the myth of the one-number plan in supply chain management
TRANSCRIPT
Copyright © 2012 Kinaxis Inc. All Rights Reserved. 1
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Trevor Miles
vice president, thought leadership e: [email protected] | m: +1.647.248.6269 | t: @milesahead
The Myth of the One-Number Plan
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Common (Mis-)Conceptions
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Common (Mis-)Conceptions
• It brings in Sales, Marketing, Finance, Production,
Materials and Logistics department together for reconciling
their individual plans and create a ONE NUMBER plan
which will be agreed by all the stakeholders in the
Organization Sales and Operations Planning, ITToolBox, Wiki October 13, 2008
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Common (Mis-)Conceptions
• “One number planning,” is a sign of excellence. Poor
companies produce a sales forecast that is a “tough but
achievable” target for the sales force. Production doesn’t
believe this forecast, so it generates its own, which usually
means large batches to reduce manufacturing costs.
Logistics is left to deliver whatever sales manages to sell.
Finance doesn’t believe the production or the sales
forecast, so it creates its own to manage the cash. 10 Symptoms of Poor Supply Chain Performance, ARC Insights, SIimon Bragg, June 20, 2002
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Common (Mis-)Conceptions
• MetaChain helps clients to achieve a one-number
planning approach for financial and supply chain related
matters. Using this approach all business units are
using identical forecast information. In this case a
financial long term plan could be compared with an
inventory plan. The sales and operational planning
enables companies to see financial impacts based on
production and distribution plans. Supply Chain Planning & Optimization, MetaChain Supply Chain Management, Date unknown
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Different Times; Different Tunes
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Different Times; Different Tunes
• Using a demand forecasting tool to generate a one-
number forecast, and planning your supply chain
accordingly, is too simplistic of an approach to be
credible.
• To manage risk, solutions need to assess the risk
associated with an end-to-end goal and ensure that no
decision is made in isolation, without quantifying the
additional risks that it creates or the risks that it
eliminates. In Managing Recent Risk and Disruptions, Have Supply Chain Management Technologies Failed the Test?,
Gartner Inc., Noha Tohamy, June 6, 2011
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Different Times; Different Tunes
• Five years ago, a number of companies taking the
traditional approach for sales and operations planning
(S&OP) asked AMR Research for help. The companies
felt that their organizations were stuck in a rut, not
maximizing true S&OP potential. They were right. The
concepts of one-number forecasting and matching
demand with supply were outdated. Sales and Operations Planning: Transformation From Tradition,
AMR Research, Lora Cecere, Jane Barrett, Hussain Mooraj, May 12, 2009
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What’s Driving the Need?
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Demand Dynamics
• Top CPG companies forecast performance
– MAPE for a monthly lag was 33%
– MAPE for a weekly lag was 48%
– NPI with weekly item/location MAPE was 65% “2011 Forecasting Performance Benchmark Study”, Terra Technology, 2011
• High-Tech/Electronics – anecdotal
– Struggle to get better than 50% MAPE
• Where will breakthrough performance come from?
– Learning to forecast and plan better?
– Learning to respond profitably to real demand?
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Companies can’t predict the
future,
…build organizations that will
survive and flourish under
…any possible future.
Dynamic management: Better decisions in uncertain times, McKinsey Quarterly, December 2009
Demand Dynamics
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2 YEARS 4 YEARS 0
Portfolio Dynamics
The Evolution of S&OP, IndustryWeek Webcast, Dick Ling, Mar 29, 2012
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Portfolio Dynamics Make a Difference
2 YEARS 4 YEARS 0
5
2 YEARS 4 YEARS 0
4
2 YEARS 4 YEARS 0
2
1
Line Extension and Promos
2 YEARS 4 YEARS 0
Existing Portfolio
3
2 YEARS 4 YEARS 0
Dead next ‘month’
Dead next ‘year’
Surviving, just
Growing
Thriving
The Evolution of S&OP, IndustryWeek Webcast, Dick Ling, Mar 29, 2012
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The Myth of the One-Number Plan
SHORT-
TERM 2-3
YEARS HISTORY
“Roughly Right
Not
Precisely Wrong”
Historic Data
Providing Trend
and Seasonality
‘Baseline’
Scenarios –
An
Integrated
Set of Plans;
Not
One Number
Detail
Operational
Focus
The Evolution of S&OP, IndustryWeek Webcast, Dick Ling, Mar 29, 2012
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S&OP – Balancing Competing Goals
Adapted from AMR Research
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So What’s the Solution?
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Business
Planning
Planning Horizon
Sales &
Operations
Planning
Demand
Planning
Customer
Orders
Material
Requirements
Planning
Detailed
Scheduling
Rough Cut
Capacity
Planning
Capacity
Requirements
Planning
Purchasing/
Supplier Collab
Long
term
Medium
term
Short
term
0 - 1 year
Within 3 months months with weekly buckets
Outside 3 months quarters with monthly buckets
1 – 10 years
Within 1 year quarters with monthly buckets
Outside 1 year years with quarterly buckets
0 - 3 months
Weeks with daily / hourly buckets
Fixed horizon of 2 weeks
0 - 3 months
Months with weekly / daily buckets
Planned orders of 4 - 12 weeks
One Aggregate
Master Schedule Inventory Levels / Targets
Sales
History
It’s Not a Suite of Segmented Planning Solutions
Response
Management
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Business
Planning
Planning Horizon
Sales &
Operations
Planning
Demand
Planning
Customer
Orders
Material
Requirements
Planning
Detailed
Scheduling
(Daily buckets)
Rough Cut
Capacity
Planning
Capacity
Requirements
Planning
PO Releases/
Expedites/Cancels
(Daily buckets)
Long
term
Medium
term
Short
term
0 - 1 year
Within 3 months months with weekly buckets
Outside 3 months quarters with monthly buckets
1 – 10 years
Within 1 year quarters with monthly buckets
Outside 1 year years with quarterly buckets
0 - 3 months
Weeks with daily / hourly buckets
Fixed horizon of 2 weeks
0 - 3 months
Months with weekly / daily buckets
Planned orders of 4 - 12 weeks
Inventory Levels,
Targets
Sales
History
Integrated Business Planning is the Goal
Response
Management
Capable to Promise
Clear to Build
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creating MANY scenarios and a shared set of outcomes
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Collapse time to
make profitable
course
corrections
Plan, monitor, and
respond to all
aspects of supply
and demand
balancing in minutes
- not days or weeks Reduce risk,
increase customer
satisfaction, and
improve
profitability
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Thank you! Questions? Trevor Miles | e: [email protected] | m: +1.647.248.6269 | t: @milesahead
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