business forecasting · copyright © 2013 journal of business forecasting ... delivering demand...

J o u r n a l o f

Business Forecasting

LEARN > SHARE > ADVANCE

4 Putting M arketing Back in S&OP By Charles W. Chase, Jr.

V o l u m e 3 2 | I s s u e 12 0 1 3 | s p r I n g

What is the Cost of Your Forecast Error? By Sumit Singh

How Many Demand Planners Do We Need?By Robert Langenhuizen

302616 S&OP and Strategy: Building the Bridge and Making the Process StickBy Duncan Alexander

“

“

Putting M arketing Back in S&OP“

“

E x E C U T I V E S U M M A R Y | Smart organizations share common goals and performance metrics. They are also nimble and work collaboratively, focusing on sustainable strategic objectives. They take a more balanced approach that looks horizontally across the supply chain, virtually eliminating silos and optimizing the process from market-to-market and supplier-to-supplier’s supplier. The new focus on the value supply chain is how companies can listen to their customers, assess the market, and then create a more accurate demand response.

Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Spring 2013 5

C H A R L E S w. C H A S E , J R . | Mr. Chase is the Principal Industry Consultant in Demand Synchronization, for the Manufacturing and Supply Chain Global Practices at SAS Institute, Inc. He is also the principal solutions architect and thought leader for delivering demand planning and forecasting solutions to improve SAS customers supply chain efficiencies. He has more than 20 years of experience in the consumer packaged goods industry, and is an expert in sales forecasting, market response modeling, econometrics, and supply chain management. Prior to that, he worked for various companies including the Mennen Company, Johnson & Johnson, Consumer Products Inc., Reckitt & Colman, Inc., Polaroid Corporation, Coca Cola, Wyeth-Ayerst Pharmaceuticals, and Heineken USA. He is the author of the book, DemandDriven Forecasting: A Structured Approach to Forecasting, and co-author of Brick Matter: The Role of Supply Chains in Building Market Driven Differentiation. He is also an adjunct professor in the North Carolina State University, Masters of Science in Analytics Program.

Putting M arketing Back in S&OPBy Charles W. Chase, Jr.

6 Copyright © 2013 Journal of Business Forecasting | All Rights Reserved | Spring 2013

G iven the current global economic situation, we’d all be shocked if cost savings

and cost containment were not the top priorities for supply chain organizations; but smart organizations don’t just strive to cut costs, they figure out how to make changes that are sustainable for strategic advantage.

This requires a nimble and collaborative organization with similar objectives that include not only the operations and finance functions, but also sales and marketing, all of them, share common goals and performance metrics. Our supply chain equation has been unbalanced from the conceptual point of view. It has always read this way:

SUPPLY CHAIN = S&OP

In the past, the “OP” in S&OP created an unbalanced, equation where organizations unknowingly biased their supply chains by focusing on the supply side of the house, flushing out inefficiencies in operations (e.g., focusing on reducing inventory costs by improving inventory replenishment capabilities) with little emphasis on understanding how to integrate market opportunities and customer needs. Most people don’t realize that the “S” in S&OP stands for sales and marketing, not just sales. We need to recalibrate our supply chain equation to read as:

SUPPLY CHAIN = SM&OP

Now we have a more balanced approach that looks horizontally across the supply chain, rather than virtually eliminating silos and optimizing the process from market-to-market and supplier-to-supplier’s supplier. In other words, SM&OP is the horizontal

process that synchronizes supply to demand, not demand to supply. The new focus on the value supply chain is how companies can listen to their customers, assess the market, and then create a more accurate demand response. Companies that achieve market-driven maturity not only have better demand and supply synchronization but also have greater agility to match supply to demand. Companies that have implemented market-driven supply chains understand how to respond to customer demand and translate that demand into an optimized supply plan with a focus on balancing (or synchronizing) demand and supply. In fact, those same companies are more inclined to sense market changes five times faster and align their supply three times faster to fluctuations in demand. Rapid alignment enables better customer service with substantially less inventory, waste, and working capital. This article will outline the first steps that companies need to take to become market-driven.

