Sales & Operations Planning Process
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This document provides an overview of sales and operations planning (S&OP). S&OP is a collaborative planning process that aligns all business functions to a single plan to meet market demand profitably. It differs from traditional functional planning approaches by taking a holistic view of demand, supply, and financial plans. The S&OP process involves gathering data, demand planning, supply planning, pre-meetings, and executive meetings to align plans and resolve issues. Critical success factors include top management involvement, structured meetings, cross-functional participation, and integrated planning technology. Benefits include improved profitability, inventory management, and communication across business functions.
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Sales & Operations Planning Process
- 1. Sales & Operations Planning A Centralized approach of Planning at all levels of organizations Harshal Badgujar Learning Session 1
- 2. What are the conflicts in Traditional Planning Approach of working in SILOs Marketing Production Finance Function High Revenues High Availability Low Production cost Long production Runs Low Investment & Cost Few Fixed Costs Objectives Implications Customer Service High Low Disruption to Production Many Few Inventories High Low 2
- 3. Let consider a case of conflict in Traditional Planning approach – A Video (http://www.slideshare.net/JadeGlobal/oracle-sales-operations-planning-video ) 3
- 4. 1980’s – Need for Integrated Data systems for planning 1990’s – Birth of ERP systems Late 2000 – Birth of Planning Module software with ERP packages But the real Question is – Even after implementation of organization-wide ERP Reason – Functions were still operating in SILOs Have companies realized the proclaimed benefits of ERP and Return on huge investments made in its implementation……… Hence the Need for a Collaborative Approach led to Sales & Operations Planning 4
- 5. Agenda - Overview What is S&OP? How does it differ from traditional Planning? Where does S&OP fit in levels of Planning? A case of Auto-Component Manufacturer S&OP Process Overview – how is it practiced by organizations? Critical Success factors of S&OP implementation Benefits of S&OP 5
- 6. What is S&OP? A decision-making & Business Management process To ensures that the tactical plans in all business functions are Aligned and in support of the company strategy and the business plans and goals. Single Environment for optimally synchronizing Demand, Inventory, and Supply plans While considering costs, revenue and profit objectives of organization 6
- 7. What is S&OP? Formal Business Process spread over 18-24 Months of planning Horizon Product Families (not items) Volume (not Mix) Monthly review Cycle Both product and financial units 7
- 8. What is purpose of S&OP? The objective 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 in a profitable way. Demand S&OP Finance Supply Updated Forecasts S&OP Process Sales Plan Production Plan Inventory Plan Backlog Plan NPD Plan Strategic Initiatives Plan Financial Plan 8
- 9. Why is S&OP Planning? Factors responsible for imbalance between Supply & Demand Promotions New Product Introductions Packaging Changes Changing demand patterns …Wreck havoc in planning Companies that use S&OP – stand competitive advantage by gaining the visibility and agility to improve product management and promotional planning, Help minimize unnecessary build-ups of inventory and better predict revenue Gives a complete picture of forecasted demand, supply capacity and corresponding financial information S&OP is a vehicle for communication that puts the vision, strategy, financial and tactical plans of a business into one unified operating plan in order to optimize the allocation of critical resources 9
- 10. How Does S&OP Differ from Traditional Planning? Review of Planning activities happen at a Higher Level, on a monthly and yearly basis Involves Senior Management to drive consensus Review of Planning activities happen at a products Level, on a daily or weekly basis Involves only department heads and managers S&O Planning Traditional Planning 10
- 11. Where does S&OP fit in Big Picture of Planning? 11
- 12. Hierarchical Nature of Planning Items Product lines or families Individual products Components Manufacturing operations Resource Level Plants Individual machines Critical work centers Production Planning Capacity Planning Resource requirements plan Rough-cut capacity plan Capacity requirements plan Input/ output control Sales and Operations Plan Master production schedule Material requirements plan Shop floor schedule All work centers Medium Range Short Range Planning12
