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Sales and Operations Planning

What Works & What Doesn’t

Joseph Kirchner, CPIM

October 2010

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S&OP is a process led by senior management that, on a monthly basis,

evaluates revised, time-phased projections of supply, demand and the

resulting financials. It’s a senior management decision making process that

ensures that the tactical plans in all business functions are aligned and

support the business plan.

The objective of S&OP 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 needs in a profitable way.

Sales and Operations Planning - Defined

Definition source: www.oliverwight.com

Sales and Operations Planning is a:

Decision-Making Process

to

Balance Demand & Supply

(at the Volume Level)

and to

Integrate Financial & Operating

Plans

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Differences in a Sales/Supply Meeting vs. S&OP

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Weekly Sales/Supply Meeting

• What are today’s backorders?

• What do we need to expedite this week?

• Should we adjust the forecast for 690’s?

• Are we really going to sell the 5,000 E101’s

that the Account Manager forecasted?

• Customer ordered 1,000 E202’s that were

not forecasted by the Account Manager.

Can we produce them?

• When will the XXX PO arrive?

Characteristics

o Detail oriented

o Addresses today’s priorities

o Results in the short-term execution plan

Why It’s Not S&OP

• Not product family oriented

• No (direct) connection with business plan

• President / GM not involved

• No discussion of $$ or profit

• No discussion of plant/supplier capacity

• No long term action items

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Monthly S&OP Meeting

• Category X is 25% behind the YTD Budget.

What is being done to correct this?

• Sales has cut the forecast for YYYY, but the

production plan has not changed. Inventory in

August will be 45% over plan.

• Inventory for PDIF is running at 30 days’

supply, while the target is 60 days.

• Customer announced that they will not order

during Sept. to reduce year end inventory. What

is the impact on our forecast and production plan?

• XXX is 50% below plan for the second year in a

row. Should we abandon the product line?

Characteristics

Senior management involved.

Product family oriented, not SKU’s.

Aggregate sales, production & inventory

Longer-term horizon: 3 – 12 months

Accountability to business plan

Driven by key performance measures

Action plans to align operations with

the business plan.

Differences in a Sales/Supply Meeting vs. S&OP

What are the Benefits ?

Hard Benefits:

Higher Fill Rates

Lower FG & RM Inventories

Shorter Customer Order Lead Times

Shorter Purchase Lead Times

More Stable Production Rates

Less Unplanned Overtime

Lower Operating Costs

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Soft Benefits:

Enhanced Teamwork - Operating Level Mgt.

Enhanced Teamwork - Executive Mgt.

Improved Access to Important Information

Better Decisions with Less Effort and Time

Better Financial Plans with Less Effort and

Time

Greater Accountability

Greater Control

Top Management’s

Handle on the Business

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Sales

Rolling 12 – 18 month product family sales forecast

Fiscal year deviation from budget/plan

Customer Service measure

Realistic new product introduction schedule

Production

Rolling 12 – 18 month product family product plan

Comparison of actual vs. planned production

Plant manpower requirements

Plant operating schedule – open / close dates

S&OP Deliverables

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Purchasing

Supplier Performance Reporting

Supplier Capacity Analysis

Sourcing Plan

Inventory Management

Rolling 12 – 18 month inventory projections

Deviation to budget

Analysis of inventory turns and days’ coverage

A More Accurate Forecast

S&OP Deliverables

The Monthly S&OP Process

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End of Month

Step #1

Run MonthEnd Reports

•Statistical Forecasts •Field Sales Worksheets

Step #5

ExecutiveS&OP Meeting

•Decisions •Company

Game Plan

Step #4

Pre-SOPMeeting • Recommendations &

Agenda for Exec Meeting• 3rd-pass spreadsheets

(consensus, alternatives, what-ifs)

Step #2

DemandPlanning

• Management Forecast• 1st-pass spreadsheets

(with new forecast)

Step #3

SupplyPlanning • Capacity constraints

• 2nd-pass spreadsheets(with new production plan)

S&OP: Key Points

Balance demand & supply

Harmonize units & dollars, one set of numbers

Focus is volume and medium/long term

Monthly cycle

Cross-functional

Decision-making

Window into the Future

Top Management’s Handle on the Business

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S&OP

What Works and What Doesn’t

WORKS

Insist on Highest Level Participation as Possible

Have Cross-Departmental Participation

SCM Prepare, Analyze, Facilitate the Forecasting Process

Review Past, Focus on Future (3-18 Months)

DOESN’T WORK

Try to Succeed With Mid-Low Level Representation

Limit the Participants to Friendly Parties

Allow Sales to Own the Forecasting Process

Dwell on the Past, Look Out Only 1 to 6 Months

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S&OP

What Works and What Doesn’t

WORKS

Use the Forecast Before it is Perfect

Use Metrics to Measure Success

Use Pareto Analysis (Over & Over)

Focus on the Business Processes that are Needed

DOESN’T WORK

Expect the Forecast to Precisely Predict the Future

Manage by Feel or Intuition Alone

Assume all Products are Created Equal

Think the System is the Silver Bullet

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S&OP

What Works and What Doesn’t

WORKS

React to Near-Term Spikes

Learn to Speak in Terms of Each Participant

Use Lag Time Analysis

Strive for Consensus

DOESN’T WORK

Change the Forecast after the fact

Use only APICS Jargon

Review 1 Month Back/Forward

Insist on Winning Every Argument

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S&OP

What Works and What Doesn’t

WORKS

Take Notes & Follow Up

Prepare an Agenda – Run a Good Meeting

Celebrate Successes

DOESN’T WORK

Assume People Will Do What is Assigned to Them

Run a Disorganized Meeting

Dwell on Failures

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Summary

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• It’s the Business Process, not the software that

makes the difference.

• Get started now and perfect it as you go along.

• Paretto, Paretto, Paretto

• Assign Responsibility and Follow-Up

• Gain Consensus Whenever Possible

• Develop and Use Metrics (Not too Many)

• Set Fair, Achievable Goals