Designing “Sales and Operations Planning” Model for a company

Designing “Sales and Operations Planning” Model for a company : 

Designing “Sales and Operations Planning” Model for a company G.D.Pawan Kumar gdpawan@gmail.com

Designing “Sales and Operations Planning” Model for a Company: 

Designing “Sales and Operations Planning” Model for a Company Introduction Sales and Operation Planning is popularly known as S&OP. It is an off shoot of SCM and works at demand-supply management with participation from top level Management to meet corporate strategies. Has evolved from Production Planning techniques and has become a part of resource planning process. GDPK 2

Designing “Sales and Operations Planning” Model for a Company : 

Designing “Sales and Operations Planning” Model for a Company Definition: APICS Dictionary defines S&OP as a process that provides management the ability to strategically direct the businesses to competitive advantage on a continual basis by integrating customer focused marketing plans for new and existing products with the management of supply chain. GDPK 3

What Practitioners say about S&0P: 

What Practitioners say about S&0P In the words of Majumdar & Fontanella ( 2006 ) , S&OP is a set of processes that enable a company to respond effectively to demand variability and take timely decisions which could have direct impact on profitability, customer satisfaction and the product portfolio . In the view of Lapide (2004) , S&OP process is a collaborative effort leading to consensus and accountability of a Cross Functional Team (CFT) . GDPK 4

S&OP – Integrator of company Sub-plans: 

S&OP – Integrator of company Sub-plans Source:Stuart Reekie - Steelwedge,2005 GDPK 5

S&OP – A Link Connecting Strategies & Tactics : 

S&OP – A Link Connecting Strategies & Tactics S&OP GDPK 6

Few Models that helped S&OP to evolve : 

Few Models that helped S&OP to evolve Mentzer & Moon (2004) define S&OP as a four step mechanism consisting of demand meeting, supply meeting , partnership meeting and executive review session . The model proposed by Lapide,2005 consists of an Integrated Supply –Demand Planning Technology Architecture supported by three types of software applications consisting Demand- Side planning , Supply –Side Planning, S&OP Work Bench and Business System . Wallace and Stahl (2008) describe S&OP as a five step business processes that enable companies to keep demand and supply in balance. The steps include Executive Meeting, Pre-meeting, Supply Planning, Demand Planning, and Data gathering. GDPK 7

IBM Model by John Schorr ( Oliver Wight Group): 

IBM Model by John Schorr ( Oliver Wight Group) * Source:Demand Review- John Schorr , Oliver Wight GDPK 8

Profit Chain Integration Model by Ron Ireland: 

Profit Chain Integration Model by Ron Ireland 1 . Supply chain collaboration covering Collaborative Planning and Forecasting (CPFR), Supplier Relationship Management(SRM)and Customer Relationship Management(CRM ) 2. Demand management covering Advance Planning and Scheduling(APS), Demand Planning and Forecasting. 3 . Supply management covering Enterprise Resource Planning(ERP) Manufacturing Resource Planning(MRPII) Distribution Resource Planning(DRP) Master Scheduling. Lean Manufacturing. 4 . Sales and Operations planning covering Executive level Strategic Planning (Demand Vs Supply) GDPK 9

Integrated Planning Process Model by Ferreira : 

Integrated Planning Process Model by Ferreira Under Integrated Planning Process proposed by Ferreira(2006) , S&OP is positioned at the centre of the Supply chain that extends backward to suppliers and to customers in the forward direction .All constituents of the S&OP process that are available in a company have to be integrated with other functions as shown in Figure GDPK 10

S&OP-Model by Lapide: 

S&OP-Model by Lapide Source :Larry Lapide ,“An S&OP Maturity Model”, ‘The Journal Of Business Forecasting” GDPK 11

S&OP Model Proposed : 

S&OP Model Proposed The model is inspired by the framework suggested by Thomas F. Wallace and Robert A. Stahl which is easy to implement . It is a five Phase Process Data Collection Demand Planning Supply Planning Pre- meeting Executive meeting The Process is explained in the following slides. GDPK 12