SYNCHRONIZING DEMAND PULL WITH SUPPLY PUSH

Today’s business challenges are numerous—globalization pressures, supply chain complexity, rising customer demands, and the need to increase revenues across global markets while continuing to cut costs. Adding to these challenges is the current economy in which the last several years of supply outstripped demand. In addition, the increasing pace of innovation and the need to appeal to broader ranges of consumers are making life cycles shorter and product mixes larger while

global sourcing is making supply lead times longer. As companies increase their geographical reach and look to global sourcing, variable lead times are becoming common. All of these factors are impeding companies’ ability to balance ever-increasing demand with supply. As a result, organizations must have a heightened awareness for better alignment and visibility, and improve their ability to sense and translate demand patterns into actionable profitable operations plans. According to business leaders, demand management is the number one priority for organizations across all industry sectors. But despite technological advances, they still run their most important supply chain processes with Excel spreadsheets. Research conducted by CGT (Consumer Technology) magazine in 2011 indicates that over 50 percent of companies also use spreadsheets to manage the S&OP process. The time for spreadsheets to be replaced with a more robust technology is long overdue.

Twenty years ago, a typical product company’s supply chain function reported to manufacturing and was primarily responsible for inbound materials management and outbound shipping. This traditional view of supply chain is too focused on delivering or matching demand to supply with a strong dependency on reporting results. This is a supply-centric view that puts more emphasis on process and supply efficiency than on the analytics of demand. This traditional supply chain approach was defined as having the right product in the right place at the right time. In their scramble to match demand with supply, companies were blind to profitability—they were focused only on supply replenishment.

Many companies are beginning


to experience what is referred to as “ERP hangover.” Companies that have invested heavily during the last decade in ERP solutions are becoming increasingly frustrated due to the cost/value relationship and the lack of supply chain innovation by ERP technology providers, particularly regarding the lack of focus on sensing, shaping, and translating demand. The focus has been on supply and optimizing inventory, making it difficult to efficiently manage across complex supply chain networks when demand is volatile. Many companies are backing away from continued investments into ERP visions, and opening the door to new, innovative approaches to solving their supply chain problems.

Three things separate best-in-class companies from laggards when it comes to market-driven value chains:• Demand (demand sensing, shaping,

and orchestration) • Supply (sourcing, shaping, and

optimization) • Product (innovation)

When all three are implemented successfully, a company can profitably manage its business. (See Figure 1)

The ideal value supply chain has integration across these overlapping areas: • demand: Marketing, sales, and

service • Supply: Manufacturing, logistics,

and sourcing • Market: Product development,

research and development, and engineering This is a system of processes

and enabling technologies that sense, shape, and respond to real-time demand signals across a value supply chain network of customers, suppliers, and employees. When these processes are integrated, companies

can respond quickly and effectively to market opportunities, arising from customer demand. Supply chains built on this framework can manage demand rather than respond to demand (proactive versus reactive), creating a network, instead of a linear approach to global supply, with the ability to embed innovation in operations rather than keeping it isolated in the laboratory. Historically, many companies used supply to push products through channels. Today, companies are moving to market-driven networks where they sell through the channel pulling inventory through their supply chain network. All of this makes matching supply with demand a dynamic process requiring robust statistical capabilities to sense and shape demand along with supply-shaping capabilities to ensure that the appropriate levels of inventory are in place to address uncertainty, and demand variability.

Despite the evolution in supply chain technology, none are yet able to capitalize on responding to customer demand and translating demand into

a sufficient supply response. This gap is leading to a greater emphasis on demand-driven networks (or supply chains) because demand- driven supply chains allow companies to balance growth and efficiency, cost and customer service, and demand fluctuations better. When companies achieve demand-driven maturity, there is enhanced synchronization and greater agility to match supply to demand versus demand to supply. This enables better customer service with substantially less inventory, waste, and working capital.

