sales and operations planning worst practices
TRANSCRIPT
Sales and Opera,ons Planning Worst Prac,ces
Interna'onalIns'tuteofForecasters“WorstPrac'ces”Conference
ChrisGray
GrayResearch
Good judgment comes from experience, and a lot of that comes from bad judgment.
WillRogers,20thCenturyAmericanHumorist
Similarly, good prac,ces come from experience, and a lot of that comes from bad prac,ces.
S&OP Worst Prac/ces
Or … It’s Inventory and Operations without involving Sales,
Or …
It’s Financial Planning without involving Sales, Inventory or the Operations,
Or … It’s S, I, and OP without even considering the New Products!
In our Company, Sales and Operations Planning is Sales (and Inventory) without involving Operations,
Putting the S and O in S&OP • Towork–mustincludesiloandcross-silocommunica'onforalldemandandsupplygroups
• Bringstogetherplanningprocessestocreateoneintegratedsetofplans• Donemonthly,reviewedinaggregatebyseniormanagement• Mustreconcilesupply,demand,newproductsatdetailandaggregate,BetoBusinessPlan• Companyplanfornewandintermediateterm,coveringhorizonsufficientforresourceplanningandtheannualbusinessplanprocess
• 5Steps• Mixofprocesses(gatherdata,demandplanning,supplyplanning)andmee'ngs(partnershipmee'ng/pre-mee'ngandexecu'vemee'ng)
Allmee'ngsareequal…exceptperhapsthePartnership/Reconcilia'on/Pre-Mee'ngAsDogbertsaid,totheCEOandpointyhairedboss,inarecentDilbertstrip:“Maybe Next Time You Won’t Skip The Pre-meeting.”
Five Step S&OP Process
Step #1Data
Gathering
End of Month
• Statistical Forecasts • Sales & Marketing Inputs
Step #5Executive
S&OP Meeting• Decisions • Authorized Game Plan
Step #4Partnership
Meeting• Recommendations & Agenda for Exec Meeting • 3rd-pass time phased plan (consensus, alternatives, what-ifs)
Step #2Demand Planning
• Management Forecast • 1st-pass time phased plan
(with new forecast)
Step #3Supply
Planning • Capacity constraints • 2nd-pass time phased plan (with new production plan)
1
2
3
4 5
q To Make S&OP Work, We'll Need New Software q For Our Company, S&OP is S (and I) without the O!
S&OP Worst Prac/ces
q To Make S&OP Work, We'll Need New Software
ClassicApproachtoSystemImprovement
GetComputerGetSoZware
GetDisappointedGetNewSoZware
GetLargerComputerGetDiscouraged
S&OP Worst Prac/ces
q To Make S&OP Work, We'll Need New Software ClassicApproachtoSystemImprovement
GetSmallerComputersGetNewSoZwareGetFrustrated
GetNewUserInterfaceGetMoreandBiggerSmallerComputers
GetUpset
S&OP Worst Prac/ces
q To Make S&OP Work, We'll Need New Software
ClassicApproachtoSystemImprovement
GetBIGDATAGetEnraged
GetRidofComputers…GototheCloud
GetExasperatedGetaLife
S&OP Worst Prac/ces
q To Make S&OP Work, We'll Need New Software
ButtheTruthis…
themostwidelyusedsoZwareforS&OPiss'llMS-Excel.
Thoughtsandrecommenda'onsonS&OPSoZware.
S&OP Worst Prac/ces
q Cogito ergo sum q To Make S&OP Work, We'll Need New Software q For Our Company, S&OP is S (and I) without the O!
S&OP Worst Prac/ces
q Cogito ergo sum
• S&OPMee'ngsTrumpS&OPNumbers
• WeCanHaveAnEffec'veStrategyEvenWithoutEffec'veSupply-DemandBalance
• MaketoStock,MaketoOrder:MakesNoDifference
S&OP Worst Prac/ces
We think we are doing S&OP, therefore we are!
q What Do You Mean, Time Fences? q Cogito ergo sum – I think we are doing S&OP, therefore we are! q To Make S&OP Work, We'll Need New Software q For Our Company, S&OP is S (and I) without the O!
S&OP Worst Prac/ces
YTD Oct Nov Dec Jan Feb Mar April May Dec
Demand Plan 550 550 550 550 550 600 600 600 600
Actual 500 600 600 550 550 600 600 600 600
Deviation -50 50 50
Supply Plan 600 550 550 550 550 600 600 600 600
Actual 600 500 550 ? ? ? ? ? ?
