Supply Chain Best Practices Sales & Operations Planning (S&OP)

Institute of Business Administration

University of Dhaka May, 2013; Dhaka

Presented By:

Ejazur Rahman CSCM MBA AIMM PgDMC

Sales & Operations Planning

Lecture Notes

Understanding The Roles of Sourcing in a Supply Chain

Session Outline

What is Sales & Operations Planning

Key components of a well run S & OP

Demand Planning process – best practise

Critical success factors and key challenges

What Is S&OP?

Sales and operations planning (S&OP) is an integrated business management process developed in the 1980s by

Oliver Wight through which the executive/leadership team continually achieves focus, alignment and

synchronization among all functions of the organization.

The Purpose of S&OP

The purpose of S&OP is to achieve the optimal balance between supply and demand. A streamlined planning

process will result through increased communication and teamwork between departments within an organization.

This collaborative approach will align the sales and operational processes and ensure that the in demands of the

marketplace are met.

The S&OP Process

The evolution of demand and supply balancing (S&OP)

How S&OP helps any business

1. Know your current position

2. Set your destination

3. Plan the best route

4. Autocorrect in real time when things go wrong

Why invest in S&OP for each industry type?

Manufacturing Align supply chain resource to demand

Deliver consistent target service at target margins

Distribution Align inventory levels to demand

Maximise availability and target working capital levels

Service Align human resource capacity to demand

Deliver target service at target cost of sales

Retail Align on shelf inventory to demand

Maximise sales, with minimum write off costs and at target inventory

A typical S&OP Process Can be applied to all industries!

Review Meeting – Demand Review

• Input :

– Actual performance ; variance ; root cause

– bottom up demand plans

– Key assumptions

– Marketing plans : new product / promotions

• Output :

– Signed off demand plan from sales & marketing

(unconstrained)

• Owner of the process – chair review :

– Sales & Marketing

• Key behaviour / success factors :

– Focus on assumptions

– Outline “truth as you know it”

– Be open about “opportunities” and “vulnerabilities”

Review Meeting – Supply Review

• Input : – Actual vs previous plan ; variance ; root cause

– Demand Plan

• Output : – Machine, labour inventory and material plans to achieve demand plan

– Constraints (where Supply Chain cannot achieve demand plans)

• Owner of the process – chair review :

– Supply Chain

• Key behaviour / success factors : – Review past performance and ensure variance to plan is addressed

– Demand Plan should be unconstrained, thus push to find cost effective solutions

– Actions plans in place to react if the demand “opportunities” or “vulnerabilities” become a reality.

Review Meeting – S&OP Review

(Reconciliation and final sign off)

Input :

Demand Plans with constraints and resource requirements

Supply Plans with constraints and resource requirements

The “truth” as we know it and risks / upside.

Output :

Signed off demand & supply plans

ONE Number, thus one set of plans the organisation will work towards.

Owner of the process – chair review :

Ideally the CEO / Managing Director

Facilitated by head of supply chain

Key behaviour / success factors :

Focus on gap closing (actions)

Minimise finger pointing ; thus transparency is important

Ensure if resources are not available, the plans are adjusted.

Plans must always be achievable

Why S&OP Important

• The organisation works toward one achievable plan

• For todays customer’s requirement we have in place

– The machine capacity

– The labour

– All material

• A good S&OP reduces supply / demand imbalances

– Thus helps to deliver target service consistently

– Help achieve target supply chain margin

– All this within target working capital levels.

Other Important Consideration to achieve a successful S&OP process

• This has to be a structured process

– Repeatable

– Fixed calendar for the year

– Should be considered a core process in the organisation

• The process should be simple and very well understood by all stake holders

• The process must have template input and output

• Focus should be on the “future” not the past

• Most importantly, it has to be sponsored and owned by the Senior team.

Demand Planning

• Accuracy, the biggest input for a successful

S & OP

• One of biggest root cause for cost escalation in the supply chain

• Accuracy improved through

– Statistical forecasting

– Understand factors influencing demand

– Planning assumptions

– Collaboration

• There is one known fact of all demand plans?

– They are always wrong

– Objective of Demand Planning process is minimise variances

Building an organization’s Demand Planning

(Science, Process, Discipline)

Typical Benefits from Implementing S&OP

• Forecast error reduction : 20% - 25%

• Inventory reduction : 5% to 10%

• Service level increase : 5% to 10%

• Top line revenue growth : 2% to 5%

• SKU rationalisation : 10% to 20%

Impact of Demand Planning Accuracy

• High forecast accuracy cuts costs from the entire supply chain

• Companies that are best at demand forecasting average;

– 15% less inventory

– 17% higher perfect order fulfilment

– 35% shorter cash to cash cycle

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