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Sales and Operations

Business Forecasting
Planning
Taruna Nagpal
Sean ODonnell
Anthony Stramecki
Vivian Yu

Agenda

Sales and Operations Planning Overview


Process
Certification
Applications in Semiconductor Industry
Standard Monthly Procedure

Sales and Operations


Planning(S&OP)
Definition:

A formal process, consisting of series of meetings,


where data from various areas of business is
discussed and decisions are made.

The goal is agreement between various departments


on the best course of action to achieve the
optimal balance between supply and demand and to
meet profitability goals.

Normal Time Frame

Takes a monthly look at product groups at


least 6- 12 months across the planning
horizon.

Some companies go out as far as 18 months.

Sales and Operations Planning


(S&OP)
C r e a t e a d e m a n d p la n f o r t h e t a r g e t t im e p e r io d
C o r r e s p o n d in g s u p p ly p la n is c r e a t e d f o r t h e t im e p e r io d
P la n s a r e f e d in t o a p r e - S & O P p r o c e s s , w h e r e s o lu t io n s t o a d d r e s s t h is im b a la n c e a r e f o r m u la t e d
S & O P m e e t in g a t t e n d e d b y s e n io r le a d e r s h ip f r o m s a le s , m a r k e t in g , o p e r a t io n s , f in a n c e a n d o t h e r o p e r a t io n a l a r e a s .
D is c u s s t h e is s u e s r e c o m m e n d e d s o lu t io n s
R e v ie w s a lt e r n a t iv e s
M a k e s d e c is io n s

Type of Data considered

Current plan for each product group


Current finished goods inventory
Sales forecasts
Purchase Orders received
Materials available
Manufacturing plans and capacity
Distribution capacity
Shipping capacity
Performance measures
Customer Service

S&OP Software

Dash Optimization Supply Chain Planning Software


DCRA Solutions
Demand Solutions - Demand Solutions Sales and
Operations Planning Software (DSOP)
Futurcast
IBM Stratum

S&OP Software
Steelwedge Software Interface

A typical model of the Sales and Operations Planning


process
Source: WP
Salesoperationsplanning12.pdf

Demand Review Process

The ultimate goal of the demand plan is to gain


consensus on what will be sold and what revenue will
be produced

Participants discuss factors that influence demand


and agree on a single demand plan that is then
passed

Supply Review Process

Create a supply plan that includes rough-cut


capacity plan, procurement plan, and accompanying
costs.

Sales and Operations


Planning Meeting

Discuss and resolve any imbalances between


supply and demand

All decisions are published as a single authorized


plan which becomes the operating plan for each
function within the company

Benefits:

Increase plan accuracy


Increase product margins
Improve customer satisfaction
Reduce costs through efficient use of resources
Drive organizational flexibility
Reduce inventory and obsolescence costs
Better communication between groups
Improved cash flow and Shorter lead times
Reduced transportation costs

Tips for Successful Planning processes

Include specific schedules and participants.


Identify Key Performance Indicators prior to
beginning
Have an attitude of continuous improvement
Stabilize the Demand Planning process prior to the
Supply Planning process.
Hold regular meetings

S&OP Certification - CPIM


Company Benefits
More Effective Personnel Selection
Improved Forecasting Practices and Processes for Your
Business. Enhance knowledge of those already in the field.
Better Forecasts and Related Business Decisions
Forecaster Benefits
Professional Development
Forecasting Knowledge Development and Expansion
Career Advancement
Validation of Forecasting & Planning Knowledge and Skills
Globally Recognized Credential

S&OP Certification - CPIM


Benefits of Certified in Production and Inventory Management

A CPIM education can help you to


Increase your functional knowledge of production and inventory
management
Improve efficiency across the processes of your organization's
supply chain
Streamline operations through accurate forecasting
Predict outcomes more accurately
Maximize customer satisfaction by delivering products and
services Just-in-Time
Increase profitability by optimizing your organization's inventory
investment
Enhance your credibility among peers, employers, and
customers.