In the past, many companies focused on supply, selling into the market channel to obtain operational excellence by matching demand to supply, while others focused on selling through the market-channel sensing demand signals to obtain customer excellence. In both cases, new product commercialization suffered due to fragmented processes and lack of synchronization between demand and supply. Companies that have operated from the traditional supply-driven perspective seem to put more

Figure 1 | Integration between the Marketplace and a Company’s Ability to Synchronize demand and Supply


BEST OF THE BEST S&OP CONFERENCE

APICS and IBF Present

Leverage S&OP tO aLign SuPPLy and demand

The Best of the Best S&OP Conference is the leading event for professionals and organizations seeking to leverage sales and operations planning (S&OP) to balance supply and demand and achieve financial results.

Educational sessions cover a range of topics including• managing and mitigating risk using S&OP• bridging the gaps between strategic business goals and operating plans through

integrated business planning• extending your S&OP process outside the organization and across the supply chain• avoiding the “S&OP wall” and keeping the process going• effectively using forecasting and demand planning in the S&OP process.

Team rates are available. By sending a cross-functional team to the Best of the Best S&OP Conference, you can enable communication and collaboration across sales, marketing, finance, and the supply chain functions.

Now in its sixth year, the Best of the Best S&OP Conference is renowned as a global gathering of the brightest minds in the field. Past presenters have represented companies including• BASF• Kimberly-Clark Corporation• Kraft Foods• Motorola • Rolls-Royce• SC Johnson EU.

MAY 16-17 2013

LONDON

LONdON, ENgLaNdCOPThORNE hOTEL SLOugh-WiNdSORRegister before March 29 and save £60.

juNe 13-14 2013

CHICAGO

ChiCagO, iLLiNOiS, uSahiLTON ROSEMONT/ChiCagO O’haRERegister before May 5 and save $100.

Teams of three or more save on registration.

ibf.org/apicsibf.cfm or +1-516-504-7576

emphasis on supply replenishment while commercialization suffered due to fragmented processes and lack of synchronization between demand and supply. Also, demand was fairly stable with only a few competitors. So, it made sense to strive for operational excellence that flushed out all the inefficiencies associated with supply (reducing inventories, shortening supplier lead times, and implementing more agile manufacturing capabilities). However, as companies became more global, they were stretching their lead times while practicing lean management. They found themselves unable to react to the recent economic downturn, which created high carrying costs as inventory escalated due to lower demand for their products. It required months of product discounting to sell those inventories through the market channels, reducing profit margins resulting in lost revenues. This situation led to putting more emphasis on sensing demand signals as well as shaping and responding to demand. Figures 2 and 3 illustrate these points.

Once companies achieve oper-ational excellence and begin to move from being supply-driven to demand-driven, there is a need to transform existing processes to maximize market potential while reducing risk. This transformation focuses on sensing demand signals and shaping future demand to create the most profitable demand response based on domain knowledge and analytics. Companies like Dell, Cisco, Intel, and Samsung have invested in supply chain excellence as a core competency and understand the value of demand-driven concepts (demand sensing, demand shaping, and demand translation). The economics of each of the companies’ markets have made it

necessary to synchronize supply with demand. Demand-driven companies are defined by four characteristics: 1. demand sensing: The ability to

sense and respond to demand fluctuations in near-real time. A good example is Walmart Retail Link®. Weekly, store-level sales detail provides the same kind of visibility into Walmart’s price and promotion demand response that companies used to get only from trade channels reporting POS to Nielsen and IRI. They can measure the effect of advertising and consumer promotions on their products in Walmart, decompose

the volume (demand), and communicate it directly to their customer-facing warehouses.

