Transitioning from

S&OP to Integrated
Business Planning

APICS NYC-LI professional development meeting

September 14, 2011

ADVISORY

As this is a toolkit talk book there is more material here then would be provided to a CFO. The user should
take what it is applicable to their given situation and disregard what is not required
Agenda

• S&OP Overview
• S&OP Shortcomings
• The transition to Integrated Business Planning (IBP)
• Q&A

© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 1
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
69961NYO
Agenda

• S&OP Overview
• S&OP Shortcomings
• The transition to Integrated Business Planning (IBP)
• Q&A

© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 2
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
69961NYO
S&OP defined

Sales and Operations Planning is a set of processes to ensure day-to-day activities support higher level business
plans through the balancing of supply and demand, and the integration of financial and operating plans.

S&OP Process
Architecture

Forecasted Strategic Plan

Demand
Production Plan
Impact on Resources
Product A  Facilities
Capacity Plan
 Cost/Profits
Business Plan  Work Force

Product B
Integrated
Combine Sales and
All Demand Operations
Plan
Product C Simulation of Financial
Alternatives Analysis

Rough-Cut
Resource
Product D Plan

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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
69961NYO
S&OP foundations

Guiding principles

 One forecast, agreed upon by Marketing, Planning and Sales, drives the S&OP process
 One unit of measure (cases) provides common terms of discussion
 Responsibilities and accountabilities throughout the process are clearly defined and understood
 Capacity Planning Tools are used more extensively to evaluate alternatives for issue resolution
 All key players participate at the right moment in the process
 A clear set of guidelines for decision-making are used to resolve issues
 All process steps rely on cross-functional teams
 A high level of communication and feedback, lead to better mutual understanding

Critical process attributes

A Complete, Agreed-To Forecast of A Rigorous, Formal and

Total Product Demand A Robust Operation Participative
Planning Process to Management Process
Mesh Demand With for Supply/Demand
A Complete and Accurate Picture of
Capacity Issues Resolution and
Demonstrated Production Capacity
Plan Execution
and Current Inventory Status

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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
69961NYO
The monthly S&OP cycle

Supply Planning
Demand
Pre-Work and Issue Pre-S&OP S&OP Execution
Agreement
Resolution

Demand Demand
Agreement Capacity Pre-S&OP
Perform. SBU S&OP Execute
Meeting Modeling Meetings
Review Meetings Plan (All)
and Output by SBU
Analysis by
line
Supply
S&OP
Perform. Executive
Review Meeting
Key
Supply Issue Res.
Meeting
Agreement
Meetings Separate
No Issues Doc. Process
Software

-5 0 5 10 15 20 25 30

Monthly Cycle

Begin Pre-Work Demand Agreement Plant Review Pre-S&OP SBU S&OP

Meetings Executive S&OP
Meetings Meetings Meetings

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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Putting people in place to drive the process

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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
69961NYO
Benefits of getting S&OP right

Enterprise Value
 Clearly links the business plan with the
operations of each department
 Evaluates whether financial expectations are
Marketing Customer Service
in sync with current sales and operations
 Provides realistic, achievable  Ensures Client can deliver
plans
numbers that are driven by volumes committed to its
 Ensures issues are raised in an appropriate
business conditions customers in the collaborative
timeframe to have an impact
 Increases coordination with planning process
 Aligns cross-functional goals and objectives
CM&P to increase consumer  Increases order fill rates by
promotion effectiveness and drives cross-functional accountability
decreasing out of stock inventory
with integrated metrics
 Eliminates “hidden” decisions
 Reduces required FTEs
 Reduces forecast variability

Supply Chain
Customer Mkt. and Planning  Aligns capacity with demand
to allow for asset
 Provides critical link to other
optimization/rationalization
functions to enhance promotional Field Sales
planning  Minimizes COPS by
 Provides realistic, achievable reducing unnecessary safety
 Reduces promotional out of
targets that are driven by stock, schedule disruptions
stocks business conditions and inventory deployment
 Increases coordination with
marketing to improve in-market
efficiency and effectiveness

© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 7
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
69961NYO
Agenda

• S&OP Overview
• S&OP Shortcomings
• The transition to Integrated Business Planning (IBP)
• Q&A

© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 8
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
69961NYO
The tension between demand and supply

High

S&OP processes often fail

to coordinate tensions
between supply and
Improve Service demand in a way that
and Product maximizes business
Availability objectives.

