The Latest in Sales & Operations Planning: Demand-Driven Processes

Gene Tyndall EVP Tompkins Associates

Ralph Cox Principal Tompkins Associates

November 17, 2011

Outline ¾ Introduction ¾ Presentation •

Demand-driven supply chains

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S&OP 9 What is it? 9 Where has it been? Where is it going? 9 Who is using it?

•

Business case 9 Why does it matter? 9 What are the benefits?

•

Process 9 How does it work? 9 Is it easy to implement? What do I need to do? Tips

¾ Questions and Answers Copyright © 2011 Tompkins Associates. All rights reserved. www.tompkinsinc.com

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Demand-Driven Supply Chains ¾ Strategy and Context • The rise of demand-driven strategies • Supplying volatile markets, unprecedented levels of complexity, unpredictable events and long distances • Problems with demand forecasts • Starting the end-to-end supply chain with the sale, not the delivery or the source • Transforming supply chains to demand driven is the solution for most companies

Copyright © 2011 Tompkins Associates. All rights reserved. www.tompkinsinc.com

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Demand-Driven Supply Chains (cont’d) ¾ Overarching Strategy for S&OP •

Understanding what is selling enables us to understand what should be made or bought, as well as shipped and stored

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It also helps us synchronize the entire supply chain for total benefits

•

Demand-driven is a strategy, a business model and a critical step toward improved profitability for all trading partners in a supply chain

•

S&OP is the process that enables true demand-driven strategy to work; the demand-driven strategy allows S&OP to work effectively

•

The leaders in S&OP are also the leaders in demand driven

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Demand-Driven Supply Chains (cont’d) ¾ Why Should We Care About Demand Driven? • Performance gains 9 Customer order fill rates 9 Inventory levels 9 Improves store in-stocks 9 Working capital (cash conversion cycle) 9 Forecast accuracy 9 Days-of-sales inventories 9 Total cost to serve 9 Increased revenue • And, other benefits 9 Organizational development 9 Knowledge- and fact-based decisions 9 Customer satisfaction 9 Self-assessments 9 Improved scenario planning Copyright © 2011 Tompkins Associates. All rights reserved. www.tompkinsinc.com

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S&OP… What Is It? ¾ First and Foremost… A Business Process •

Sales & Operations Planning (S&OP) is a business process that assures alignment of supply chain execution with business strategy.

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More specifically, it is a process for bringing the management of supply chains…ensuring coordination between demand and supply…as close to real-time as needed, and in the process, ensuring execution in alignment with the business strategy.

Copyright © 2011 Tompkins Associates. All rights reserved. www.tompkinsinc.com

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S&OP… What Is It? (cont’d) ¾ Although the general idea is the same, definitions of S&OP range widely, consistent with both the evolving nature of the concept and the business needs of different firms: • From the conceptual: “Aligning business goals with supply chain tactics” (Aberdeen) • To the very broad: “A process to create a single consensus operational and financial plan for the firm through a series of coordinated reviews led by senior management to integrate strategic, operational and financial plans over an extended horizon” (VICS); and “a set of decision-making processes to balance demand and supply, to integrate financial planning and operational planning, and to link high-level strategic plans with day-to-day operations” (Wikipedia) • To the day-to-day: “The function of setting the overall level of manufacturing output (production plan) and other activities to best satisfy the current planned level of sales (sales plan), while meeting general business objectives of profitability, productivity, competitive customer lead times, etc. as expressed in the overall business plan” (APICS) • To the very narrow: “A structured process to reconcile conflicts between demand, supply and inventory priorities created by unplanned variability of any type” Copyright © 2011 Tompkins Associates. All rights reserved. www.tompkinsinc.com

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Where Did It Come From? S&OP… Where Is It Going? ¾ Origins • •

Manufacturing (late 1980s) Tactical, internal: to address and resolve internal conflicts between sales, planning and production in a formal manner

¾ Evolution • •

Distribution (1990s – 2000s) and Retail (2000s) Strategic, internal and external: To align demand with supply, extending to suppliers

¾ Future •

To manage supply chains on a continuing basis

Copyright © 2011 Tompkins Associates. All rights reserved. www.tompkinsinc.com

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S&OP… Who Is Using It? ¾ Example Manufacturers • Procter & Gamble, Dell, MillerCoors, Apple, Hewlett-Packard, Whirlpool, Motorola, Cisco Systems, Pfizer, BASF, Kraft, Kimberly-Clark, Scotts, Coca-Cola, Unilever, General Mills ¾ Example Retailers • Walmart, Lowe’s, Staples, West Marine, Best Buy, JCPenney, Dillard’s

