7/27/2016

Sales & Operations Planning Demand Driven Makes the  Difference Christoph Lenhartz Master Instructor, DDI Managing Director, Catena Strategies Copyright © 2015 Demand Driven World

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Topics 1 Why S&OP? What is it? 2 What problems do we encounter? 3 What can we do?

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How Fast Can you Answer These? 1. Where should you increase capacity; how would this impact cost and  supply chain performance? 2. How would a new supplier affect cost, service level and bottom line? 3. What is the impact of your sales forecast on operations? 4. How would the transfer of work from one plant to another impact  transportation and production capacities and cost? 5. What data do you need to improve forecast accuracy? 6. Which activities create value for customers and your company;  which  don’t? 7. Can sales people quickly assess the impact of a new order on  operations? 8. Can you increase output with current capacity/resources? How would  this impact cost and stock levels? 9. Where do you have too much or too little capacity? 10.Does the product‐mix fit resource profile? Copyright © 2015 Demand Driven World

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Help! We are drowning in an ocean of data without  being able to drink.

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What Is S&OP?

Foto credit: Library of Congress Copyright © 2015 Demand Driven World

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What Is S&OP ? Supply 

Demand

”A set of decision‐making processes to balance demand  and supply, to integrate financial planning and  operational planning and to link high level strategic plan  with day‐to‐day operations.” APICS Dictionary 14ed Copyright © 2015 Demand Driven World

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Purpose of the S&OP Process

To enable growth

To reduce cost  and working capital

To reduce iterations  and workload

• • • •

Improve service levels (availability, lead times) Focus on opportunities also outside the forecast Ensure capacities and resources are in place when needed Create operational base for better margins, more sales, new market  offerings

• Balancing demand and supply from a cost effective perspective • Differentiated planning strategies, planning and performance level • Parameter setting 

• One aligned and committed plan at management level • Transparent and fast decision making and communication of action  plans • Clear rules and prioritisation guidelines for tactical and operational  level Copyright © 2015 Demand Driven World

S&OP in the Planning Hierarchy

Polices, rules and parameters

Yearly

Monthly

Process cycles Focus level

Product group, capacity group

• Commercial strategy (markets,  customers, products)  • Requirements for new production  facilities 

Monthly

Product group, capacity group

• New customers/ development of  existing customers/ campaigns  • Change production capacity (shifts)  or subcontract‐ting Build up/reduce  inventory 

Tactical planning 1-3 months

Weekly

SKU level, between orders capacity • Overtime/time off in production/  level

Operational planning 6 weeks

Weekly/ daily

Strategic planning up to 5 years

Yearly

Sales & Operations Planning 2-18 months

Weekly /daily

Weekly /daily

Opportunities/actions

• Levelling demand/prioritisation 

temporary employees • Build up/reduce inventory 

Actual planning data and capabilities

Planning buckets

SKU level, • Prioritisation between orders individual • Overtime/time off in production capacity • Build up/reduce inventory

Copyright © 2015 Demand Driven World

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How Can we Answer the Critical Questions? How About “What if” / Scenario Analysis? (Try to) Identify all relevant variables, build a gigantic model and feed the beast.

But… • The Uncertainty Principle of SCM • Even small changes can lead to very different results • The relevance of variables may change; again very different results • What about data quality? Copyright © 2015 Demand Driven World

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The Software Industry Has Already  Entered the Game More transparency • If only we could replace Excel with a system that would immediately assess the  impact of a potential decision on capacity (the data is complete, consistent, and  correct, isn’t it?) Increase system intelligence • If only the system would suggest us how to fill empty capacity with sellable  product (still dreaming of 100% utilization everywhere?) Seamless integration • Sales, operations, purchasing, finance: all systems and functions are integrated  (so we can finally get rid of these boring S&OP meetings…) • Interfacing can’t be that difficult, right? (we already forgot how much time and  money went into interfacing the latest ERP with legacy systems)

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S&OP Performance Is far From Satisfactory While S&OP is a key element in building agile and performant supply chains,  S&OP maturity is not wide spread. • Agility is the ability to have the same performance in cost, quality, and customer  service given any level of demand and supply volatility • Most processes are over 15 years old; yet, only 46% of companies feel their  processes are effective. • Building an effective S&OP process takes many years (3‐7). • Like a marriage, it requires continuous readjustment and renewal. • The journey is hard work; too important to incur a mistake, or experience a setback. Copyright © 2015 Demand Driven World

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Tales by a Lonesome Cowboy

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Why Is S&OP a Challenge? 1. 2. 3. 4. 5.

Using a linear paradigm Sales & Marketing don‘t buy in Data quality Decision making Too much emphasis on technology

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Men’s Dream – the Magic Number

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“The answer to the ultimate question of life, the  universe and everything is 42.” Douglas Adams  (“The Hitchhiker's Guide to the Galaxy”)

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The Linear Paradigm

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The Uncertainty Principle in SCM

Structure and  behavior of  THINGS can be  determined

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Determining the  behavior of a  PROCESS requires  knowledge of  future

• To know the future we use probability • The probability of occurrence of an event is limited • The higher the aspired accuracy the higher the number of underlying  events, variables, data points, and relationships Conclusion: The higher the aspired (forecast) precision, the lower the  likelihood of its actual occurrence as planned (result and timing) Copyright © 2015 Demand Driven World

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Sales & Marketing

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• Sales & Marketing understand importance of S&OP • 80% of sales respondents believe demand and  supply planning is “extremely important”.

