Sales and Operations PlanningTaruna NagpalSean O’DonnellAnthony StrameckiVivian Yu

Business Forecasting

Agenda

Sales and Operations Planning Overview Process Certification Applications in Semiconductor Industry Standard Monthly Procedure

Sales and Operations Planning(S&OP) Definition:

A formal process, consisting of series of meetings, where data from various areas of business is discussed and decisions are made.

The goal is agreement between various departments on the best course of action to achieve the optimal balance between supply and demand and to meet profitability goals.

Normal Time Frame

Takes a monthly look at product groups at  least 6- 12 months across the planning horizon.

Some companies go out as far as 18 months.

Sales and Operations Planning (S&OP)

M a ke s de c is io ns

R e v ie ws a lte rn a tives

D iscuss th e is sue s reco m m e n d ed so lu tio ns

S & O P m e e tin g a tten d ed b y se n io r le a de rsh ip fro m sa les , m a rke ting , op e ra tio ns , f in a nce an d o th e r o pe ra tio n a l a re a s.

P la ns a re fe d in to a p re -S & O P p ro ce ss , w h ere so lu tion s to a dd re ss th is im ba la nce are fo rm u la ted

C o rre sp on d ing sup p ly p lan is c re a te d fo r the t im e pe riod

C rea te a de m a nd p la n fo r th e ta rge t t im e p eriod

Type of Data considered

Current plan for each product group Current finished goods inventory Sales forecasts Purchase Orders received Materials available Manufacturing plans and capacity Distribution capacity Shipping capacity Performance measures Customer Service

S&OP Software

Dash Optimization Supply Chain Planning Software DCRA Solutions Demand Solutions - Demand Solutions Sales and

Operations Planning Software (DSOP) Futurcast IBM Stratum

S&OP SoftwareSteelwedge Software Interface

A typical model of the Sales and Operations Planning process Source: WP Salesoperationsplanning12.pdf

Demand Review Process

The ultimate goal of the demand plan is to gain consensus on what will be sold and what revenue will be produced

Participants discuss factors that influence demand and agree on a single demand plan that is then passed

Supply Review Process

Create a supply plan that includes rough-cut capacity plan, procurement plan, and accompanying costs.

Sales and Operations Planning Meeting Discuss and resolve any imbalances between

supply and demand

All decisions are published as a single authorized plan which becomes the operating plan for each function within the company

Benefits: Increase plan accuracy Increase product margins Improve customer satisfaction Reduce costs through efficient use of

resources Drive organizational flexibility Reduce inventory and obsolescence costs Better communication between groups Improved cash flow and Shorter lead times Reduced transportation costs

Tips for Successful Planning processes

Include specific schedules and participants. Identify Key Performance Indicators prior to

beginning Have an attitude of continuous improvement Stabilize the Demand Planning process prior to the

Supply Planning process. Hold regular meetings

S&OP Certification - CPIMCompany Benefits More Effective Personnel Selection Improved Forecasting Practices and Processes for Your

Business. Enhance knowledge of those already in the field. Better Forecasts and Related Business Decisions

Forecaster Benefits Professional Development

Forecasting Knowledge Development and Expansion Career Advancement Validation of Forecasting & Planning Knowledge and Skills Globally Recognized Credential

S&OP Certification - CPIM

Benefits of Certified in Production and Inventory Management

A CPIM education can help you to Increase your functional knowledge of production and inventory

management Improve efficiency across the processes of your organization's

supply chain Streamline operations through accurate forecasting Predict outcomes more accurately Maximize customer satisfaction by delivering products and

services Just-in-Time Increase profitability by optimizing your organization's inventory

investment Enhance your credibility among peers, employers, and

customers.

S&OP Certification - CPIM

Candidates must pass all exams for the following modules

Basics of Supply Chain Management Master Planning of Resources Detailed Scheduling and Planning Execution and Control of Operations Strategic Management of Resources

S&OP Certification - CPIM

Who should earn the CPIM designation?A CPIM education is essential for professionals involved in

* Production and inventory management * Operations * Supply chain management * Procurement * Materials management * Purchasing

S&OP application in industry

Semiconductor industry Surveyed 9 global semiconductor companies

Only 10-15 so survey covered half; therefore, it’s a good reflection of the overall industry

Purpose Investigate the extent of S&OP used and

determine its strengths and weaknesses. Focuses on 2 parts:

Forecasting: Driving force behind ops planning Operations planning: Main focus

S&OP in the semiconductor industry

-Sales/marketing and manufac/opsare the main drivers of the S&OPprocess

-All companies use it in at least their marketing, operations, and finance depts. Most also employ it in sales and service/logistics

S&OP in the semiconductor industry Forecasting

Relative importance of different factors in the demand forecast generation

Frequency of forecasts: 1 weekly, 1 quarterly, and the rest monthly

Primary time horizon: 3 companies = 24 months; 3 = 18 months; 1 = 15 months; 2 = 12

months

S&OP in the semiconductor industry

Forecasting (cont.) Software used in forecasting

Most popular method is spreadsheets then SAP America, followed by software developed internally and I2

How frequently do you measure and review forecast accuracy? 5 companies measure and review on monthly basis, 1

bimonthly and 2 quarterly

S&OP in the semiconductor industry

Operations Planning Planning horizon for S&OP

Except for three companies which use a planning horizon of 12 months, all use 18 months

Primary objectives of your S&OP process 3 companies primarily use it to align plans with demand/sales.