S&OP Model- Data Collection Process Phase 1: 

S&OP Model- Data Collection Process Phase 1 Updating data with actual Demand & Supply info, Inventory, Generating info for new forecast etc. Figure 1 GDPK 13

S&OP-Data Collection Process Phase 1: 

S&OP-Data Collection Process Phase 1 This is the Phase 1 of the process which begins in the first week of each month usually around 3 rd /4 th of the month . Data on sales, production , inventory from plants and warehouses is collected . Internal Requisitions from regional offices , direct customer orders and other relevant data for preparing the new sales forecast is compiled by the sales planning The information is segregated under category ,customer and warehouse wise both in units and value terms . (See Figure 2 on the next slide) GDPK 14

S&OP Model- Demand Planning Process Phase 2: 

S&OP Model- Demand Planning Process Phase 2 Updating data with actual Demand & Supply info, Inventory, Generating info for new forecast etc. First Cut Management Forecast in Units & Rupees for next 15 to 18 months, Assumptions, etc is prepared. Figure 2 GDPK 15

S&0P-Demand Planning Process Phase 2: 

S&0P-Demand Planning Process Phase 2 Demand Planning Phase: Process Based on the information received from the Phase 1, sales and marketing team at the Head Office prepare s a new forecast spanning next fifteen to eighteen months . This is the Management Forecast. All information available from trade, industry, competition and customers should be looked at while preparing the new forecast . The data would be under different families both in units and rupees terms . The data covers After Market as well as OEM customers . GDPK 16

S&OP-Demand Planning Process Phase 2 Contd…… …..: 

S&OP-Demand Planning Process Phase 2 Contd …… ….. Assumptions made should be noted and circulated as part of the report. NP supplies information should be entered in the forecast to track progress during the tenure of development . The demand planning phase is converted into rupee terms to compare with the Quarterly/Half yearly /ABP . Discussed at the VP-Sales level to check for veracity and to ensure ‘Ownership’ of the Forecast . The Spread Sheet containing the updated management forecast becomes the input document for the Supply Planning which is Phase 3 of the process.( See next slide). GDPK 17

S&OP Model –Supply Planning Process Phase 3: 

S&OP Model –Supply Planning Process Phase 3 Updating data with actual Demand & Supply info, Inventory, Generating info for new forecast etc. First Cut Management Forecasts in Units & Rupees for next 15 to 18 months, Assumptions, etc is prepared Resource Requirements plan ,capacity constraints, Vendor & RM issues etc are looked at . Figure 3 GDPK 18

S&OP-Supply Planning Process Phase 3: 

S&OP-Supply Planning Process Phase 3 Supply planning reflects the ability of the company to support the forecast. The activities involved are Review of Actual Supply with Plan: Actual dispatches are compared with plan for the earlier month and the gaps are noted and analyzed .Resources are once again checked for their output levels Validate or Modify Assumptions : Due to change in mix of the type of products the resource requirements may undergo revision. Rough cut Capacity Planning: This activity would throw up the capacity constraints on different resources and help in taking timely decision for achieving the supply plan. GDPK 19

- : 

- Forecast data is reviewed by the Production Planners of plant(s). Based on the above information the availability of RM, capacity, labour and other relevant issues are studied. If the demand is within the available capacity boundaries then no change is required in the supply plans. If there is a change in some product s/sizes then the rough cut resource planning is undertaken. The constraints could be in house or it could be outside at the vendors end. These outside constraints are to be seriously considered as they could create problems to meet timely customer supplies and quality levels. S&OP-Supply Planning Process Phase 3 Contd … GDPK 20

S&OP-Supply Planning Process Phase 3 Contd ……: 