Service

Reduce Inventory
and Production
Costs

Low
Low Cost High

© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 9
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
69961NYO
Causes of S&OP breakdowns

Sales/Marketing Procurement Manufacturing Logistics/distribution

Sample behaviors to achieve functional objectives

 Time discounts and  Use discounted bulk  Prioritize production  Ensure channel partners
promotions to hit period purchases to drive down around large batch sizes have enough inventory in
end sales targets, cost of inputs to drive down unit cost of stock to meet demand
regardless of impact on outputs while delaying shipment
margins or potential for as long as possible to
returns maximize economies of
scale

Metrics that drive behaviors

 Sales as a % of target  Unit cost of SKU  Fill rate

 Unit cost reduction
 Repeat sales  Frozen period  LTL and FTL shipments
 Procurement
 Out-of-stock complaints management costs as a  Cycle time  Premium transportation
% of sales costs
 Campaign penetration  Master schedule
 Direct materials cost as adherence  Stock outs
% of COGS

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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
69961NYO
Effects of functional silos

All too frequently, Sales and Marketing functions are not tightly aligned with Manufacturing and Logistics.

Scenario 1 Scenario 2

Sales and marketing submit overly-optimistic forecasts, and Reactive production schedule changes are driven by “who
fail to share planned actions that will affect demand screams the loudest”, not by economic justification

 Sales and Marketing pad  Manufacturing achieves  Customer calls  Product manager  Production
forecasts ahead of a new production plan based on with an emergency promises to fill manager can’t
promotion forecast, but demand order order fill all orders
shortfall leaves it holding
excess inventory

Scenario 3 Scenario 4

Products stocked in the wrong locations lead to delivery The optimal production mix is inconsistent with marketing
delays and unnecessary transportation costs and sales needs

 Warehouse “A” has  Warehouse “B” needs  Plant wants to only make  Customers need both
product XYZ product XYZ Product ABC product ABC and XYZ

© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 11
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
69961NYO
Agenda

• S&OP Overview
• S&OP Shortcomings
• The transition to Integrated Business Planning (IBP)
• Q&A

© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 12
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
69961NYO
The need to move beyond S&OP shortcomings to achieve agility

What’s at Stake
*Using the planning
process to navigate  The absence of a good integrated business planning process leads to a lack
economic uncertainty of management control and delayed decision making.
 Wall Street rewards predictability and organizations that can confidently
connect sales, operations and sourcing with financial forecasting. If you
cannot then there is a need to cancel all other initiatives and start with the
*Accurately sifting basics.
through data as
 Strong integrated business planning, execution and monitoring will help
businesses converge
ensure that your business can become “self-healing,” fix structural problems
and move faster
and drive step change improvements. This is fundamental and core to
managing a successful business.

What to Do
*Aligning accountability
 Start the critical task of implementing a good business planning process by
sanitizing and standardizing the available data to create a uniform baseline
from which to manage across the organization.
 Business planning and execution must be integrated across your entire
*Understanding the business and managed for comprehensiveness, speed, structure, and most
underlying issues even importantly, accountability. Take advantage of Finance’s unique position to
when a metric effectively manage the integration between sales, operations, sourcing and
is on target performance management.

