s&op what works what doesnt gerdau pdf
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Sales and Operations Planning
What Works & What Doesn’t
Joseph Kirchner, CPIM
October 2010
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S&OP is a process led by senior management that, on a monthly basis,
evaluates revised, time-phased projections of supply, demand and the
resulting financials. It’s a senior management decision making process that
ensures that the tactical plans in all business functions are aligned and
support the business plan.
The objective of S&OP is to reach consensus on a single operating plan that
allocates the critical resources of people, capacity, materials, time and money
to most effectively meet the marketplace needs in a profitable way.
Sales and Operations Planning - Defined
Definition source: www.oliverwight.com
Sales and Operations Planning is a:
Decision-Making Process
to
Balance Demand & Supply
(at the Volume Level)
and to
Integrate Financial & Operating
Plans
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Differences in a Sales/Supply Meeting vs. S&OP
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Weekly Sales/Supply Meeting
• What are today’s backorders?
• What do we need to expedite this week?
• Should we adjust the forecast for 690’s?
• Are we really going to sell the 5,000 E101’s
that the Account Manager forecasted?
• Customer ordered 1,000 E202’s that were
not forecasted by the Account Manager.
Can we produce them?
• When will the XXX PO arrive?
Characteristics
o Detail oriented
o Addresses today’s priorities
o Results in the short-term execution plan
Why It’s Not S&OP
• Not product family oriented
• No (direct) connection with business plan
• President / GM not involved
• No discussion of $$ or profit
• No discussion of plant/supplier capacity
• No long term action items
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Monthly S&OP Meeting
• Category X is 25% behind the YTD Budget.
What is being done to correct this?
• Sales has cut the forecast for YYYY, but the
production plan has not changed. Inventory in
August will be 45% over plan.
• Inventory for PDIF is running at 30 days’
supply, while the target is 60 days.
• Customer announced that they will not order
during Sept. to reduce year end inventory. What
is the impact on our forecast and production plan?
• XXX is 50% below plan for the second year in a
row. Should we abandon the product line?
Characteristics
Senior management involved.
Product family oriented, not SKU’s.
Aggregate sales, production & inventory
Longer-term horizon: 3 – 12 months
Accountability to business plan
Driven by key performance measures
Action plans to align operations with
the business plan.
Differences in a Sales/Supply Meeting vs. S&OP
What are the Benefits ?
Hard Benefits:
Higher Fill Rates
Lower FG & RM Inventories
Shorter Customer Order Lead Times
Shorter Purchase Lead Times
More Stable Production Rates
Less Unplanned Overtime
Lower Operating Costs
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Soft Benefits:
Enhanced Teamwork - Operating Level Mgt.
Enhanced Teamwork - Executive Mgt.
Improved Access to Important Information
Better Decisions with Less Effort and Time
Better Financial Plans with Less Effort and
Time
Greater Accountability
Greater Control
Top Management’s
Handle on the Business
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Sales
Rolling 12 – 18 month product family sales forecast
Fiscal year deviation from budget/plan
Customer Service measure
Realistic new product introduction schedule
Production
Rolling 12 – 18 month product family product plan
Comparison of actual vs. planned production
Plant manpower requirements
Plant operating schedule – open / close dates
S&OP Deliverables
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Purchasing
Supplier Performance Reporting
Supplier Capacity Analysis
Sourcing Plan
Inventory Management
Rolling 12 – 18 month inventory projections
Deviation to budget
Analysis of inventory turns and days’ coverage
A More Accurate Forecast
S&OP Deliverables
The Monthly S&OP Process
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End of Month
Step #1
Run MonthEnd Reports
•Statistical Forecasts •Field Sales Worksheets
Step #5
ExecutiveS&OP Meeting
•Decisions •Company
Game Plan
Step #4
Pre-SOPMeeting • Recommendations &
Agenda for Exec Meeting• 3rd-pass spreadsheets
(consensus, alternatives, what-ifs)
Step #2
DemandPlanning
• Management Forecast• 1st-pass spreadsheets
(with new forecast)
Step #3
SupplyPlanning • Capacity constraints
• 2nd-pass spreadsheets(with new production plan)
S&OP: Key Points
Balance demand & supply
Harmonize units & dollars, one set of numbers
Focus is volume and medium/long term
Monthly cycle
Cross-functional
Decision-making
Window into the Future
Top Management’s Handle on the Business
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S&OP
What Works and What Doesn’t
WORKS
Insist on Highest Level Participation as Possible
Have Cross-Departmental Participation
SCM Prepare, Analyze, Facilitate the Forecasting Process
Review Past, Focus on Future (3-18 Months)
DOESN’T WORK
Try to Succeed With Mid-Low Level Representation
Limit the Participants to Friendly Parties
Allow Sales to Own the Forecasting Process
Dwell on the Past, Look Out Only 1 to 6 Months
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S&OP
What Works and What Doesn’t
WORKS
Use the Forecast Before it is Perfect
Use Metrics to Measure Success
Use Pareto Analysis (Over & Over)
Focus on the Business Processes that are Needed
DOESN’T WORK
Expect the Forecast to Precisely Predict the Future
Manage by Feel or Intuition Alone
Assume all Products are Created Equal
Think the System is the Silver Bullet
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S&OP
What Works and What Doesn’t
WORKS
React to Near-Term Spikes
Learn to Speak in Terms of Each Participant
Use Lag Time Analysis
Strive for Consensus
DOESN’T WORK
Change the Forecast after the fact
Use only APICS Jargon
Review 1 Month Back/Forward
Insist on Winning Every Argument
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S&OP
What Works and What Doesn’t
WORKS
Take Notes & Follow Up
Prepare an Agenda – Run a Good Meeting
Celebrate Successes
DOESN’T WORK
Assume People Will Do What is Assigned to Them
Run a Disorganized Meeting
Dwell on Failures
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Summary
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• It’s the Business Process, not the software that
makes the difference.
• Get started now and perfect it as you go along.
• Paretto, Paretto, Paretto
• Assign Responsibility and Follow-Up
• Gain Consensus Whenever Possible
• Develop and Use Metrics (Not too Many)
• Set Fair, Achievable Goals
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