S&OP-Supply Planning Process Phase 3 Contd …… Develop Alternative Plans for Resource Constraints: When any of the resource is a constraint, options available like adding a shift , employing more people ,running the constraint machine nonstop or subcontracting the work etc have to be considered. But in some cases capacity enhancement may be required. In such cases the matter has to be put up in Preliminary Meeting ( Phase 4) and if required in the Executive S&OP meeting (Phase 5) for approval. Time Fences: In order plant(s) to respond economically “Time Fences” have to be placed which are boundaries of manufacturing responses to demand variation. The next Phase comprises of Preliminary Meeting. (See ensuing slide.) GDPK 21

S&OP - Pre(liminary) Meeting Process Phase 4: 

S&OP - Pre( liminary ) Meeting Process Phase 4 Updating data with actual Demand & Supply info, Inventory, Generating info for new forecast etc. First Cut Management Forecasts in Units & Rupees for next 15 to 18 months, Assumptions, etc is prepared. Resource Requirements plan ,capacity constraints, Vendor & RM issues etc looked at. Decisions on balancing Demand /Supply, Recommendations, What if Scenarios, Agenda for the Phase5 meeting for Executive decisions, etc are worked out. Figure 4 GDPK 22

S&OP Pre- Meeting Process Phase 4 : 

S&OP Pre- Meeting Process Phase 4 The output document of the Supply Planning Phase is the input for Preliminary Meeting . Issues which are not resolved and agreement not reached due to serious concerns of delivery, capacity, quality etc are compiled by Team for decision at the Executive Meeting of Phase 5. The discussions would be family wise as well as individual sizes critical in nature. The output documents would contain . A recommendation on increasing or decreasing the sales plan . A recommendation on increasing or decreasing the Production plan . NP Development Issues . Resource requirements in terms of manpower, number of shifts offloading downsizing etc. GDPK 23

S&OP Pre-Meeting Process Phase4 Contd……: 

S&OP Pre-Meeting Process Phase4 Contd …… Decisions for balancing of Demand with supply are taken. Decision regarding pricing, promotion or distribution have to be taken for after market. Alternatively, allocation is to be made based on priority and customer / dealer importance. Where conflicts persist, recourse to yield management is to be taken by playing ‘What-if’ scenarios. Finally, the financial outlook of the sales plan with ABP is compared. The participants in this phase comprise of sales planner, Plant Planners , representatives of strategic sourcing , Engineering centre, production heads, QC head , cost accountant and S&OP coordinator/Process Owner and Champion. GDPK 24

S&OP Pre- Meeting Process Phase4 Contd…. : 

S&OP Pre- Meeting Process Phase4 Contd …. The Agenda for Phase 5 ( Figure 5 on the next slide) is prepared by team and should cover the following : Industry Review. Review of Company products by family. Production Review. Sales Review. New Product Development issues. Recap of Decisions made. Impact on Business Plan. Customer Service Ratings . None of the important issues that would affect the company is to be put under the carpet or postponed. They should be taken up for review and sorted out with due urgencies. It should be a ‘ownership’ taking meeting by all concerned . GDPK 25

S&OP Model- Executive Meeting Process Phase 5: 

S&OP Model- Executive Meeting Process Phase 5 Updating data with actual Demand & Supply info , Inventory, Generating info for new forecast etc. First Cut Management Forecasts in Units & Rupees for next 15 to 18 months, Assumptions, etc is prepared Resource Requirements plan ,capacity constraints, Vendor & RM issues etc are looked at . Decisions balancing Demand /Supply, Recommendations, What if Scenarios, Agenda for the Phase5 meeting for Executive decisions, etc are worked out. Review decisions of Phase 4, authorize Changes, decisions to adjust S&OP with Business Plan and updated Rolling Plan Etc. Figure 5 GDPK 26

Executive Meeting (Final S&OP Meeting)Process Phase 5 : 

Executive Meeting (Final S&OP Meeting)Process Phase 5 Executive Meeting is h eld once a month and is chaired by the President / President designate. The Agenda of this meeting could be : Review of outstanding issues of the previous month . Review of KPI’s which include important operational, financial and strategic indicators. Review of products-wise sales , demand , inventory , assumptions , scenarios worked out etc. Review of NP and Special Projects against resources, attainments etc. Accept, reject or alter the decisions of the Preliminary Meeting. Authorize expenditure on resources . Cont….. GDPK 27