S&OP Certification - CPIM


Candidates must pass all exams for the
following modules

Basics of Supply Chain Management


Master Planning of Resources
Detailed Scheduling and Planning
Execution and Control of Operations
Strategic Management of Resources

S&OP Certification - CPIM


Who should earn the CPIM designation?
A CPIM education is essential for professionals involved in
* Production and inventory management
* Operations
* Supply chain management
* Procurement
* Materials management
* Purchasing

S&OP application in industry

Semiconductor industry

Surveyed 9 global semiconductor companies

Only 10-15 so survey covered half; therefore, its a good


reflection of the overall industry

Purpose

Investigate the extent of S&OP used and


determine its strengths and weaknesses.
Focuses on 2 parts:

Forecasting: Driving force behind ops planning


Operations planning: Main focus

S&OP in the semiconductor industry


-All companies use it in at least

their marketing, operations, and


finance depts. Most also employ
it in sales and service/logistics

-Sales/marketing and
manufac/ops
are the main drivers of the S&OP
process

S&OP in the semiconductor industry

Forecasting
Relative importance of different factors in the demand forecast
generation

Frequency of forecasts: 1 weekly, 1 quarterly, and the rest


monthly
Primary time horizon:

3 companies = 24 months; 3 = 18 months; 1 = 15 months; 2 = 12


months

S&OP in the semiconductor industry

Forecasting (cont.)

Software used in forecasting

Most popular method is spreadsheets then SAP America,


followed by software developed internally and I2

How frequently do you measure and review forecast


accuracy?

5 companies measure and review on monthly basis, 1


bimonthly and 2 quarterly

S&OP in the semiconductor industry

Operations Planning

Planning horizon for S&OP

Primary objectives of your S&OP process

Except for three companies which use a planning horizon of


12 months, all use 18 months
3 companies primarily use it to align plans with demand/sales.
The other 6 use it to align plans with both demand/sales and
business strategy.

Length of time to complete one cycle of the S&OP process

3 companies spend one month, 3 spend two weeks, 1 spends


three weeks, and 2 spend more than one month

S&OP in the semiconductor industry

Operations Planning (cont.)

Software used and satisfaction levels

As can be seen there is equal satisfaction between


spreadsheets or software developed internally and
customized software that was outsourced
Overall satisfaction levels medium to low. No
company has a high level of satisfaction

S&OP in the semiconductor industry

Operations Planning (cont.)

Key items covered in the process


- Sales, production issues,
and demand/production
gap closure plans are
named to be the key item
by most companies. New
product schedules,
customer service and
inventory also key factors.
Financial forecasts and
capital planning are key
items to only a few
companies.

S&OP in the semiconductor industry

Operations Planning (cont.)

Are there metrics in place to measure effectiveness (or


quality) of the production plans, commonly the output of the
S&OP process?

All but one said yes. Most fall within the responsiveness
category (fulfillment of production plan, flexibility, on-time
delivery) followed by inventory (availability, shortage, excess)

Are financial estimates integrated within the SOP process?

One company has them fully integrated, two companies keep


financial estimates and SOP totally seperate, and the
remaining 6 adjust financial numbers according to SOP
output.

S&OP in the semiconductor industry


Strengths

and weaknesses of the S&OP process

S&OP in the semiconductor industry

Conclusions

Many companies complain about the length of their SOP


cycle, its complexity, and input data validity/integrity.

Solution: Building integrated databases and automating the


process (expediting communication and streamlining decision
making)

Need for better forecasting since it is the driving force


behind the process.
Integration of finance into S&OP process

All companies agree that its strength lies in the integration of


decision making by bringing several depts. together; however,
tendency is to keep it at operations level. In order to fully
benefit from process financial planning should be integrated
into it.