The other 6 use it to align plans with both demand/sales and business strategy.

Length of time to complete one cycle of the S&OP process 3 companies spend one month, 3 spend two weeks, 1 spends

three weeks, and 2 spend more than one month

S&OP in the semiconductor industry Operations Planning (cont.)

Software used and satisfaction levels

As can be seen there is equal satisfaction between spreadsheets or software developed internally and customized software that was outsourced

Overall satisfaction levels medium to low. No company has a high level of satisfaction

S&OP in the semiconductor industry

Operations Planning (cont.) Key items covered in the process

- Sales, production issues, and demand/production gap closure plans are named to be the key item by most companies. New product schedules, customer service and inventory also key factors. Financial forecasts and capital planning are key items to only a few companies.

S&OP in the semiconductor industry

Operations Planning (cont.) Are there metrics in place to measure effectiveness (or

quality) of the production plans, commonly the output of the S&OP process? All but one said yes. Most fall within the responsiveness

category (fulfillment of production plan, flexibility, on-time delivery) followed by inventory (availability, shortage, excess)

Are financial estimates integrated within the SOP process? One company has them fully integrated, two companies keep

financial estimates and SOP totally seperate, and the remaining 6 adjust financial numbers according to SOP output.

S&OP in the semiconductor industry

• Strengths and weaknesses of the S&OP process

S&OP in the semiconductor industry

Conclusions Many companies complain about the length of their SOP

cycle, its complexity, and input data validity/integrity. Solution: Building integrated databases and automating the

process (expediting communication and streamlining decision making)

Need for better forecasting since it is the driving force behind the process.

Integration of finance into S&OP process All companies agree that its strength lies in the integration of

decision making by bringing several depts. together; however, tendency is to keep it at operations level. In order to fully benefit from process financial planning should be integrated into it.

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 Planning

Step 1 – Data gathering

Month end data Actual sales Inventory Production

Sales and marketing

All pertinent information

Sales

  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

Production

  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

Inventory

  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

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

Wallace: 2nd edition Sales & Operations Planning

Step 2 – Demand planning

Sales and marketing review information received from Step 1

Sales forecast By product By family Total

Demand planning team

Demand manager

Product manager

Forecast analyst

Sales manager

Salesperson

Customer service

Accounting manager

Supply chain manager

Forecasting: Inputs, Process, Outputs

INPUTS OUTPUTS

Current Customers

New customers

Competition

Economy

New products

Pricing

Bids

Promotions

Management directive

History

Other

Forecasts That:

•Are reasoned

•Are realistic

•Are reviewed

•Represent demand

THEPROCESS

Step 3 – Supply planning

Bill of resources

Rough-cut capacity

Interaction of lean manufacturing

Demand/Supply Strategies

Key resourcesDescription 1 2 3 4 5Mix (hrs) 2.7 5 13.1 0 14Fill (hrs) 1.2 3.1 2.6 0 6Test (hrs) 1.6 2.4 1.1 0.7 7Labeler #6 (hrs) 3.3 3.3 0 2 0Warehouse space (cube) 6.7 3.3 0 2.6 19Supplier A (gallons) 8.7 6.7 7.1 0 0

FamiliesBill of resources - Family Level (per 000 units)

Wallace: 2nd edition Sales & Operations Planning

Rough-cut capacity plan

Key resourcesDescription 1 2 3 4 5

20 20 20 20 20Mix (hrs) 54 100 262 0 280 696 584 621Fill (hrs) 24 62 52 0 120 258 450 482Test (hrs) 32 48 22 14 140 256 275 290Labeler #6 (hrs) 66 66 262 40 0 696 700 800Warehouse space (cube) 134 66 0 52 380 632 650 675Supplier A (gallons) 174 134 142 0 0 450 500 640

Family Production Plan Quantity Capacity

Req'd DemoMax

Demo

Wallace: 2nd edition Sales & Operations Planning

Interaction with lean manufacturing Aligned resources

Flow

Takt time

Demand/Supply Strategies

Product Family: 11. Make-to-stock2. Target customer service level 99%3. Target finished goods inventory 1 month

Product Family: 21. Make-to-order2. Target customer service level 98%3. Target customer lead time 2 weeks

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

Step 5 – Executive S&OP meeting Make decisions Authorize changes in S&OP plan Relate dollarized version Resolve issues Review performance, product issues, special

projects, etc.

Preliminary close meetingDay of month Reports Attendance Key objectives

3rd business day after month end

-Income Statement-Balance sheet-Control book

-Plant manager-Plant controller-Financial/ operations Analyst

-Results-Comparing forecast to actual-Inventory levels-A/R-A/P

Final close meetingDay of month Reports Attendance Key objectives

7th business day

-Income Statement-Balance sheet-Actual vs. forecast-Variance

-CFO-Financial/ operations Analyst-Controller-Cost accountant

-Results-Comparing forecast to actual-Inventory levels-A/R-A/P

Sales forecast

Pricing adjustments

Customers forecasts

Due by the 10th

Prepared by sales/marketing

Sales and operations plan

Prepared by plant manager and controller

Capacity issues

Productivity

Produced by the 15th

Questions?