2. demand shaping: As companies mature and learn demand-driven concepts, they quickly learn that it is not enough to sense demand, but it is critical to actively shape demand to take advantage of market opportunities. This requires a collaborative process that spans functional silos (sell, deliver, make, and source) to enable market-to-market corrections to stimulate and drive demand. There are several demand-shaping levers:

a. Price

Supply-Driven

Inward Focused

(Inside-Out)

Selling into the channel (push)

Data Integration Market Supplier

Replenishment

Shipments

Supply Replenishment Distribution Requirements Planning Inventory Optimization

Figure 2: Supply-Driven Companies Focus on Obtaining Operational Excellence

Demand-Driven

Supply-Driven

Outward Focused

(Outside-In)

Consensus Forecasting & Planning Demand Shaping Demand Sensing


Selling through the channel (pull) Point-of-Sale


Replenishment

Shipments IRI/Nielsen

Customer Orders

Inward Focused

(Inside-Out)


Figure 3: Demand-Driven Companies Focus on Customer Excellence

Figure 2 | Supply-driven Companies Focus on Obtaining Operational Excellence

Figure 3 | demand-driven Companies Focus on Customer Excellence


b. Sales promotions c. Sales/channel incentives d. Market programs (events) e. New product launches f. Sale of slow and obsolete

products (commonly known as SLOB)

These levers can speed up or slow demand. The secret to being demand-driven is to actively shape demand to maximize profitability, and to ensure alignment to deliver against the market opportunities. An example of demand sensing and shaping is Dreyer’s Grand Ice Cream division of Nestlé USA. Dreyer’s senses demand signals associated with sales promotions of their products and uses sales promotions to shape future demand.

3. demand shifting (steering): This refers to the ability to promote another product as a substitute if the product originally demanded was not available, and/or move a sales and marketing tactic from one period to another to accommodate supply constraints. It is especially useful if demand patterns or supply capacity changes suddenly to steer customers from product A to product B, or shift demand to a later time period. There are two types of demand shifting.

a. Demand Shifting at the point of sale. This occurs when a company influences a customer to pur-chase an alternative product using sales and marketing incentives when a product is out-of-stock or backlogged.

b. Demand Shifting at the point of supply. This is done when the operations planning and manufacturing teams negotiate with the sales and marketing teams during the Sales &

Operations Planning (S&OP) process to shift unconstrained demand to a future date due to supply capacity constraints. .

4. Focus on selling through the channel: As companies imple-ment demand-driven supply chains, the focus shifts from selling into the channel to selling through the channel. It also shifts from a product-based focus to a value-based focus that combines products and services. For example, in the carbonated soft drinks industry, Coca-Cola realized that young consumers were looking for an alternative to coffee for breakfast. This realization drove new package platforms and demand for Coca-Cola Classic and Diet Coke. Now it’s not unusual to see young business professionals drinking Coca-Cola or Diet Coke for breakfast.

The bottom line is that demand-driven processes are designed from the market backwards, and are aimed at sensing demand signals and using those demand signals to shape future demand. Almost all companies in advanced stages of becoming demand-driven have strong executive sponsorship to help navigate through the complexities of the political environment. These companies also focus continuous improvement efforts on sensing and shaping demand while maximizing profit. Those demand-driven companies that are leaders in demand synchronization (matching supply to demand) tend to see significant improvements in: • Inventory reduction • Order fulfillment rates • Forecast accuracy at the product

level (accuracy > 70 percent) • Forecast accuracy at the SKU level • Market share

• Gross profit margin • New product launch commercial-

ization

USING SM&OP DIVIDED BY FINANCE TO SYNCHRONIZE DEMAND AND SUPPLY

S&OP has been around since 1987—nearly 25 years. Companies at that time, whether they focused on being supply-driven or demand-driven, were implementing S&OP processes. However, those S&OP processes were not synchronized across their supply chains horizontally; rather, they were coordinated vertically with the emphasis on either supply or demand. In most cases, companies were more focused on supply and replenishment.

