Supply Chain Best Practices

Sales & Operations Planning (S&OP)

Institute of Business Administration University of Dhaka May, 2013; Dhaka

Presented By: Ejazur Rahman CSCM MBA AIMM PgDMC

Sales & Operations Planning

Lecture Notes
Understanding The Roles of Sourcing in a Supply Chain

Session Outline

What is Sales & Operations Planning Key components of a well run S & OP Demand Planning process best practise Critical success factors and key challenges

What Is S&OP? Sales and operations planning (S&OP) is an integrated business management process developed in the 1980s by Oliver Wight through which the executive/leadership team continually achieves focus, alignment and synchronization among all functions of the organization.

The Purpose of S&OP The purpose of S&OP is to achieve the optimal balance between supply and demand. A streamlined planning process will result through increased communication and teamwork between departments within an organization. This collaborative approach will align the sales and operational processes and ensure that the in demands of the marketplace are met. The S&OP Process

The evolution of demand and supply balancing (S&OP)

How S&OP helps any business 1. 2. 3. 4. Know your current position Set your destination Plan the best route Autocorrect in real time when things go wrong

Why invest in S&OP for each industry type? Manufacturing Align supply chain resource to demand Deliver consistent target service at target margins Distribution Align inventory levels to demand Maximise availability and target working capital levels Service Align human resource capacity to demand Deliver target service at target cost of sales Retail Align on shelf inventory to demand Maximise sales, with minimum write off costs and at target inventory A typical S&OP Process Can be applied to all industries!

Review Meeting Demand Review Input : Actual performance ; variance ; root cause bottom up demand plans Key assumptions Marketing plans : new product / promotions Output : Signed off demand plan from sales & marketing (unconstrained) Owner of the process chair review : Sales & Marketing Key behaviour / success factors : Focus on assumptions Outline truth as you know it Be open about opportunities and vulnerabilities Review Meeting Supply Review Input : Actual vs previous plan ; variance ; root cause Demand Plan Output : Machine, labour inventory and material plans to achieve demand plan Constraints (where Supply Chain cannot achieve demand plans) Owner of the process chair review : Supply Chain Key behaviour / success factors : Review past performance and ensure variance to plan is addressed Demand Plan should be unconstrained, thus push to find cost effective solutions Actions plans in place to react if the demand opportunities or vulnerabilities become a reality. Review Meeting S&OP Review (Reconciliation and final sign off) Input : Demand Plans with constraints and resource requirements Supply Plans with constraints and resource requirements The truth as we know it and risks / upside. Output : Signed off demand & supply plans ONE Number, thus one set of plans the organisation will work towards. Owner of the process chair review : Ideally the CEO / Managing Director Facilitated by head of supply chain Key behaviour / success factors : Focus on gap closing (actions) Minimise finger pointing ; thus transparency is important Ensure if resources are not available, the plans are adjusted. Plans must always be achievable

Why S&OP Important The organisation works toward one achievable plan For todays customers requirement we have in place The machine capacity The labour All material A good S&OP reduces supply / demand imbalances Thus helps to deliver target service consistently Help achieve target supply chain margin All this within target working capital levels. Other Important Consideration to achieve a successful S&OP process This has to be a structured process Repeatable Fixed calendar for the year Should be considered a core process in the organisation The process should be simple and very well understood by all stake holders The process must have template input and output Focus should be on the future not the past Most importantly, it has to be sponsored and owned by the Senior team.

Demand Planning Accuracy, the biggest input for a successful S & OP One of biggest root cause for cost escalation in the supply chain Accuracy improved through Statistical forecasting Understand factors influencing demand Planning assumptions Collaboration There is one known fact of all demand plans? They are always wrong Objective of Demand Planning process is minimise variances

Building an organizations Demand Planning (Science, Process, Discipline)

Typical Benefits from Implementing S&OP

Forecast error reduction : 20% - 25% Inventory reduction : 5% to 10% Service level increase : 5% to 10% Top line revenue growth : 2% to 5% SKU rationalisation : 10% to 20%

Impact of Demand Planning Accuracy High forecast accuracy cuts costs from the entire supply chain Companies that are best at demand forecasting average; 15% less inventory 17% higher perfect order fulfilment 35% shorter cash to cash cycle

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