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Sales & Marketing Are not on Board

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Data Quality

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“In God we trust, all others must bring data“

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Decision Making

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What do we now about priority by due date?

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Management is Decision Making

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• How many decisions can a manager make in an  hour, a day, a week? • Which are the most important decisions? • What is constraining the decision making? • Management attention!

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Are we Making Urgent or Important Decisions?

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Deciding in an Uncertain Environment

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There is no certainty – only different degrees of uncertainty. Anton Chekhov (1860‐1904)

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Deciding in an Uncertain Environment

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Time adds relevant information so that uncertainty is reduced.

Conclusion: Under uncertainty every decision should be delayed until the last moment. Copyright © 2015 Demand Driven World

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Decisions Should Be Demand Driven

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Actively Plan and Manage the Decision Making With a Buffer

2 hours

1-2 weeks

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7/27/2016

Due date

Deci sion

Preparation

4 weeks

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Too Much Focus on Technology

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• S&OP software can improve the S&OP process • Technology is useful but not sufficient

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Let‘s Put the Elements Together 1

Linear Paradigm Uncertainty Princicple

Accept and cater for variability

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Relevance for Sales & Marketing

Size buffers to satisfy real demand

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Data quality

Create resilience against inaccuracy

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Decision Making

Prioritize and buffer manage

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Focus on Technology

Use a robust and practical concept,  don‘t increase complexity

Copyright © 2015 Demand Driven World

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Demand Driven Sales and Operations  Planning • Demand Driven Sales and Operations Planning (DDS&OP) is a bi‐ directional integration point between the strategic (annual,  quarterly, monthly) and the tactical (weekly, daily, hourly)  relevant ranges of decision making. • DDS&OP sets key parameters of a Demand Driven Operating  Model based on business strategy, market intelligence and key  business objectives (strategic information requirements). • DDS&OP also projects the model performance based on the  strategic information and requirements and various model  settings. • Additionally, DDS&OP uses variance analysis based on past model  performance (reliability, stability, velocity) to adapt the key  parameters of a Demand Driven Operating Model and/or  recommend strategic alterations to the model and project their  respective impact on the business. Source: DDI Copyright © 2015 Demand Driven World

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Demand Driven Adaptive System Schema Strategic Business Management

Tactical Flow Management  Tactical Relevant Range (Hourly, Daily, Weekly)

Strategic Relevant Range (Annually, Quarterly, Monthly)

DDS&OP

Model Parameter Management Model and part   parameters

Actual orders

Demand Driven  Operating Model 

Business Plan 

(DDMRP, DDDRP, Demand  Driven Scheduling &  Execution)

Demand Driven  Variance Analysis

Strategic  Direction

Plan Parameters

(financial expectations)

Demand Driven  Model Projections

Strategic Planning  (market intelligence,  business objectives,  strategic decisions)

Strategic Options &  Recommendations

Source: DDI

Control, Measure, Adapt & Project Copyright © 2015 Demand Driven World

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DDS&OP Schema

Capabilities

Performance targets

Demand Driven Model Projections Control, measure, adapt and project

Model paraemeter management

Plan Parameters

Demand Portfolio New activities

Model and part parameters

Demand Driven Variance Analysis

Demand Driven Operating Model

Source: DDI Copyright © 2015 Demand Driven World

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Look at the Buffers Accept and cater for variability

Size buffers to satisfy real demand

Create resilience against inaccuracy Prioritize and buffer manage Use a robust and practical concept,  don‘t increase complexity Copyright © 2015 Demand Driven World

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QUESTIONS AND ANSWERS

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About Christoph Lenhartz Christoph Lenhartz (MBA, Jonah, TOCICO‐certified, Certified Consultant (bdvb), CDDP, CDDL, DDI endorsed instructor and master instructor) is Founding Partner of Catena Strategies, a leading expert in operations, supply chain, and project consulting. Catena Strategies is the Demand Driven Institute’s affiliate for the Nordic and Baltic countries and Poland. He has delivered numerous CDDP public and in‐house courses across Europe, the Middle East, and Asia. In over 20 years he has acquired wide, international experience in industry and as leader of management consulting teams in strategic, business transformation, supply chain management and IT projects as well as in high complexity TOC implementations. His expertise also includes post‐merger integration of supply chain operations for major international groups. He is a recognized expert in developing and implementing highly effective solutions based on proven concepts such as demand driven supply chain and project management strategies. As a leading TOC and management expert in Europe he serves on the Board of the Theory of Constraints International Certification Organization (TOCICO), where he was Chairman of the Board from 2012‐2013. He has published several articles on management topics and is an appreciated speaker, educator, coach, and a recognized expert in developing and implementing highly effective project management and execution methodologies based on Critical Chain principles as well as operations and supply chain strategies using the Demand Driven MRP approach. Christoph holds an MBA from Clemson University (USA), he graduated from the University Essen (Germany) as a Diplom‐ Kaufmann and has pursued post‐graduate studies in Engineering Management at Washington State University (USA). LinkedIn: http://de.linkedin.com/in/christophlenhartz/ E‐Mail: Christoph.Lenhartz@Catena‐Strategies.com

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