S&OP is critical to supply chain success. Every company needs a navigation system to help determine where you are going, where you have been, and, when you are off course, how to get back on. Successful S&OP provides that navigation and a set of instruments for piloting through turbulence. Imagine a pilot flying from New York to Los Angeles at night without a navigation system or any instruments to measure location, wind speed, or altitude. What are the chances of that pilot actually getting to LA? Can the plane arrive on any predictable timetable? Chances of that are slim to none. A modern pilot embarks with a general flight plan, but then monitors a continuous readout of key metrics and makes numerous small course corrections to help arrive at the proper destination on schedule. It’s the same for business. If the forecasts are low, the organization


Demand-Driven

S&OP

Supply-Driven



Selling through the channel (pull)



Replenishment

Shipments

Customer Orders Point-of-Sale

Inward Focused

(Inside-Out)

Outward Focused

(Outside-In)

IRI/Nielsen

Figure 4: Integration of Demand and Supply through the S&OP Process

experiences stock outs and lost sales (and profits). If the forecasts are high, the organization gets stuck with excess inventory that soon becomes obsolete (and sold at a loss just to move it). Supply chain success comes from accurate demand forecast, which requires effective S&OP flight planning.

But S&OP is more than getting product line managers in a room to agree on a demand forecast, and it’s more than using good modeling and simulation software (both of which are a must). Proper S&OP planning requires sales, marketing, and operations (and product line management) working collaboratively towards a realistic and trustworthy demand forecast. Integrated S&OP requires both horizontal integration (bringing together demand and supply planning), and vertical integration (bringing together finance and operations functions). (See Figure 4)

According to recent research, many companies that have implemented an S&OP process still have limited technology capabilities. In fact, more than 46 percent of those companies are still using Excel spreadsheets and other relatively unsophisticated technology to manage their S&OP processes. The lack of technology sophistication and integration creates inconsistencies and an inability to truly synchronize demand and supply. Although, research suggests that navigating a successful S&OP journey is 60 percent change management, 30 percent process, and 10 percent technology, without the technology component, you will have limited success.

An example of successful inte-gration is of a leading consumer electronics company that successfully balanced technology with process and

was able to develop one of the world’s best S&OP processes. The company discovered that an executive-led team was able to fine tune the demand and supply balance of all its major businesses using downstream POS data, forecasting, and S&OP as well as technology to conduct scenario planning (demand and supply shaping). This is synchronized S&OP.

According to a recent survey conducted by CGT magazine, more than 50 percent of companies intend to make investments in their S&OP process and enabling technologies within the next 12 to 24 months. Roughly 25 percent surveyed cited technology-related issues (lack of integration and data quality), and demand sensing, shaping, and process adoption as major impediments that were stifling their ability to successfully implement S&OP.

It has been found companies that have successfully implemented an S&OP process understand it is a journey of several years. Those companies have combined process, analytics, and technology to support and enable the change management

activities to evolve their business, market, and products. They also make sales and marketing accountable for sensing demand signals and shaping future demand to create a more accurate demand response. This is a radical change in the process. In addition, Finance’s role changes with a focus on assessing the implications of sales/marketing activities, such as whether or not those sales promotions actually make a profit. So, instead of providing another input into the consensus forecasting process, which essentially says, “roll last month’s miss into next month and hold to the annual plan (also, known as “Hold-n-Roll”), Finance needs to provide financial analysis. On the other hand, Finance should also be assessing the operations side of the business to assure they provide the most efficient supply response to meet demand. The Financial Plan is just that—a “plan,” or guide, not the current demand forecast or supply plan. Figure 5 outlines the new roles and responsibilities, as well as the goals of synchronizing the S&OP process that fits supply to demand, not demand to supply.

Figure 4 | Integration of demand and Supply through the S&OP Process


So, if you are doing real S&OP your supply chain, equation should be:

Supply Chain = SM&OP/ Finance

The final stage in the supply chain excellence journey is to become market-driven. To become a truly market-driven company requires complete integration between de-mand and supply with a focus on selling

through (also known as pull-through) the channel based on customers’ needs. This requires a robust S&OP process that is enabled by technology to synchronize demand and supply.

