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SMES ERSSZOP
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March 7, 2016
https: /iwww.faceboc
By Debashis Sinha (http: //demand-planning.com/author/debashis-sinha/)
(https://twitter.com/d
In the world of Operations, we want our businesses
to run like an assembly line, where people and
tools are in sync. The reality, however, is very
different.
This is because each team in a company acts as a separate “tribe”—a community
with its own culture, its own ways of thinking, and its own agenda. The differences
come to light in the planning process when Sales, Finance, Marketing, and Supply
Chain teams gather to forecast demand and supply. Too often, I have witnessed
consensus forecasting meetings turn into chaos, when each tribe strives to achieve
its own agenda. This is because the company is not aligned to a single direction.
The most successful S&OP process is driven by the CEO or GM of a company. This
is because the top executives bring in a single direction, as opposed to multiple
directions, practiced by different tribes (silos).
What is S&OP?
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S&OP is a business process that occurs in all high-performance manufacturing
firms It ensures that demand is properly planned for and then shared across the|
organization. The demand of about 18-36 months into the future (depending on the
industry) gives ample information to manufacturing and supply teams to plan for
capacity, and close the gap, if any. S&OP is an integrated business process that
drives collaboration, and brings alignment across multiple divisions and
departments. The implementation of S&OP often results from companies
recognizing that long-term market success requires more than just branding
products.
Challenges of an S&OP planning process
Most of the challenges of an S&OP planning process are related to Executive S&OP,
Performance Management, Monthly Review Process, Supply Planning, New
Product Introduction, Collaborative Forecasting and Planning, and Demand and
Supply Visibility. (See Table 1)
Table 1 | Challenges of an S&OP Process
- Lack of sponsorship or buy-in
Executive S&OP 2. Noconnection with company’s strategic and
financial objectives
Metrics not clearly defined
Performance Management 2. No periodic updates or exception alerts to
mitigate outliers
‘Ad hoc process
Monthly Review Process 2. No clearly defined roles
- Excess inventory
Supply constraints
3. Limited supplier response times
Supply Planning
New Product Introduction (NPI) 1. Limited visibility to NPI for Operations
1. Multiple forecasting views of Sales, Operations,
Collaborative Forecasting and Planning ~ 344 Finance that are difficult to reconcile
Multiple systems with growing volume of data
- Outdated information with no aggregate level
detail
Demand and Supply Visibility
(http:!]demand-planning.com/wp-content/uploads!2016/03/tablel jpeg.png)
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Executive S&OP: The executive component of the Sales & Operations Planning
process is known as Executive S&OP, which is one of the most important business
practices. Properly implemented, it can transform the way a company operates,
thereby increasing revenue and margin.
To ensure an effective and efficient S&OP process, the first and foremost
requirement is top management buy-in, as well as top management's involvement
in the decision-making process. Equally important is that the strategic vision of a
company is well aligned with its financial objectives. A good S&OP process can
easily achieve it. Companies must understand that aligning planning and execution
across the company has now moved from a competitive advantage to a competitive
necessity. The success in the Executive S&OP comes not only from the proper
application of its tools, techniques, and processes, but also in large measure from
people working together and their willingness to bring tough issues into the open.
The Executive S&OP report (Executive or Company Operating Plan) and KPIs used
in Executive S&OP meetings should be of a higher level than those used in Pre-
S&OP. For example, in Pre-S&OP meetings, products are usually viewed at family
levels. In the Executive S&OP meeting, they are viewed one level up—at a business
unit, geography, or company level. Their expected outcome is matched with the
P&L they are aiming at. If there is a gap, a plan is made to close it.
Performance Management: To ensure the success of a process and system, it is
imperative to have well-defined KPIs|Once KPIs are defined, the next step is to
monitor and track performance. Annual plan targets are evaluated against key
metrics—both operational (such as on-time delivery, inventory projections, and
capacity utilization) and financial (such as revenue and margin)—to ensure
operational plans are consistent with financial goals. A few of the KPIs that can be
measured are:
1.On Time In Full (OTIF)
2. Out-of-Stock (OOS)—Actual and Predicted
3. Shipments Right First Time (SRFT)— Inbound and Outbound
4, Conformance to Plan (CTP)— Inbound and Outbound
5, Inventory—Days of Inventory Outstanding and Days Forward Cover
6, Forecast Accuracy—Accuracy and Bias
7. Cost to Serve 8. Write Off Value—Waste Management
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8. Warehouse Capacity and Utilization
9, Invoice vs. Budgeted Target Obsolescence
Monthly Review Process! An S&OP process will be successful only if it gets the
right focus. All levels of the organization adhere to the monthly process, and final
numbers are signed off in a timely manner. In many cases, we see that, after a
while, the top management starts losing interest in the process. Their involvement
helps to ensure that all stakeholders actively participate and strictly adhere to
timelines. It will also help if all the stakeholders are well aware of the benefits they
and the company will derive from this process.
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(https://ibf.org/events/online2016-spring!)
ONLINE EDUCATION SERIES.
S&OP, DEMAND PLANNING & FORECASTING
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Supply Planning: The supply planning process ensures that products are available
when they are needed, and they are produced at the lowest cost and with the|
highest quality. Supply review meetings are held at the manufacturing site. The
main focus of these meetings is on the answers to the following questions. How
should we respond to demand? How much inventory should we hold? What should
be the priority for production? Is there a need to expand capacity? Do we need an
extra shift? How should we allocate products if there is a shortage? In crafting the
answers to these questions, the supply planning takes into account its future plans
based on the market forecasts of next 24-36 months. Capacity planning is carried
out on the basis of future demand requirements, as well as the company’s strategic
goals. Supply planning teams across the globe are constantly trying to reduce the
lead time to provide best service levels. Supply management also tries to ensure
that the inventory is managed optimally, and obsolescence is minimized. If there is
any possibility of a shortage, the supply planning teams must let the S&OP team
know ahead of time.
