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SALES & OPERATIONS FINANCIAL PLANNING (SOFP)
• Leonard Jayamohan, Management Consultant, SASS Advantage • Chin Kok Poh, Management Consultant, SASS Advantage
20 March 2011 1 SASS Advantage Copyright (2011)
Agenda
Introductions
What is Sales & Operations Financial Planning?
Why is SOFP important?
Principles of SOFP
Five Step Process
Foundation: Standardise
1. Capture
2. Synchronise
3. Decide
4. Execute & Review
Case Studies
20 March 2011 2 SASS Advantage Copyright (2011)
Agenda
Introductions
What is Sales & Operations Financial Planning?
Why is SOFP important?
Principles of SOFP
Five Step Process
Foundation: Standardise
1. Capture
2. Synchronise
3. Decide
4. Execute & Review
Case Studies
20 March 2011 3 SASS Advantage Copyright (2011)
Imagine a Scenario at an Executive Meeting… President: This shortage situation is terrible. When will we get our act together? Whenever the business gets good, we run out of product and our customer service is lousy!
VP Operations: I’ll tell you when. When we start to get some decent forecasts from Sales.
VP Sales: Now, wait a minute! We forecasted this upturn.
VP Operations: …in time to do something about it. Yeah, we got the revised forecast -- 4 days after the start of the month. By then it was too late.
VP Sales: I could have told you that months ago. All you had to do was ask.
VP Finance: I’d like to be in on those conversations. We’ve been burned more than once by building inventories for a business upturn that doesn’t happen. Then we get stuck with tons of inventory and run out of cash…
Houston, We Have a Problem!
20 March 2011 4 SASS Advantage Copyright (2011)
Sales and Operations Financial Planning
• A disciplined, cross-functional, integrated planning process Sales, Marketing, Operations, and Finance It’s a process, not an event Executive meetings typically occur monthly
• Some key objectives: Balance supply and demand Synchronize all operational plans Key outputs o Consensus bookings forecast (new orders expected per period)
o Sales and allocations plan (expected shipments, revenue per period)
o Production plan (expected production per period)
* Bookings forecast +/- changes in backlog = shipping forecast, Shipping forecast +/- changes in inventory = production plan
20 March 2011 5 SASS Advantage Copyright (2011)
Sales and Operations Financial Planning Process
Financial Planning •Quarterly Rolling Plan •Budget
Supply Meeting •Production plan •Inventory plan
Product Management • Product EOL • Product launch • Promotions • Product ROI
SOFP Management Meeting
Demand Meeting •Consensus forecast •Strategic
Design-ins
20 March 2011 6 SASS Advantage Copyright (2011)
Agenda
Introductions
What is Sales & Operations Financial Planning?
Why is SOFP important?
Principles of SOFP
Five Step Process
Foundation: Standardise
1. Capture
2. Synchronise
3. Decide
4. Execute & Review
Case Studies
20 March 2011 7 SASS Advantage Copyright (2011)
Traditional Sales and Operations Financial Planning
Your Company
Production Planning
New Product Planning
Sales Quotas Marketing Forecasting
Measurement & Reporting
Manual processes, multiple data sources
Multiple, non-integrated
systems
No connection between plans Misalignment between metrics and objectives Unreliable forecasts and production plans
Financial Planning
20 March 2011 8 SASS Advantage Copyright (2011)
Traditional Sales and Operations Financial Planning
Financial Planning
Your Company
Production Planning
New Product Planning
Sales Quotas Marketing Forecasting
Measurement & Reporting
Manual processes, multiple data sources
Multiple, non-integrated
systems
No connection between plans Misalignment between metrics and objectives Unreliable forecasts and production plans
Lack of metrics
An event, not a
process
Fragmented, “siloed” planning
Manual processes
Lack of decision
support & automation
Multiple plans and forecasts
Lack of Collaboration
20 March 2011 9 SASS Advantage Copyright (2011)
Traditional Sales and Operations Financial Planning
You cannot manage your business effectively if you have:
• Fragmented planning and demand data
• Individual department numbers expressed in different levels of detail and units of measure
• Multiple spreadsheets and manual processes