* Findings from the KPMG Share Forum on Financial Planning, Budgeting and Forecasting in March 2009

© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 13
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
69961NYO
Introduction to KPMG’s Integrated Business Planning Approach

KPMG Findings*

• Integrated Business Planning is a methodology to align an organization with

Using the planning
the processes and tools necessary to make unified decisions and quickly react
process to navigate
to changing needs.
economic uncertainty
• Provides a framework for aligning the financial planning processes more tightly
with the supply chain and operations plans and processes
Accurately sifting through
data as businesses • The absence of a good integrated business planning process leads to a lack of
converge management control and delayed decision making. Finance and Operations
and move faster not working together leads to organizations always playing catch up with the
marketplace
• Provides a unique approach that allows finance and supply chain to jointly
Aligning accountability manage the integration between sales, operations, marketing, sourcing and
performance management
• Tightly integrated business planning, execution and monitoring can help an
Understanding the enterprise become “self-healing,” fix structural problems and drive step change
underlying issues even improvements.
when a metric
is on target

* Findings from the KPMG Share Forum on Financial Planning, Budgeting and Forecasting in March 2009

© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 14
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
69961NYO
The Lack of Integrated Business Planning is Best Highlighted by the Inability
of Companies to “Hug the Demand Curve”

Demand
$ Recovery
Lost Opportunity Supply
&
Shareholder
Value $

Recession

Time
2007 2008 2009 2010 2011

Lost market opportunity and loss in shareowner value can be significant if there is any latency when reacting
to changes in demand or being unable to influence demand
Organizations often do not consider scenarios to understand the financial impact of erratic or shifting sales
and the corresponding influence on operational metrics. This results in excess costs, working capital and lost
revenue
At a single point in time it is not always obvious that problems exist. There is a need to look at a trend of the
right indicators and often structural problems become more obvious

© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 15
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
69961NYO
What is Integrated Business Planning (IBP)?
Alignment Across all Business Stakeholders

Integrated Business Planning (IBP) is a process through which the executive team continually achieves
focus, alignment and synchronization among all the functions of the organization.

Shareholders, Board and Executives

Finance

Financials
Customers

Suppliers
Sales &
Demand Balance Supply Operations
Marketing

Products

Engineering

IT

 Finance is the recommended process owner  Integrates executives, finance, sales and
 Aligns execution and operational decisions marketing as well as operations (manufacturing,
with strategic corporate objectives planning, procurement, and logistics),
engineering & design and IT

© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 16
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
69961NYO
What is Integrated Business Planning (IBP)?
PECA Framework: The DNA of the Business that Allows for Planning, Execution & Monitoring While
Aligning Strategy and Design to Each IBP Process Area

• With a Strategy and Design in

STRATEGY place the supporting decision
Alignment Integration
framework is to Plan-Execute-
Compare-Adjust (PECA)
DESIGN
Customers Products
• Execute PECA cycles annually,
Metrics &
Process Reports
quarterly, monthly, weekly and daily
PLAN as per the IBP process area
• Analyze plan deviations and
Run the cycle Governance
failures and revisit the Design
Technology
where appropriate
• If the Design is valid, revisit the
Markets ADJUST CUSTOMERS EXECUTE Acquisitions
Strategy that drove the Design
Controls Policies • Fix any structural Strategy and
Plan
deviations
Design problems and then execute
and failures the relevant PECA cycles as per
Organization
the IBP process area
COMPARE Calendars
Operations Partners
DESIGN

Competitors
STRATEGY
Speed Accountability

© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 17
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
69961NYO
 The approach to decision making within the IBP framework: PECA

Plan-Execute-Compare-Adjust (PECA) is an iterative approach decision making that supports to the strategy and
design laid out in the IBP framework.

1 Create a Plan STRATEGY 2 Execute the Plan

Customers DESIGN Products
Metrics &
Process Reports
Annual Schedule PLAN
Run the
Technology cycle Governance
Sales

Quarterly Markets ADJUST CUSTOMERS EXECUTE Acquisitions

Q1 Q2 Q3 Q4 Customers
Controls Policies
Plan
deviations
and failures
Monthly 1 2 3 Organization COMPARE Calendars
Operations Partners Manufacturing
DESIGN Distribution