The monthly sales and


operations planning process
STEP 5
Exec SOP
Meeting

Decisions

STEP 4
Pre-SOP
Meeting

STEP 3
Supply
Planning

STEP 2
Demand
Planning

STEP 1
Data
Gathering

End of month

Recommendations
For executive S&OP

Capacity constraints
2-nd pass spreadsheet

Management forecast
1-st pass spreadsheets

Statistical forecasts
Field sales worksheet
Wallace: 2nd edition Sales & Operations Planning

Step 1 Data gathering

Month end data

Actual sales
Inventory
Production

Sales and marketing

All pertinent information

Sales
Jan

Feb

Mar

Apr

May

June

Jul

Aug

Forecast

100

100

100

120

120

120

120

130

Actual sales

90

95

85

Difference

-10

-5

-15

-15

-30

Cum. difference

Wallace: 2nd edition Sales & Operations Planning

Production
Jan

Feb

Mar

Apr

May

June

Jul

Aug

Planned
production

100

100

100

110

120

120

120

130

Actual production

98

100

101

Difference

-2

-2

-1

Cum. difference

Wallace: 2nd edition Sales & Operations Planning

Inventory

Jan

Feb

Mar

Apr

May

June

Jul

Aug

Planned
inventory

100

100

100

142

142

142

142

142

Actual inventory

111*

116

132

11

16

32

Difference

*January Inventory = 103

Wallace: 2nd edition Sales & Operations Planning

Comparing actual to forecast

Wallace: 2nd edition Sales & Operations Planning

Step 2 Demand planning

Sales and marketing review information


received from Step 1

Sales forecast

By product
By family
Total

Demand planning team

Demand manager

Salesperson

Product manager

Customer service

Forecast analyst

Accounting manager

Sales manager

Supply chain manager

Forecasting: Inputs, Process,


Outputs
OUTPUTS

INPUTS
Current Customers
New customers

Forecasts That:

Competition

Are reasoned

Economy
New products
Pricing
Bids
Promotions
Management directive
History
Other

THE
PROCESS

Are realistic
Are reviewed
Represent demand

Step 3 Supply planning

Bill of resources

Rough-cut capacity

Interaction of lean manufacturing

Demand/Supply Strategies

Wallace: 2nd edition Sales & Operations Planning

Rough-cut capacity plan

Wallace: 2nd edition Sales & Operations Planning

Interaction with lean


manufacturing

Aligned resources

Flow

Takt time

Demand/Supply Strategies
Product Family: 1

1.
2.
3.

Make-to-stock
Target customer service level 99%
Target finished goods inventory
1 month

Product Family: 2

1.
2.
3.

Make-to-order
Target customer service level 98%
Target customer lead time
2 weeks

Step 4 Pre-SOP meeting

Make decisions to balance supply/demand

Resolve differences where possible

Identify areas of disagreement

Develop scenarios

Set agenda for Executive S&OP meeting

Step 5 Executive S&OP


meeting

Make decisions
Authorize changes in S&OP plan
Relate dollarized version
Resolve issues
Review performance, product issues, special
projects, etc.

Preliminary close meeting


Day of month

Reports

Attendance

Key objectives

3rd business
day after
month end

-Income
Statement
-Balance sheet
-Control book

-Plant manager
-Plant
controller
-Financial/
operations
Analyst

-Results
-Comparing
forecast to
actual
-Inventory
levels
-A/R
-A/P

Final close meeting


Day of month

Reports

Attendance

Key objectives

7th business
day

-Income
Statement
-Balance sheet
-Actual vs.
forecast
-Variance

-CFO
-Financial/
operations
Analyst
-Controller
-Cost
accountant

-Results
-Comparing
forecast to
actual
-Inventory
levels
-A/R
-A/P

Sales forecast

Pricing adjustments

Customers forecasts

Due by the 10th

Prepared by sales/marketing

Sales and operations plan

Prepared by plant manager and controller

Capacity issues

Productivity

Produced by the 15th

Questions?