• Poor internal collaboration
• Few or no performance metrics
• Little support for global operations
20 March 2011 10 SASS Advantage Copyright (2011)
Poor or lack of SOFP Can Result in…
• Back orders
• Dissatisfied customers
• High inventories
• Late shipments
• Cash-flow problems
• Finger-pointing
• …
20 March 2011 11 SASS Advantage Copyright (2011)
Financial Planning • Quarterly Rolling Plan • Budget
Supply Meeting • Production plan • Inventory plan
Product Management • Product EOL • Product launch • Promotions • Product ROI
SOFP Management Meeting
A well executed Sales & Operations Financial Planning …
• Provides the necessary link between the company’s business plan and the operations of each department
• Provides a means for orchestrating all departments as it communicates the plans both horizontally and vertically
• Yields a realistic plan capable of achieving the company’s objectives
• Eliminates “hidden decisions”
Source: Orchestrating Success – Improve Control of the Business with Sales & Operations Planning – Richard C. Ling & Walter E. Goddard
Demand Meeting • Consensus forecast • Strategic
Design-ins
20 March 2011 12 SASS Advantage Copyright (2011)
Leveraging SOFP for Competitive Advantage
The results of 2004 SOFP benchmark study demonstrate that:
• SOFP has transformed from a balancing of supply and demand, to a powerful process that allows companies to maximize financial performance and customer satisfaction
• All companies, regardless of size and SOFP maturity, can benefit from enhancing their SOFP capabilities
• Better SOFP = improved profits, increased revenues, less inventory, a more dynamic product portfolio, and longer-term customers
Source: The Sales and Operations Planning Benchmark Report: Leveraging SOFP for Competitive Advantage (2004) © 2004 Aberdeen Group. **Study of more than 200 companies.
20 March 2011 13 SASS Advantage Copyright (2011)
• Summary slides of more advanced topics. • Full sized screens are available with the purchased version.
Industry Results - Summary
20 March 2011 SASS Advantage Copyright (2011) 14
Agenda
Introductions
What is Sales & Operations Financial Planning?
Why is SOFP important?
Principles of SOFP
Five Step Process
Foundation: Standardise
1. Capture
2. Synchronise
3. Decide
4. Execute & Review
Case Studies
20 March 2011 15 SASS Advantage Copyright (2011)
Before we begin…
• We have added some SOFP ‘road signs’ to highlight key points about the process. This is what the signs mean.
This is an important principle to remember. You
need to ANCHOR your process on these points.
This means, it is an area you need to watch out for. This like an EXPLODING BOMB if not handled correctly.
M
20 March 2011 16 SASS Advantage Copyright (2011)
If You Can Only Remember ONE THING TODAY,
Then REMEMBER THIS
• SOFP is the process to help you
Make Money Now And
In the Future.
20 March 2011 17 SASS Advantage Copyright (2011)
Secret of SOFP Success in Nutshell
• Sales & Operations Financial Planning is a SUPERIOR DECISION-
MAKING process that helps people in companies to provide excellent customer service and to the run the business better,
WHEN IT IS DONE CORRECTLY.
Tom Wallace
Sales & Operations Planning
The How-To Handbook
20 March 2011 18 SASS Advantage Copyright (2011)
• Summary slides of more advanced topics. • Full sized screens are available with the purchased version.
Principles of SOFP
20 March 2011 SASS Advantage Copyright (2011) 19
• Summary slides of more advanced topics. • Full sized screens are available with the purchased version.
Principles of SOFP
20 March 2011 SASS Advantage Copyright (2011) 20
• Summary slides of more advanced topics. • Full sized screens are available with the purchased version.
Various Best Practice Models of SOFP
20 March 2011 SASS Advantage Copyright (2011) 21
Agenda
Introductions
What is Sales & Operations Financial Planning?
Why is SOFP important?
Principles of SOFP
Five Step Process
Foundation: Standardise
1. Capture
2. Synchronise
3. Decide
4. Execute & Review
Case Studies
20 March 2011 22 SASS Advantage Copyright (2011)
3.DECIDE(SOFP Meeting)
Decide and Prioritize On Available Options
Dem
and
Man
agem
ent
An
d F
ore
cast
ing
SOFP with Fin.Plan
Sales Plan
Mfg. Plan
Fin. Plan
Master Prod.