Companies often make the mistake of thinking of S&OP as a thing — it’s a discipline, a culture, and a state of mind. If you could solve S&OP by writing a check, everyone would have done that already. You need

leadership, supply-driven and demand-driven optimization, col-laboration, governance, and pretty darn smart people to make S&OP a guiding principle in your organization. It’s an important point because the value that can be realized from S&OP far outweighs the costs involved.

As shown in Figure 6, market-driven companies focus on complete demand orchestration to synchronization of demand and supply. Companies like Cisco and Dow, which are truly market-driven and understand the factors that influence demand, use demand synchronization (also known as Orchestration) to grow their market share and maximize revenue and profit. They also tend to shape future demand projections through collaborative fulfillment responsiveness, which is focused on visibility and control throughout the supply chain to coordinate activities with actual demand. Cisco learned that lesson through experience and they do it best. Burned in the dot.com downturn

Figure 6 | Market-driven Companies Focus on Complete demand Orchestration to Synchronize demand and Supply

Market-Driven

Demand-Driven

SC=SM&OP/Finance

Supply-Driven



Selling through the channel (pull)


Replenishment

Shipments

Customer Orders Point-of-Sale

Outward Focused

(Outside-In)

Inward Focused

(Inside-Out)


Figure 6: Market-Driven Companies Focus on Complete Demand Orchestration to Synchronize Demand and Supply

5

Figure 5: Goals of the Sales and Operations Planning Process

Supply

Demand Sales/Marketing

Operations Planning

Goal: Increase Profit Margins, Market Share, and Revenues Needs: Product availability. Forecast: Unconstrained Demand Purpose: Sales/Marketing Plan

Goal: Optimize inventory and lower supply costs Needs: Stable and Accurate Forecast Forecast: Constrained demand forecast Purpose: Supply Plan

Goal: Make budget, lower costs, increase revenue Needs: Access to sales/marketing programming, and supply costs Forecast: Final Constrained top/down forecast Purpose: Annual Financial Plan

Fin

an

ce

Su

pp

ly C

ha

in

Reduced forecast variability and supply disruptions Goal: Feasible Supply Plan Needs:Forecast: Constrained bottom-up forecast Purpose: Supply Plan

Figure 5 | Goals of the Sales and Operations Planning Process


in the late 1990s with inventory write-offs of $2.1 billion, Cisco had taken action to redesign its supply chain to better sense, shape, and translate demand. Cisco recognized the 2008 economic downturn in the first 30 days and aligned its extended supply chain within six weeks. However, for most companies it was a very different story. During the last five years, Cisco and Dow have been using SAS’s award-winning, large-scale, automatic forecasting capabilities to sense demand signals and shape future demand.

Companies that are market-driven understand the factors that influence demand and they use demand orchestration to increase their market share and maximize revenue and profit. They also tend to shape those demand projections through collaborative fulfillment responsiveness, which use visibility and control throughout the supply chain to align activities to actual demand. Those companies have implemented a collaborative S&OP process that allows them to match supply to demand, and provides supply planners with the ability to shape supply using multi-echelon inventory optimization and “What If” analysis. S&OP is vital because it’s the time when constrained supply must be considered along with plans and expectations of sales and marketing (whose job is to generate demand). An effective S&OP process does much more than reconcile mismatched supply and demand. It also allows businesses to make conscious trade-offs (also known as Demand Shifting) among customers, financial plans, and market realities.