S&OP- Executive Meeting Process Phase 5 Contd…… : 

S&OP- Executive Meeting Process Phase 5 Contd …… Authorize expenditure on resources. Review Customer Ratings. Review Sales Forecast values vis -a- vis ABP and authorize change in either of them , if required. Review strategies and policies in order to balance demand and supply. GDPK 28

S&OP- Executive Meeting Process Phase5 Contd..... : 

S&OP- Executive Meeting Process Phase5 Contd..... The minutes of the meeting should be sent out within 2 days to all the concerned for effective communication and implementation of the decisions taken. Attendees of Executive Meeting would be VP’s of sales & marketing, heads of production, planning , R&D, finance, head strategic sourcing, sales planner and S&OP champion ,process owner and IT rep . Schorr (2008), calls the executive meeting as Management Business Review (MBR) and informs that the meeting is not meant to be a “ discovery meeting but rather a decision making and direction setting meeting”. GDPK 29

Implementation of S&OP- Time Frame : 

Implementation of S&OP- Time Frame Stage 1 meeting of Data Collection should be held around 3 rd of every month , Stage 2 meeting of Demand Planning should be held around 7 th , Stage 3 of Supply Planning is to be targeted around 13 th , Stage 4 of Preliminary Meeting is to be held after 5 to 6 days, that is around 18 th of the month and Stage 5 of final Executive S&OP Meeting is to be planned around 25 th of the month .Alternatively , a particular day in respective weeks may be selected. The Participation of President or her designate is essential. GDPK 30

S&OP Process - Advantages : 

S&OP Process - Advantages The forward planning by fifteen to eighteen months beyond the current month( in total 24 – 27 months) provide visibility for taking timely corrective action. KPI’s like delivery compliance , profit margins per family or customer, inventory turns, variance from ABP and a host of other things could be tracked /monitored for gauging the performance . The data is captured in a single sheet and helps in highlighting necessary information and not showing the unnecessary elements. GDPK 31

S&OP Process-Expected benefits: 

S&OP Process-Expected benefits 1 . Higher Productivity with stable production. 2. Improved Team Work. 3. Better Demand – Supply balance. 4. A single plan with one set of numbers guide the company. 5. Better visibility of future opportunities and threats . 6. Improved control of business. 7. Greater accountability of each department. 8. Improved customer service. 9. Lower inventory l evels . 10. A monthly snap shot of business plan. 11. Improved communication between suppliers and customers. 12. Improved profit margins. 13. Faster decision making by top management. GDPK 32

S&OP as Management by Exception: 

S&OP as Management by Exception Reekie (2005) ,has a final word when he says that effective exception management is a key to successful implementation of S&OP process as it is impractical to go through and resolve issues for thousands of products on monthly basis. The solution would be to prioritize and focus on issues falling beyond pre defined boundaries. GDPK 33

References: 

References Majumdar Maha and Fontanella John , “The Secrets to S&OP Success” ,Supply Chain Management Review,(2006) Lapide ,Larry , “Sales & Operations Planning Part I: The Process” The Journal Of Business Forecasting,(2004) Mentzer John T. & Moon Mark A .,” Understanding Demand”, ’Supply Chain Management Review, http://www.scmr.com , [online][29.01.2009] Wallas Thomas F and Stahl Robert A .,” Sales & Operations Planning- The How -to Handbook”, T.F.Wallace & Company, (2008) Schorr John ,” Integrated Business Management”, Business Excellence,(2007) Ireland Ron ,”Profit Chain Integration” , Oliver Wight, White Paper Series,[Online] [15.01.2009] Ferreira John ,” The Integrated Planning Process, Tale of a CPG Turnaround, Successful Sales & Operations Planning: Lessons Learned” Forum, Second Quarter,(2006) GDPK 34

End: 

End G.D.Pawan Kumar gdpawan@gmail.com