s&op process

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


Agenda

Introductions



Principles of SOFP

Five Step Process


1. Capture

2. Synchronise

3. Decide

4. Execute & Review

Case Studies


1.1 TakeAction_dsl.rm

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!


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


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


Agenda

Introductions



Principles of SOFP

Five Step Process


1. Capture

2. Synchronise

3. Decide

4. Execute & Review

Case Studies


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



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



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


Poor or lack of SOFP Can Result in…

• Back orders

• Dissatisfied customers

• High inventories

• Late shipments

• Cash-flow problems

• Finger-pointing

• …


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


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.


• 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



Principles of SOFP

Five Step Process


1. Capture

2. Synchronise

3. Decide

4. Execute & Review

Case Studies


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


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.


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



Principles of SOFP



Various Best Practice Models of SOFP


Agenda

Introductions



Principles of SOFP

Five Step Process


1. Capture

2. Synchronise

3. Decide

4. Execute & Review

Case Studies


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


Agenda

Introductions



Principles of SOFP

Five Step Process


1. Capture

2. Synchronise

3. Decide

4. Execute & Review

Case Studies


2.1 Smyth, Smith, Smythe.rm

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


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



Laying The Foundation: Standardize


Agenda

Introductions



Principles of SOFP

Five Step Process


1. Capture

2. Synchronise

3. Decide

4. Execute & Review

Case Studies


2.2 StayInformed.rm


Demand Signal Capture


Agenda

Introductions



Principles of SOFP

Five Step Process


1. Capture

2. Synchronise

3. Decide

4. Execute & Review

Case Studies


2.3 CupHolder.rm


Synchronize Demand & Supply



Synchronize – Understanding Capacity Types


Agenda

Introductions



Principles of SOFP

Five Step Process


1. Capture

2. Synchronise

3. Decide

4. Execute & Review

Case Studies



S&OP Meeting - Decide


Agenda

Introductions



Principles of SOFP

Five Step Process


1. Capture

2. Synchronise

3. Decide

4. Execute & Review

Case Studies


2.4 Finance.rm


Executing The S&OP Decisions


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


Management Leadership Checklist in S&OP

Recommended & Related Topics for Further Investigation


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



SOFP – Advanced Models for Mature Practitioners



Advanced Quality Systems Configurations


Agenda

Introductions



Principles of SOFP

Five Step Process


1. Capture

2. Synchronise

3. Decide

4. Execute & Review

Case Studies



Case Studies


IN SUMMARY


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


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


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 …


3.1 SalesForecast.rm

3.2 Inventory.rm

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]


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