inventory • Using common components across multiple products • Building inventory of high demand or predictable demand

products


Inventory/Capacity Trade-off

• Leveling capacity forces inventory to build up in anticipation of seasonal variation in demand

• Carrying low levels of inventory requires capacity to vary with seasonal variation in demand or enough capacity to cover peak demand during season


Managing Demand

• Promotion • Pricing • Timing of promotion and pricing changes is important • Demand increases can result from a combination of three

factors: • Market growth (increased sales, increased market size) • Stealing share (increased sales, same market size) • Forward buying (same sales, same market size)


Demand Management

• Pricing and aggregate planning must be done jointly • Factors affecting discount timing

• Product margin: Impact of higher margin ($40 instead of $31)

• Consumption: Changing fraction of increase coming from forward buy (100% increase in consumption instead of 10% increase)

• Forward buy


Performance Under Different Scenarios

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Regular

Price

Promotion

Price

Promotion

Period

Percent

increase in

demand

Percent

forward

buy

Profit Average

Inventory

$40 $40 NA NA NA $217,725 895

$40 $39 January 10% 20% $221,485 523

$40 $39 April 10% 20% $211,283 938

$40 $39 January 100% 20% $242,810 208

$40 $39 April 100% 20% $247,320 1,492

$31 $31 NA NA NA $73,725 895

$31 $30 January 100% 20% $84,410 208

$31 $30 April 100% 20% $69,120 1,492

Source: Chopra, Meindl; Supply Chain Management Dipl.-Kfm. Christian Heinrich

Factors Affecting Promotion Timing

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Factor Favored timingHigh forward buying Low demand periodHigh stealing share High demand periodHigh growth of market High demand periodHigh margin High demand periodLow margin Low demand periodHigh holding cost Low demand periodLow flexibility Low demand period

Source: Chopra, Meindl; Supply Chain Management Dipl.-Kfm. Christian Heinrich

Factors Influencing Discount Timing

• Impact of discount on consumption

• Impact of discount on forward buy

• Product margin


Implementing Solutions to Predictable Variability in Practice

• Coordinate planning across enterprises in the supply chain

• Take predictable variability into account when making strategic decisions

• Preempt, do not just react to, predictable variability


Sales & Operations Planning links strategy and execution

16 Source: Ivanov, Adaptive Supply Chain Management , 2010, S. 182 Dipl.-Kfm. Christian Heinrich

S&OP process considers 5 major plans

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1

2

3 4

5


S&OP needs information from ERP and APS


Why is formal S&OP needed?

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• Customer Expectations

• Competition

• Product Life Cycles

• Environmental Change

• Pressure on Inventories

• Price & cost Pressure

• Regional & Global Issues

• High Level of Uncertainty

Today’s Business Realities Demand Better Planning:

“If the rate of change inside your organization is slower than the rate of change outside, the end is near.” Jack Welch


Example: DAIMLER

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Objectives

• Synchronization of customer-order and procurement process

• Production supply at new start-ups, change years and in the serial operation

• Avoidance respective control of complexity

• Transparent communication platform

-> Support of suppliers in their process responsibility Source:

Daimler


PROCESS: DAIMLER

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Source: Daimler

Product development process

Development

Product creation process

Sales Production

Supplier

Customer-order process Material

purchasing process

Sales


PROCESS: DAIMLER

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Produkt- entstehungs- prozess

Source: Daimler


Customer-order process

Material purchasing process


40 innovations inside the new S-class ca. 2.000 part changes per year due to the updating of models ca. 4000 new parts per type

Development

Sales Production

Supplier

Sales


PROCESS: DAIMLER

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Kundenauftrags- prozess

Source: Daimler

Customer-order process f.e. C-class limousine

Engines 9 Steerings 2 Gears 2 Country variants 3

96 feasible variants (of 108) additionally 80 special equipments 14 liveries 5 interior paints 3 textiles -> 1.612.800 variants

Development

Sales Production

Supplier

Sales





PROCESS: DAIMLER

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Kundenauftrags- prozess

Lieferanten Source: Daimler

Serial parts Special equipment

ca. 20.000 purchased parts (without in-house parts) of ca. 1.000 suppliers

Procurement process chains

Development

Sales Production Sales





PROCESS: DAIMLER

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Source: Daimler

Daimler

Module supplier

Explaining Supply Chain taking the example interior door panelling

1st tier Simulation of the procurement network

-> critical branches -> Sensitivity concerning demand changes


PROCESS: DAIMLER

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Source: Daimler

Daimler

Module Supplier

f.e. ready-to-assemble door linings

1st tier 2nd tier 3nd tier 4nd tier 5nd tier 6nd tier 7nd tier

f.e. to dye leather 60 days until assembly Supplier in South Africa


Daimler: Solution

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Measures • Top-level-demand is stored into one central system

• Consequently every supplier calculates its own demand

• Forecast and target figures will be provided on a timeline

• Every supplier observes its time slot and can perceive the

“own“ demand and stock

-> Self-demand assessment Source: Daimler


8 KEYS TO SUCCESSFUL S&OP IMPLEMENTATION

• Executing the process every month

• Process ownership and clarity of roles and responsibilities

• Organizational commitment to achieve high forecast accuracy

• Focus should be on the next 3 to 12 months

• One integrated plan that integrates the actions of the entire organization

• Senior management decision making

• Measuring end-to-end supply chain performance

• S&OP forecast versus operating plan or budget 28


Goals of S&OP

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• Customer driven processes

• Ensure that plans are integrated & realistic

• Drive internal change through continuous improvement

• Support inventory & lead time objectives by managing supply & demand

• Manage total delivered cost

• Improve management of resources

• Improve overall business performance


Discussion

1. What are some obstacles to creating a flexible workforce? What are the benefits?

2. Discuss why subcontractors can often offer products and services to a company more cheaply than if the company produced them themselves?

3. In what industries would you tend to see dual facility types (some facilities focusing on only one type of product and others able to produce a wide variety)? In what industries would this be relatively rare? Why?

4. Discuss how you would set up a collaboration mechanism for the enterprises in a supply chain.

5. What are some product lines that use common parts across many products? What are the advantages of doing this? 30


Discussion

6. Discuss how a company can get marketing and operations to work together with the common goal of coordinating supply and demand to maximize profitability.

7. How can a firm use pricing to change demand patterns? 8. Why would a firm want to offer pricing promotions in its peak-

demand periods? 9. Why would a firm want to offer pricing promotions during its low-

demand periods?


Documents

Chapter 9: Sales & Operations Planning - WueCampus2 · PDF fileChapter 9: Sales & Operations Planning 1 . ... *Relevant modules for Supply Chain Management ... Chopra, Meindl; Supply