- 13. Let us understand S&OP process through a case of Auto-Component Supplier manufacturer Imagine a case that President of Division – new to the position He could not understand why with 15000 components, he heard problems like Shortage of few Items Incomplete production runs Excessive Inventory Unhappy customers with poor delivery performance 13
- 14. Case of Auto-component Supplier: If he were introduced to 15000 people in stadium,… 15000 MRP Components 14
- 15. Case of Auto-component Supplier: How about he inviting 120 people into a large conference room? 120 MPS Items 15000 MRP Components 15
- 16. Case of Auto-component Supplier: Auto components Family 1 Alternators Family 2 Starter Motors Family 3 Wiper Motors Family 4 Ignition Coils How if we brought FOUR people into his office..? 16
- 17. So, Goal of the Company was decided –Understand Demand for each of these 4 Families and then supply accordingly 15000 MRP Components 120 MPS Items 4 S&OP Families Rate of Production Product Mix Performance 17
- 18. How is it practiced by organizations? The monthly sales and operations planning process End of month STEP 1 Data Gathering STEP 5 Exec SOP Meeting STEP 4 Pre-SOP Meeting STEP 3 Supply Planning STEP 2 Demand Planning Statistical forecasts Field sales worksheet Management forecast 1-st pass spreadsheets Capacity constraints 2-nd pass spreadsheet Recommendations For executive S&OP Decisions Wallace: 2nd edition Sales & Operations Planning18
- 19. Step 1 – Data gathering Month end data Actual sales Inventory Production Sales and marketing All pertinent information 19
- 20. Who brings what to the Table? 20
- 21. Sales Product Family A Jan Feb Mar Apr May June Jul Aug Forecast 100 100 100 120 120 120 120 130 Actual sales 90 95 85 Difference -10 -5 -15 Cum. difference -15 -30 Wallace: 2nd edition Sales & Operations Planning 21
- 22. Production Product Family A Jan Feb Mar Apr May June Jul Aug Planned production 100 100 100 110 120 120 120 130 Actual production 98 100 101 Difference -2 0 1 Cum. difference -2 -1 Wallace: 2nd edition Sales & Operations Planning 22
- 23. Inventory Product Family A Jan Feb Mar Apr May June Jul Aug Planned inventory 100 100 100 142 142 142 142 142 Actual inventory 111* 116 132 Difference 11 16 32 *January Inventory = 103 Wallace: 2nd edition Sales & Operations Planning 23
- 24. Jan Feb Mar Apr May June Jul Aug Forecast 100 100 100 120 120 120 120 130 Acutal sales 90 95 85 Difference -10 -5 -15 Cum. difference -15 -30 Jan Feb Mar Apr May June Jul Aug Planned production 100 100 100 110 120 120 120 130 Actual production 98 100 101 Difference -2 0 1 Cum. difference -2 -1 Jan Feb Mar Apr May June Jul Aug Planned inventory 100 100 100 142 142 142 142 142 Actual inventory 111* 116 132 Difference 11 16 32 *January Inventory=103 Comparing actual to forecast Product Family A Wallace: 2nd edition Sales & Operations Planning24
- 25. Step 2 – Demand planning Sales and marketing review information received from Step 1 Sales forecast By product By family Total 25
- 26. Demand planning team Demand manager Product manager Forecast analyst Sales manager Salesperson Customer service Accounting manager Supply chain manager 26
- 27. Forecasting: Inputs, Process, Outputs INPUTS OUTPUTS Forecasts That: •Are reasoned •Are realistic •Are reviewed •Represent demand THE PROCESS Current Customers New customers Competition Economy New products Pricing Bids Promotions Management directive History Other 27
- 28. Step 3 – Supply planning Bill of resources Rough-cut capacity Demand/Supply Strategies 28
- 30. Bill of Resource Wallace: 2nd edition Sales & Operations Planning30
- 32. Rough-cut capacity planning Wallace: 2nd edition Sales & Operations Planning Total Load % Load = Total Load / Available Capacity 32 Resource Bill
- 33. Demand/Supply Strategies-Constraint Management Product Family: 1 1. Make-to-stock 2. Target customer service level 99% 3. Target finished goods inventory 1 month Product Family: 2 1. Make-to-order 2. Target customer service level 98% 3. Target customer lead time 2 weeks 33
- 34. Step 4 – Pre-SOP meeting Make decisions to balance supply/demand Resolve differences where possible Identify areas of disagreement Develop scenarios Set agenda for Executive S&OP meeting 34
- 35. Step 5 – Executive S&OP meeting Make decisions Authorize changes in S&OP plan Relate Rup version Resolve issues Review performance, product issues, special projects, etc. 35
- 36. What are critical success factors for S&OP? CSF for S&OP Top Management Involvement Ongoing Routine S&OP Meetings Structured meeting agendas Cross- functional participation Participants empowered to take decisions Internal Collaborative process Measurement of Process Supported by Integrated Supply- Demand Planning Technology 36