Detail Planning & Execution
Rough Cut Cap. And Material
Sales, Production, Allocation Plan
Bu
dgets, C
osts, P
rofit
Demand Supply
Rationalize Forecast
Plan and Synchronize Execution
Pro
po
se 1
st Fo
recast
Pre
SO
FP
Exp
lore
Op
tio
ns
4.EXECUTE (Fulfillment Mix)
Execute To Plan
•Sales Target •Production Plan •Inventory Plan •Allocation Plan •Financial Plan Actual Shipment
Delivery Date
OEM Production
Product Allocation
KPIs and Exception
1.CAPTURE (Demand Management)
Sense the Multiple Demand Signals
1st Cut Forecast Dealers
Master Dealers
Regional Sales
Business Units
•New Products •End of Life •Assumptions
•Statistical Tools •Scenario Forecasting •Waterfall Analysis
2.SYNCHRONISE(Demand-Supply Plan)
Achieve Consensus and Communicate Plan
Supply Forecasts
(Production)
Demand Forecasts (Unconstrained)
•Statistical Tools •Scenario Forecasting •New Products •End of Life •Assumptions
•Sales History •Economic Conditions •Pricing Strategies •Events / Promotions •Market / Trends
•Material Plan •Capacity Plan •Master Production •Distribution Plans •Mat'l Allocation Plans
STANDARDISE (Policy & Measurement)
Total Company
Business Unit
Product Family
Market Segments
Distributions, Logistics Hubs
Models, Engine, Options, Colours
Structure, Policy and Goal Setting
Volume Mix
KPI SOP
Zoo
m In
& O
ut
Level o
f Deta
ils
Five Steps Process for SOFP
20 March 2011 SASS Advantage Copyright (2011) 23
Agenda
Introductions
What is Sales & Operations Financial Planning?
Why is SOFP important?
Principles of SOFP
Five Step Process
Foundation: Standardise
1. Capture
2. Synchronise
3. Decide
4. Execute & Review
Case Studies
20 March 2011 24 SASS Advantage Copyright (2011)
SOFP Enemy: Data vs. Information
You need less data than you think but more information
than you have.
Bob Reary and Chin KP
SCM Evangelists, Oracle
M
20 March 2011 25 SASS Advantage Copyright (2011)
SOFP Enemy: Data vs. Information
We are drowned in oceans of data; nevertheless it seems as if we seldom have sufficient information.
Eliyahu M. Goldrat
The Haystack Syndrome -
Sifting Information Out of the Data Ocean
M
20 March 2011 26 SASS Advantage Copyright (2011)
• Summary slides of more advanced topics. • Full sized screens are available with the purchased version.
Laying The Foundation: Standardize
20 March 2011 SASS Advantage Copyright (2011) 27
Agenda
Introductions
What is Sales & Operations Financial Planning?
Why is SOFP important?
Principles of SOFP
Five Step Process
Foundation: Standardise
1. Capture
2. Synchronise
3. Decide
4. Execute & Review
Case Studies
20 March 2011 28 SASS Advantage Copyright (2011)
• Summary slides of more advanced topics. • Full sized screens are available with the purchased version.
Demand Signal Capture
20 March 2011 SASS Advantage Copyright (2011) 29
Agenda
Introductions
What is Sales & Operations Financial Planning?
Why is SOFP important?
Principles of SOFP
Five Step Process
Foundation: Standardise
1. Capture
2. Synchronise
3. Decide
4. Execute & Review
Case Studies
20 March 2011 30 SASS Advantage Copyright (2011)
• Summary slides of more advanced topics. • Full sized screens are available with the purchased version.
Synchronize Demand & Supply
20 March 2011 SASS Advantage Copyright (2011) 31
• Summary slides of more advanced topics. • Full sized screens are available with the purchased version.
Synchronize – Understanding Capacity Types
20 March 2011 SASS Advantage Copyright (2011) 32
Agenda
Introductions
What is Sales & Operations Financial Planning?
Why is SOFP important?
Principles of SOFP
Five Step Process
Foundation: Standardise
1. Capture
2. Synchronise
3. Decide
4. Execute & Review
Case Studies
20 March 2011 33 SASS Advantage Copyright (2011)
• Summary slides of more advanced topics. • Full sized screens are available with the purchased version.
S&OP Meeting - Decide
20 March 2011 SASS Advantage Copyright (2011) 34
Agenda
Introductions
What is Sales & Operations Financial Planning?
Why is SOFP important?
Principles of SOFP
Five Step Process
Foundation: Standardise
1. Capture
2. Synchronise
3. Decide
4. Execute & Review
Case Studies
20 March 2011 35 SASS Advantage Copyright (2011)
• Summary slides of more advanced topics. • Full sized screens are available with the purchased version.
Executing The S&OP Decisions
20 March 2011 SASS Advantage Copyright (2011) 36
SOFP – The Leadership Factor
• There is NO SUBSTITUTE FOR LEADERSHIP in achieving Sales & Operations Financial Planning excellence.