New Product Introduction: Competitive pressures, cost challenges, and increased
customer expectations are driving companies to improve the way they develop and
introduce new products. Whether the idea comes from within, or whether the new
product is trying to respond to customer needs and market demands, the new
product introduction process is a must. It enables all constituents to speak the same
language. It automates tasks, exposes bottlenecks, and drives consistent execution
and continuous improvement. Above all, it provides to management visibility into
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the product development pipeline. Since new product introduction is intertwined
with other product development processes, its adoption and execution significantly
influences your potential for success. One of the greatest challenges companies
face is limited visibility to the pipeline. Since research and product development
teams work in closed silos, they tend to forget that there are cross-functional
dependencies because the production capacity is shared. Therefore, it is important
to hold joint planning sessions within a company, at least a year before the launch,
so that all stakeholders know the future aspirations and plans of other marketing
teams.
Collaborative Forecasting and Planning: While surveys consistently show that
Supply Chain managers consistently rank forecast accuracy at the top of their list—
in reality it is nothing more than wishful thinking. True forecast accuracy requires
close collaboration, which is missing, because most of the functions work in silos.
Therefore, one of the biggest challenges for the various functions— such as
Marketing, Sales, Finance, and Supply Chain—is to work together and build a
consensus to arrive at one-number, unbiased forecasts. More often than not, we
encounter situations where numbers from the various teams need reconciling
through a gap analysis process. For instance, according to the historical trends of a|
product, the forecasting systems reach a volume figure. But, due to the fact that
Marketing teams are running special campaigns and promotions, the Sales forecas
from their end seems higher for particular time frames. This is where the two-way
dialogue takes full effect, and ensures that teams within the organizations start
working out of their silos.
Demand and Supply Visibility: Once all the above requirements are met, it is very
important to ensure that the market’s demand is translated correctly into supply
and manufacturing numbers. These numbers should be monitored monthly. Lack
lity into inventory and how forecasts are translated into supply numbers
cause imbalances between supply and demand, thereby causing excess inventory,
and risk of regulatory non-compliance. The visibility about inventory and
collaboration across Supply Chain partners will improve efficiency and financial
health as well.
of vis
Lessons learned
Following are lessons that I have learned for making S&OP robust:
+ Implement technology that fits into the process: S&OP is an integrated
process, encompassing both process and technology. If you focus just on
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implementing a new technology, thinking the process will take care of itself,
you are wrong. You must first set up the process, and then look for a
technology that fits into the process.
+ Anticipate outside initiatives: Typically, events that impact most adversely
your business are the ones that come from outside and, thus, are not within
your control. These are actions taken by your customers, partners, and
competitors. The best you can do is to anticipate them as best you can, and
then take the appropriate action.
+ Focus more on information, less on data: Often we spend huge amount of time
in collecting data, and very little in analyzing and finding the relevant
information. What matters are the data that are pertinent to the problem, not
the amount of data. The best strategy, therefore, is to decide first on a problem
you wish to solve, and then look for data that are relevant to it.
+ Effective leadership is must: S&OP crosses organizational boundaries, which
is a source of strength, as well as vulnerability. Many businesses find that their
attempt to implement S&OP is frustrated by tension between departments.
This can be resolved if the CEO actively participates and owns the process. If it
is not possible, then the next best solution is to motivate different department
heads to set collectively ground rules and boundaries for working together.
Benefits of S&OP excellence
S&OP is a vital tool to increase communication, improve service levels, decrease
costs, and have better capacity utilization in all parts of the Supply Chain. However,
there are companies that have been using the process for years, yet have not fully
reaped
complexity within the value chain, S&OP is becoming more and more difficult,
requiring a new look at the level of granularity and analytics to improve forecasts.
There are several steps that businesses can take. The most important one is to work
collaboratively with the network of retailers and suppliers. With that,
manufacturers don’t need to guess about what is selling and what is not, what their
s benefits. Furthermore, given the ever-increasing challenges and
outstanding inventory is, and promotional plans are; they have access to all that. All
these enhancements in Key Performance Indicators of the End-to-End Supply
Chain have a direct and positive implication on the Profit and Loss Statements of
the company.
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The cross-functional S&OP team of senior managers is essentially responsible for
re-charting the course of a business to achieve annual corporate financial targets.
Whenever it detects that the business is not on track, it alerts the executive team
and re-works the plan and, if necessary, revises targets.
At GlaxoSmithKline, we have done all of the above. The collaboration has brought
more trust and engagement of the Sales team in the demand forecasting process.
Less time is now spent on debating and arguing, and there is a real feeling of
shared ownership of forecasts, Our forecasts have significantly improved, Our Sales
team feels confident in committing to our customers.
GSK Demand Managers will deliver speeches at the upcoming Supply Chain
Forecasting and Planning Conference next month in Dubai so you'll be able to learn
more on how to improve your S&OP. Click here (https://ibf.org/events/dubai2016/)
for more details.
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S&OP CONFERENCE (@aiirocrcntctp)
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LEARN MORE
Debashis Sinha (http://demand-
planning.com/author/debashis-sinha/)
GlaxoSmithKline (GSK)
Senior Demand Manager
Mr, Sinha oversees the demand and supply of the
pharmaceutical produets of all in-bound pharmaceutical
shipments from around the globe into GSK’s facility in Dubai.
‘This facility eupplies pharmaceutical goods to the Arabian Gulf
and Near East Markets (UAE, Bahrain, Qatar, Kuwait, Oman,
Jordan, Syria, Lebanon, Iraq, and Yemen). He specializes in the
management and continuous improvement of the planning
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