the top 10 myths and realities of s&op

The Top 10 Myths and Realities of S&OP

Presented by: Peter Metcalfe

Partner Oliver Wight Asia Pacific

25th October 2012 1 © Oliver Wight International

Last minute changes poorly managed Poor communications and unsynchronised plans Poor analysis No corrective actions in process improvement Opportunities to increase sales are lost

Mixed messages lead to sub-optimised performance

© Oliver Wight International 2

Who owns the S&OP process?

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“The S&OP process should be owned or sponsored by the demand planning or supply chain function. These teams are in the thick of any supply chain issues and are best positioned to deal with them.”

© Oliver Wight International

Who owns the S&OP process?

4

Demand Review

Product Management

Review Supply Review

Management Business Review


And the next problem S&OP needs to solve today is…

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“S&OP is a tactical, real-time process that enables the quick identification and response to problems as they arise. Supply chain planning applications that manage such tactics as daily replenishment and forecast planning are used to address any real-time issues.”


And the next problem S&OP needs to solve today is…

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-1 -2 -3

25 % 75% Demand / Supply/ Product Management

DETAIL PLAN

75% 10% 15% S&OP/IBP

Horizon (Months)

Weekly Review

Month / Period Review

1 4 24 2 3


There’s too much strategy and not enough execution

7

“S&OP deals with product families and a fixed hierarchy, so how does that really help us? The devil is in the details and S&OP doesn’t go there.”



8 © Oliver Wight International

Input

From Latest Plan By Segment

1 4 24 2 3

From the detail

systems Input

Item Level Plans and Schedules

Integrated Business Planning


9

Weekly Review

Horizon (Months)

Month / Period Review


1 2 5 3 4 Time Scale in Years

6 0


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5 Year Strategies (Roadmaps) + CSF’s

3 Year Tactics (Programs) + KPI’s

24 Month Rolling Process

At “Segment” Level

Focused on Change

5 Element Process

Gap Analysis INTE

GR

ATED

BU

SIN

ESS

PLAN

NIN

G 5 or 10 year Strategic Plan and Strategic Business Objectives

Vision, Mission, Value Proposition, Competitive Priorities, Values & Guiding Principles

Volume

Value

Resources

Product

Demand

Supply

Reconciliation

Monthly Cycle Worksheet

Annual Planning Projects & Tasks

Annual Planning Projects & Tasks


Just look backwards

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“S&OP is really just a review of historical data. There is no ability within the process to do any simulation of suggested changes, let alone compare a differing scenario to the optimal plan.”


Risk Analysis

Scenario Modelling & Optimization

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IN OUT

Identify Objectives

Create Model

Model Validation & Sign Off

Develop Scenarios

Conduct Analysis

Options & Recommendations

Decision & Actions


It’s all in the numbers

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“S&OP is limited to quantitative views of supply, demand and financial plans. Just look at the numbers and you’ve got what you need to support decisions.”


It’s all in the numbers

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Types of Assumptions

Competitor activity

Economy & industry growth rates

Performance & rate of improvement

Markets conditions

Customers

Numbers alone are ineffective Thinking behind the numbers …

Determine Vulnerabilities and Opportunities

Develop plans to defend or exploit

“Use assumptions to shape the future rather than as a basis for excuses about non-performance”


S&OP is just another time consuming meeting without little action

15

“S&OP is just another executive meeting; nothing really ever comes out of it. Decisions made in the meeting stay in the meeting and rarely get executed.”


S&OP is just another time consuming meeting without little action

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IR Product Demand Supply MBR

ANALYSE GAPS DETERMINE SOLUTIONS

Measures

Data Set

One Page Summaries

Templates

Analyse

Financial Evaluation

Collate & Exploit

Model & Recommend

Measures

Issues

Projected P&L + Balance Sheet Opportunities Vulnerabilities

GAP CLOSING DECISIONS


Who’s worrying about demand?

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“S&OP relies on a fixed demand plan or statistical forecast. It doesn’t emphasize how we may need to shape demand up or down to meet business objectives.”


Baseline

Scenario A

Scenario B

Scenario C

Integrate to 24 month Financial view

Who’s worrying about demand?

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Product Management

Demand

Supply

Continuous Reconciliation to optimise Business


It’s too complex to involve trading partners

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“S&OP processes are too complex and difficult to manage — especially when trying to systematically incorporate external trading partner feedback into the internal consensus demand and supply plans.”


Think Value Proposition; Value Chain & Customer Experience

Optimise all steps

It’s too complex to involve trading partners

OPS-1 WHSE TIER - 1 TIER -2 OPS-2 DIST-1 DIST - 2

Customer Experience VALUE CHAIN

SUPPLY CHAIN


Finance has the last word

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“We spend so much time striving to create a perfectly balanced supply and demand plan, yet too often it’s a futile exercise. The finance team is just going to override any S&OP plan that we create, so why bother?”


Finance has the last word

Strong financial support at every step in the process

Product Planning Manager

Demand Planning Manager

Supply Planning Manager

S&OP Process Leader

Marketing Finance

Commercial Sales

Operations Finance

Corporate Finance

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Let’s run S&OP processes on auto-pilot

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“S&OP can be solved with the implementation of a tool. Just configure the software and turn on the black box.”



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PEOPLE & BEHAVIOURS

TOOLS PROCESSES


Educate Executives and Middle Management Designing the Process Establishing the calendar and rhythm of S&OP Creating an organisation suited to S&OP Transparent and collaborative decisions The right tools from strategy to execution Coaching executives



S&OP and IBP: Decades of Evolution – The Macro Evolution

70s early

80s mid

80s late

80s late

90s early

2000s 2000 to present

Production Planning Balancing

Supply & Demand

and Inventory Control

Financial Integration

Product and

Portfolio Management Integration

Supply Chain

Collaboration

Scenario Planning

and Strategic

Deployment

Sales & Operations Planning

© Oliver Wight International 26 © Oliver Wight International

Increased demand plan accuracy from 18 to 25 percent Increased sales revenues from 10 to 25 percent Increased on time delivery from 10 to 15 percent Reduced inventory from 18 to 46 percent Reduced safety stock from 11 to 45 percent Increased productivity from 30 to 45 percent Increased bottom-line performance

An effective process is worth the effort


“Is your process a

myth or a reality?”

Ask yourself and your colleagues…


If you require further details on how to implement S&OP or improve your current S&OP process please feel free to visit our website: www.oliverwightasiapacific.com

Or contact Peter Metcalfe in Hong Kong on +852 9449 6538 (mobile), +852 3975 8399 (office)

Email: [email protected]

Further information


http://www.oliverwightasiapacific.com/

Acknowledgement

The inspiration for this presentation was derived from an article titled ‘The Top 10 Myths and Realities of S&OP’ that was co-authored and published in 2009 by Colleen Crum and Fred Baumann. Fred Baumann is Vice President, Industry Strategy at JDA Software. Colleen is a Managing Principal of Oliver Wight Americas. Our thanks also to the China Supply Chain Executive Council for facilitating this session

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the top 10 myths and realities of s&op

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