Implementing a successful Sales and Operations Financial Planning (SOFP) process is job one in the journey to becoming demand driven. Our research indicates that SOFP has the greatest impact and the fastest rate of maturity when it is driven by a senior executive that is responsible for both revenue and profitability.
Lora Cecere
AMR Research Report Feb 2006
SOFP Leadership: A Guide to Commonly Asked Questions
M
20 March 2011 37 SASS Advantage Copyright (2011)
Management Leadership Checklist in S&OP
Recommended & Related Topics for Further Investigation
20 March 2011 38 SASS Advantage Copyright (2011)
SOFP - A Cornerstone of DDSN Leadership
• SOFP, a cornerstone for DDSN leader change management efforts, offers the greatest financial impact when it is implemented with other DDSN best practices to improve channel and supply network transparency.
As companies focus on becoming demand driven, Sales and Operations Financial Planning (SOFP) is becoming a Standard Operating Procedure (SOP). It is the translation of upstream demand data into an actionable operational plan. This collaborative process profitably aligns demand with supply against a defined business strategy.
Today, the SOFP process is being redefined, morphed into industry-specific processes, and used as a key initiative to drive cross-functional teamwork and actualize Demand-Driven Supply Network (DDSN) initiatives. This SOFP renaissance is driven by the need to increase revenue and be more profitable in a tougher business environment.
Lora Cecere, Debra Hofman, and Guy Dunkerley
AMR Report July 2005
Sales and Operations Planning: A Cornerstone of DDSN Leadership
20 March 2011 39 SASS Advantage Copyright (2011)
• Summary slides of more advanced topics. • Full sized screens are available with the purchased version.
SOFP – Advanced Models for Mature Practitioners
20 March 2011 SASS Advantage Copyright (2011) 40
• Summary slides of more advanced topics. • Full sized screens are available with the purchased version.
Advanced Quality Systems Configurations
20 March 2011 SASS Advantage Copyright (2011) 41
Agenda
Introductions
What is Sales & Operations Financial Planning?
Why is SOFP important?
Principles of SOFP
Five Step Process
Foundation: Standardise
1. Capture
2. Synchronise
3. Decide
4. Execute & Review
Case Studies
20 March 2011 42 SASS Advantage Copyright (2011)
• Summary slides of more advanced topics. • Full sized screens are available with the purchased version.
Case Studies
20 March 2011 SASS Advantage Copyright (2011) 43
Six SOFP “Must Haves"
Profit, Financials and Process Focus – the ability to plan and measure for financial profit; not just supply/demand balancing
Source: The Sales and Operations Planning Benchmark Report: Leveraging SOFP for Competitive Advantage (2004) © 2004 Aberdeen Group.
Value Chain Scope – include decision makers from both within and the extended enterprise
Improved Decision Making – empower SOFP teams to collaborate; dynamically adjust demand, supply plans to adapt to changing conditions
Better Risk Management – multiple contingency and "what-if" simulations, evaluate cost to service trade-offs
Automation and Intelligence – integrate business intelligence, decision support, work flow, transaction systems as part of infrastructure
Drive Continuous Improvement – systematically assess & improve assumptions and the SOFP process against actual results
1
2
3
4
5
6
20 March 2011 45 SASS Advantage Copyright (2011)
The Ability to Effectively Answer Questions Such as…
• What has changed since last month? • Are we on plan financially? • How are we performing to performance metrics? • What new risks do we need to consider? • What decisions need to be made now? • What decisions need to be made in the near future? • How are product families performing? • Are we on track with product development? • Do we have any critical constraints? • Is there any need to revise long term plans?
Adapted from “Enterprise Sales and Operations Planning” by Palmatier & Crum
20 March 2011 46 SASS Advantage Copyright (2011)
Sales and Operations Financial Planning
Key Capabilities to Implement Best Practices • Consolidation of demand signals and effective demand analytics • Ability to balance demand, supply and budgets • Ability to balance service levels and cost • Inventory optimization • Manage product mix – new and existing products • Automation of manual, labor-intensive “prep” work • Ability to collaborate • Performance management, intelligence and Decision Support
Capabilities to Implement Best Practices
Let’s hope we avoid this …
20 March 2011 47 SASS Advantage Copyright (2011)
THANK YOU
• If you would like to purchase a copy of the full master-class material (in PDF format) or have us conduct a S&OP master-class, please contact us at [email protected]
20 March 2011 48 SASS Advantage Copyright (2011)