The first step in an effective S&OP process is to sense demand signals and shape future demand (demand determination), which is matched

with supply, and then a dialog follows to address constraints and tradeoffs resulting in a synchronized operational supply plan to meet demand. Leaders recognize that S&OP is really a process that attempts to operationalize business goals and objectives through the organization, rather than a supply chain driven set of sequential steps to reach consensus. They orchestrate demand sensing and make conscious tradeoffs (demand-shifting) for demand shaping to drive a synchronized demand response. These leaders in S&OP have confirmed the benefits of financial growth, forecast accuracy, and improved ability to translate demand into profitable supply plans. A good example is Cisco, which understands the value of balancing demand for its products with supply through the use of a strong S&OP process supported by data and analytics.

DOW CASE STUDYDow, a science and technology

leader with annual sales of $45 billion, supplies more than 5,000 products to customers in 160 countries from 188 manufacturing sites in 35 countries. Dow has approximately 45,000 customers worldwide being serviced by 300 warehouses, 122 terminals, and 2 million shipments each year, or 1.5 million orders per year. Through the adoption of demand-driven principles and the execution of best-in-class work processes and tools, Dow’s vision was to enable its businesses and value streams to more profitably balance demand and supply while reducing inventory and improving product availability. Dow was experiencing:• Business performance mismatches

with corporate expectations,

• Poor operational execution that wasn’t matching corporate strategic intent,

• Large cash investments in inven-tories,

• Frequent schedule changes driven by unexpected customer demand, and

• Unbalanced asset usage. Dow decided to transition from a

supply-driven organization to become more demand-driven by: • Enhancing cross-functional partici-

pation and management of de-mand and supply,

• Balancing forecast push and de-mand pull,

• Increasing the flexibility and speed of its operations,

• Highlighting the need for increased cash flow management at all points in the economic cycle, and

• Eliminating waste in work processes and material flow. Upon completion of their supply

chain journey to become more demand-driven with the help of data and analytics, Dow was able to create a more realistic and feasible plan, monitor progress against those plans, align its strategy with operational mix while reducing inventories and improving product availability, and finally, maintain consistent production plans and asset usage while meeting overall inventory objectives.

Upon completion of their demand-driven reshaping, Dow is becoming a market-driven organization that could now identify market opportunities, sense demand signals, and shape demand while synchronizing supply to demand. By selling through its market channels with less inventory, waste, and working capital, Dow was able to reduce supply costs while increasing revenue and profit margins.


CONCLUSIONThe supply chain journey has clearly

demonstrated that there is a strong correlation between demand visibility and supply chain performance. Also, it has shown that demand orchestration requires becoming market-driven integrating operational and customer excellence with a focus on synchronizing demand and supply through the S&OP process. Yet for most companies, there’s still a wide gap between the commercial side, with its understanding of the market and plans for demand sensing and shaping, and the supply chain side, with its ability to support these efforts.

Demand sensing as a core capability isn’t new; syndicated data, customer insights, and focus groups have guided marketing and promotional efforts for over the past several decades. The challenge is how to translate these

demand insights into actions that drive a profitable supply response. S&OP offers a vehicle to bridge the gap between the conflicting objectives of the commercial and supply chain forecasts and plans. Working with the supply chain group, the sales and marketing functions should discuss the feasibility and profitability of traditional shaping activities, such as product discontinuation, introduction, or promotion. But for many, the S&OP process has evolved into an operational meeting where the supply chain is scrambling to fulfill already-planned commercial commitments. To facilitate better demand sensing and shaping, this process must look beyond the operational timeline. Many companies are still stuck in an S&OP process that focuses on business in the current quarter. Oftentimes, the supply response for major demand-sensing and demand-shaping activities

requires a longer lead time to align supplies and manufacturing capacity. The greatest value comes when S&OP discussions focus not only on the short-term horizon, but also on the mid- and long-term horizons.