- 37. Benefits of S&OP Process Links business plan to departmental operations Provides a means to work for a common goal Eliminates counterproductive hidden or unilateral decisions Greater visibility of demand and supply across the company Improved Product Lifecycle Management process Better communication between groups Improved inventory management More predictable revenue management 37
Notas do Editor
- For many years, Organizational functions and departments have preferred to be working in SILOs,Have their own plans and set goals for their functions with respect to utilization, productivity, profitability contribution and customer service without considering impact of their activities on the overall organizational performanceSales and operations planning (S&OP) is an integrated business management process developed in the 1980s by Oliver Wightthrough which the executive/leadership team continually achieves focus, alignment and synchronization among all functions of the organizationRely on a phased approach Develop an “outside-in” sequence of S&OP initiativesFocus on more information, less data Provide effective leadership for the process
- Conflicts in Traditional SystemsIn the past, supply, production, and distribution systems were organized into separate functions that reported to different departments of a company.Often policies and practices of the different departments maximized departmental objectives without considering the effect they would have on other parts of the system. Because the three systems are interrelated, conflicts often occurred. Although each system made decisions that were best for itself, overall company objectives suffered
- http://www.slideshare.net/JadeGlobal/oracle-sales-operations-planning-videoWhat we observed here?Case of working SILOsIndividual Departmental goals and plans ahead of Organizational goalsConflict of interestsNo look at strategy or Strategic planNo communication with other departmental functionsNo working in collaboration …Implications –Dissatisfied customer or loss of saleLoss of credibility – loss of market share
- For years organizations worked in these manner till 1980’s, until the need for integrated and collaborative approach for planning is realized by 1980’s – Companies realized the need for Integrated Data systems and common database for planning 1990’s – Birth of ERP systems have made it easier for organizations for visibility of information on single platformBut the real Question is – Even after implementation of organization-wide ERP systems have proved insufficient to meet challenges with ever increasing complexities & complexitiesTraditional Planning methodologies entailed working as different piece of Jig-saw puzzleHence the need of collaborative planning was felt – gave birth to S&OP process
- It is a decision-making process that ensures that the tactical plans in all business functions are aligned and in support of the company strategy and the business plans and goals. Cost driven Collaborative process to help decide how the operations plan will meet the corporate financial planWhat to sellwho to sell toHow to satisfy demand in spite of constrained resources, materials and working capitalExample of Domino’s strategy – Focus on Customer Service and Rapid Delivery (Responsiveness)Marketing promoting about its rapid service and production department or logistics department waits for Full truck shipments for achieving 100% capacity utilization which is a target set for itself.Example of Wal-Mart – Focus on Providing customers products with EDLP tacticsFor that they have aligned their supply chain network OF DCs around their Departmental StoresTheir focus is reducing cost and not providing multiple option or range of products (Cost)
- - Raise visibility of Supply chain operations to overall organizations- Various business pressuresRising costManaging Customer service levelsNeed to maximize their asset utilizationBring alignment & collaboration to rest of the organization
- The S&OP planning includes an updated forecast that leads to a sales plan, production plan, inventory plan, customer lead time (backlog) plan, new product development plan, strategic initiative plan and resulting financial plan. Plan frequency and planning horizon depend on the specifics of the industryCapacity and Demand Balance:•If capacity and demand are nearly equal emphasis should be placed on meeting demand as efficiently as possible. •If capacity is greater than demand the firm might chose promotion and advertising in order to increase demand. •If capacity is less than demand the firm might consider subcontracting a portion of the work load.