Deviation 0 -50 0
Inventory Plan 550 550 550 550 550 550 550 550 550
Actual 500 600 500 450 550 550 550 550 550 550
Deviation 50 -50 -100
ProductFamily:D2
MaketoStockAverageCumula'veLead'me:12
weeksCustomerDeliveryLead'me:3DaysDemandPlanPerformance50/1650=+3%
SupplyPlanPerformance-50/1700=-3%InventoryPlanPerformance450/550=80%
Last
New
Last
Prop
Last
New
S&OP Worst Prac/ces
Time Fence? What Time Fence? EMERGENCY
ONLYSTABLE FLEXIBLE
ChangesCostly
MaterialandCapacityLimited
ONLYCapacityLimited
Cri'calTimeFenceP+M+F
TIME
S&OP Worst Prac/ces
q To Make S&OP Work, We'll Need to Freeze the Forecast q What Do You Mean, Time Fences? q Cogito ergo sum – we think we are doing S&OP, therefore we are! q To Make S&OP Work, We'll Need New Software q For Our Company, S&OP is S (and/or I) without the O!
S&OP Worst Prac/ces
q We'll Need to Freeze the Forecast
S&OP Worst Prac/ces
Because we can get better performance with out-of-date data!
q We'll Need to Freeze the Forecast S&OP Worst Prac/ces
• OZenpromotedbyMaterialsandOpera'ons• ConnectedtoTimeFencemismanagement• Some'meshandinhandwithmetricsbasedoncumlead'menotlastforecast
• Createsdisincen'vesforforecastupda'ngandcross-silocommunica'on
• Almostalwaysbecauseofbadassump'ons(forecastwillbegoinguponallfamilies)andlackofflexibilityorabilitytorespondtochange
FreezetheforecastattheCTF?Oralterna'vely:MeasureforecastperformancebasedontheforecastattheCTF?
q We'll Need to Freeze the Forecast S&OP Worst Prac/ces
Putting lies into the planning data is like putting a little horse puckey into ice cream!
q More S&OP Families Are Better Than Fewer Families q To Make S&OP Work, We'll Need to Freeze the Forecast q What Do You Mean, Time Fences? q Cogito ergo sum – I think we are doing S&OP, therefore we are! q To Make S&OP Work, We'll Need New Software q For Our Company, S&OP is S (and I) without the O!
S&OP Worst Prac/ces
q More Families Are Better Than Fewer Families
S&OP Worst Prac/ces
Often this is a misunderstanding about what S&OP is actually about.
Sometimes it is a reflection of an argument over Product versus Process families
q Laziness is a Virtue? q More S&OP Families Are Better Than Fewer Families q To Make S&OP Work, We'll Need to Freeze the Forecast q What Do You Mean, Time Fences? q Cogito ergo sum – I think we are doing S&OP, therefore we are! q To Make S&OP Work, We'll Need New Software q For Our Company, S&OP is S (and I) without the O!
S&OP Worst Prac/ces
q Laziness is a Virtue?
• WhatDoYouMean“DocumentAssump'ons”?
• WhatisanS&OPPolicy?
• S&OP=SumofMPSDetail
• WhenItComestoMetricsforS&OP-OneSizeFitsAll
S&OP Worst Prac/ces
An Effec/ve S&OP Process:
AggregateNOTDetailVolumeNOTSchedule
LongTermNOTShortTermHardNumbers
EveryonePreparedTrialing/NPDIntegrated
DecisionsNOTDiscussions
Differen/ated S&OP Metrics for Different Strategies ProductLeadership/DifferenFaFon
Newproductsas%ofprofit/revenue
Newproduct'metoprofit
Profitbybrand/category
Brandhealth
Marketshare
CustomerInFmacy/RelaFonshipsCustomerreten'on/life'mevalue
Revenuebycustomer/channel
Customerprofitability
LowCostProducerCustomerservice
Assetu'liza'on
Forecaststability
Cost
CommontoAllInventoryproduc'vity(turns)
OTIF(DIFOT)
SalesPlanAchievement
ShippingPlanAchievement
SupplyPlanAchievement
Inventoryand/orBacklogAchievement
ClassA“VitalSigns”