Aligning the business closely with business financial goals is also very important. Integration between S&OP and financial planning is, at most times, redundant and superficial. Rather than planning activities to map to capabilities, the exercise more often focuses around the financial plan and worries about delivery second. It is still a top-down process, where financial plans are converted to unit forecasts that the supply chain seeks to reach. Subsequently, those financial forecasts give little guidance to the supply chain on mix requirements. The problem is further compounded when you look back into the supply chain. To close the commercial and supply chain gap, integration between the financial plan and unit forecasts must be an iterative process through what-if-analysis (demand shaping) exercises, driven by sales and marketing that synchronize unconstrained demand, constrained capacity, and initial financial plans to drive revenue and profitability.

Finally, in order for the S&OP process to properly synchronize demand and supply, there needs to be jointly owned key performance metrics. Locally optimized silo metrics serve only to sustain the gap between sales and marketing, finance, and the supply chain teams. For this reason, formulating KPIs (Key Performance Indicators) that define team success in serving a market or channel is critical to closing the gap and creating shared success. So, the question you need to ask yourself is this: “Where do you want to be when the next whatever happens?” ([email protected])

Make better decisions faster to maximize profits and meet customer service levels with Infor SCM solutions: • Infor Sales & Operations Planning• Infor Supply Chain Planning• Infor Supply Chain Execution

Copyright 2013 © Infor. www.infor.com. All rights reserved.

www.infor.com [email protected] • 800-260-2640







PRSRTSTD

U.S. Postage

PAID

Birmingham, AL

Permit No. 394

J o u r n a l o f

Business ForecastingP.O. Box 670159Flushing, New York 11367-0159

POSTMASTER:

PLEASE RUSH! CONTAINS DATED MATERIAL

DemanD Planning, Forecasting, & s&oP

o N - S i t E

t R A i N i N G

Contact ibf for Details

Call +1.516.504.7576 or

email us at [email protected]

to schedule your on-site

Corporate training any where

in the world!

tel: +1.516.504.7576 | email: [email protected] | web: www.ibf.org

A D V A N t A G E S :

• BENCHMARkS & BEST PRACTICES: Gain access to valuable benchmarking data, as well as best practices that successful companies are using to win in today’s marketplace. Identify the gaps in staff skills, processes, and technology and correct them through hands-on learning.

• UNLOCk THE POWER OF YOUR ERP / DEMAND PLANNING SYSTEM: Learn to leverage the power of your ERP for improved demand planning & forecasting. Most companies only utilize a small percentage of their system’s features. Let us teach you how to take advantage of its capabilities.

• VALUABLE BONUS MATERIALS: Case studies, exercises, data-sets, templates, and complete presentation slides.

• CERTIFICATION PREPARATION: IBF’s training program prepares participants for the IBF’s Certified Professional Forecaster (CPF) and Advanced Certified Professional Forecaster (ACPF) exams. You have the option to combine the training with IBF’s certification exams.

“ The workshop was very thorough and introduced valuable forecasting concepts. It also stimulated discussion on our business process relating to forecasting.” — C. Eland, Demand Management, SC JOHNSON

“ More than the enjoyment, I learned so much from the real life examples and exercises. The speaker was extremely accommodating of questions.” — Elizabeth Tambongco, Business Planning Manager, THE PUREFOODS HORMEL CO

“ I loved it! The structure was outstanding. The instructor was confident. He knew the topic extremely well.” — Sameera AlMasool, Corporate Planning, SAUDI ARAMCO

BayerBiometBombardierCadburyCaterpillarColemanCotyCumminsDel Monte FoodsDupontGAPGenentechGlaxoSmithKlineGoodyearHeinzHospiraJohnson & Johnson/DepuyMattelMcCormickMerckMicronMolson

Motorola/GoogleNestle/GerberNikePfizer/WyethPhilip Morris/AltriaRolls RoyceSABICSan Miguel FoodsSanford BrandsSartomerSaudi AramcoSC JohnsonSocial Security AdministrationTrek BikesUSAAUlineVietnam BreweriesWhirlpool

Companies that have participated in IBF’s In-House Training include (partial list):

LEARN > SHARE > ADVANCE

business forecasting · copyright © 2013 journal of business forecasting ... delivering demand...

Documents