- Background - Each year, the imbalance between supply and demand costs companies billions of dollars in out-of-stocks, excess inventory and excessive discounting. Promotions, new product introductions, packaging changes and changing demand patterns can all wreak havoc on the demand and supply planning process.S&OP is effective because it develops a well coordinated operating plan in support of your customer demand, your business plan and your strategy. All markets are subject to changeOrganizations need flexibility to react to changesCritical Resources - : people, capacity, materials, time and money.
- S&OP supports the traditional planning process, but differs in two ways.First, it reviews planning activities at a higher level, on a monthly and yearly basis, rather than the tactical daily or weekly planning in the traditional process. This is critical as it allows a company to proactively identify and manage upcoming issues like overstock situations, fixed capacity constraints, regional velocity of demand and financial reserve accruals. Secondly, senior management is heavily involved in S&OP with the goal of driving consensus on a single operating plan across business functions.
- Most ERP systems are designed are 3 levels of planningLong Range –Intermediate Range – Short RangePlans are of two different type – Priority plans (what to make and what to sell and how much & when?) and capacity plans (How to make)S&OP fits into Intermediate planning
- We worked for the supplier of automotive components the president of the division was new to the position and could not understand why it with fifteen thousand Components he continually heard that they were short a few items and therefore couldn't complete a production runhe also knew that his division suffered from excess inventory yet customers weregenerally unhappy with delivery performance.
- He wanted to know how we could help, we began by giving him an analogy…if he were introduced to fifteen thousand people in a stadium;would he be able to remember all their names naturally the answer was no.it is practically difficult to control that many no. of components…
- Perhaps it would be easier to control the one hundred twenty finished goods items they shippedso we asked the president if he invited one hundred twenty people into a large meeting room would he be able to remember all their names;Again we agreed,that this was still too many people for any person to rememberso it is in trying to manage that many products
- however the client had four product families alternators starter motors wiper motors and ignition coilsTo complete the analogy we asked the president if we brought four people into his office would he be able to remember for namesthe answer was yes;the smaller number was easier to work with.it could be managed and controlled the same with automotive components…
- Instead of thinking of them is fifteen thousand individual units, think of them in larger aggregated level.The goal for the company was to understand demand for each product familyplan for supply accordinglyGet everyone to agree to the plan and communicate that plan to the master production scheduler…plants.The master scheduler could then take the rate of production for each family and divide it into the mix of items or products needed to ship. This system would explode the bill of material and plan the fifteen thousand components to support the detailed level plan.Finally we would measure our performance and provide the executive management team with the results every month.This is how the S&O works
- S&OP process begins with the creation of a demand plan for the target time period (three to twelve month horizon). Goal of the demand plan is to create a consensus among sales, marketing, product management, field service etc. on what will be sold and what revenue will be produced. Next a corresponding supply plan is created for the time period, which contains rough cut capacity plan, procurement plan etc. These plans are then fed into a pre-S&OP process, where solutions to address this imbalance are formulated. The S&OP meeting then discusses the issues and recommended solutions, reviews alternatives and makes decisions. The S&OP meeting is attended by senior leadership from sales, marketing, operations, finance and other operational areas.
- Reconciliation & Integration Meeting
- Decisions on –Chase StrategyLevel ProductionSubcontracting or hybrid strategy are taken
- Increase plan accuracyIncrease product marginsImprove customer satisfactionReduce costs through efficient use of resourcesDrive organizational flexibilityReduce inventory and obsolescence costsBetter communication between groupsImproved cash flow and Shorter lead timesReduced transportation costsProvides a realistic production plan for meeting business objectives