Copyright © 2011 Tompkins Associates. All rights reserved. www.tompkinsinc.com

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S&OP… Why Does It Matter? ¾ Demand Planning •

¾ Management

Inadequate or mislocated supply, potentially starving demand or incurring unnecessary domestic transportation costs for transfers

¾ Inventory •

Too little or too much of the wrong product at the wrong location too early or too late

• • • • • •

Incomplete demand visibility Lack of coordination between supply and demand Ineffective and untimely communications Operating at cross-purposes Lack of alignment with objectives Frustration and morale

¾ Supply Management •

Incomplete or erroneous demand visibility

Demand

Planning

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Finance

Supply

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S&OP… What Are the Benefits? ¾ Customer Service •

Increased ability to coordinate supply to meet not only routine demand, but especially, promotion demand

¾ Competitive Advantage •

Increased product availability reliability, reduced lead times, increased responsiveness, increased communication effectiveness

¾ Inventory •

¾ Profitability •

Reduced inventory working capital and holding costs, increased capture of promotion opportunity, reduced air freight costs and minimized domestic transfer transportation costs Shipments, Receipts and Inventory

Inventory Demand / Sales / Shipments Supply / Receipts

Reduced overstock, reserves, writeoff and outof-stock situations

Months

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S&OP… How Does It Work? ¾ Coordination •

Creates a process to increase coordination between demand planning and supply management regardless of industry

¾ Alignment •

Provides an ongoing validation of alignment with corporate objectives

¾ Culture •

Establishes a framework to bridge silos and forge unanimity of purpose

Sales and Operations Planning

Demand

Planning

Finance

Copyright © 2011 Tompkins Associates. All rights reserved. www.tompkinsinc.com

Supply

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PLANNING

Demand Planning Inventory Management Allocation

Meeting Preparation

SUPPLY

DEMAND

S&OP Decision Making Meeting

Open Purchase Orders Lead Times

Open Store Transfers Routine Demand Forecast Promotion Forecast New SKU Forecast

Data Verification Issue Identification Solution Options

FINANCE

Cash A/R A/P Covenants

Purchasing Supply Chain

Current Balances Inventory Policies

S&OP… How Does It Work? (cont’d)

Merchandising Store Operations

Controller Managerial / Financial Accounting Accounts Payable Accounts Receivable

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S&OP… How Does It Work? (cont’d) ¾ Participants Manufacturing

Demand

Internal Sales

Planning

Finance Supply

Inventory Mgmt. Production Sch.

AR/AP

External

Manufacturing Purchasing Suppliers

Distribution Internal Sales

Retail

Merchandising

Inventory Mgmt.

AR/AP

Purchasing

Inventory Mgmt.

AR/AP

Purchasing

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S&OP… How Does It Work? (cont’d) ¾ Data • Forecast, supply plan, inventory and pro-forma inventory projection Executive Level Mid-Managerial Level Operational Level

Company Level Product Category – aggregate DC Level Product Group – Individual DC Level

¾ Process • Independent issue identification and potential solution identification • Joint decision-making • Examples: Executive Level

• Reshaping demand to match supply by modifying pricing, promotions, advertising or specific customer agreements • Liquidating inventory

Mid-Management Level

• Changing plant production capacities through shift changes or equipment acquisition • Moving planned production between plants

Operations Level

• Modifying open purchase orders or manufacturing work orders • Expediting, de-expediting, changing inbound transportation modes and/or changing destinations

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Is It Easy to Implement? S&OP… What Do I Need to Do? ¾ Steps •

• •

Understand current sales forecasting, supply planning and inventory management practices, as well as performance and the extent to which they are coordinated (what’s being forecast, product hierarchy level, logistics hierarchy level, organizational hierarchy level, time periods) Develop the process Train the organization and manage change

¾ Potential Impediments • • • •

Data: availability, accuracy, common basis Cultural: Why?; not invented here; not the way we have always done it; we do this every day – why do we need all these other people? Organizational: not my job; not their job Supplier agreements: not the deal we made with them

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Is It Easy to Implement? S&OP… What Do I Need to Do? ¾ Tips for Effective Demand-Driven and S&OP Processes • • • • •

Focus on the right targets Understand true demand driven Layer and tailor the S&OP processes Transform the full solution set: Processes, People and Technologies Don’t just capture sales and operation data, use it People / Organization

Enabling Technologies

Business Processes

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Q&A

What questions do you have?

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Contact Information

919-876-3667 [email protected]

6870 Perry Creek Road, Raleigh, NC 27616 www.tompkinsinc.com

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