Competitors
Weekly 1 2 3 4
STRATEGY Products

4 Adjust Structural Deficiencies 3 Compare Plan Vs. Actual

 Execute PECA cycles annually, Plan Actual Miss
quarterly, monthly, weekly and daily
Sales
per the IBP process area
Vital Few Focused
Transformation  Analyze plan deviations and failures, Operations
1 and revisit the Design where
appropriate Financial
2 Strategy
&  If the Design is valid, revisit the
3 Strategy that drove the Design Trace the Business Failures
Design
X
Time  Fix any structural Strategy and
X 1
Design problems, and then execute
2 X X
the relevant PECA cycles per the IBP
X
process area X 3

© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 18
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
69961NYO
How does IBP Work?
Comparisons from the PECA Framework should be Tied into Scorecards and Management reporting
to Provide Early Insight into Business Adjustments

Stakeholders
Board of Directors
CEO/Executive BU Leadership Creditors and Auditors and Functional
Capital Markets
Leadership and Customers Analysts Regulators Leadership
STRATEGY Finance
DESIGN
Customers
Metrics &
Products
Balance Sheet Financial Statements
Process Reports
PLAN (Asset Efficiency)
Run the
Technology cycle Governance Operational Drivers for Inventory Balance Sheet
Markets ADJUST CUSTOMERS EXECUTE Acquisitions

Controls Policies
Plan
deviations
Inventory
and failures
Organization COMPARE Calendars
Operations Partners
DESIGN Accounts Receivable/Payable
Investment Working Capital
Competitors

STRATEGY

Current Assets/Liabilities

Demand Products Supply

Operations (Manufacturing,
Sales & Marketing Engineering & Design
Procurement, Planning & Logistics)
IT (Data and Technology)

Organization

© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 19
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
69961NYO
How does IBP Work?
What it is and What it is Not

What IBP is not What IBP is

• Having meetings  A process that involves meetings between finance,
• The implementation of an ERP or Advanced demand and supply groups but also has structure,
Planning System reporting and accountability behind the process
 Technology is an enabler. IBP starts with ensuring
• The considerations of just demand and supply
the required process and people are in place and
• A process that plans and executes and keeps leverages technology to reduce manual effort and
going in that loop human error
• A process that takes the strategy from executives  Linking financial planning processes to the demand
and tells the shop floor to just do what they can and supply balancing performed by sales and
and let the finance people know once it is done operations
 It is not only planning and execution but the ability
to compare and adjust. These steps are the most
important stages in the IBP process, but are most
frequently overlooked or not completed
 The need to continually address strategy and
design deficiencies as part of the normal business
cycle in an effort to produce solid business
performance in good times as well as bad

© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 20
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
69961NYO
Tackling S&OP’s weaknesses: finance’s role as coordinator

Full IBP Process Decomposition Monthly/Weekly/Daily

Demand Supply Finance, Demand and
Management Management Supply Balancing
7.1 8.1 9.1
Collect Market Inputs Generate Material Reconcile Finance,
and Feedback from and Capacity Demand and Supply
Regions Requirements Based Plans
on the Financial and
The IBP process
Demand Forecast
architecture
7.2 8.2 9.2
features a continual
Develop Demand Reconcile Material Review Responses feedback loop
Forecast Based on and Capacity Issues From Supply Teams whereby Demand,
Approved Guidelines, with the Appropriate Supply and
Actual Sales and the Supply Groups
Finance work
Financial Forecast
together to
7.3 8.3 9.3
evaluate scenarios,
Review and Approve Finalize and Approve Evaluate Outcomes of reconcile forecasts,
Demand Forecast Supply Plan Different Scenarios and and then quickly
Prepare for IBP Meeting arrive at a single
7.4 8.4 plan.
Communicate Communicate
Demand Forecast to Supply Plan to the
the Finance and Finance and
Supply Groups Demand Groups

© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 21
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
69961NYO
Agenda

• S&OP Overview
• S&OP Shortcomings
• The transition to Integrated Business Planning (IBP)
• Q&A

© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent 22
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
69961NYO
Questions?
© 2011 KPMG LLP, a Delaware limited liability partnership and
the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
69961NYO
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