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S&OP: Letter Perfect. Practice
Imperfect
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Lora Cecere, PartnerApril 2011
© 2010 Altimeter Group
Leaders sensed Market Changes 5X Faster
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Leaders (6%)
Sensed Market
Changes 2 Months
Corrected Supply
Chain in 3 Months
Followers
(47%)
Sensed Market
Changes in 4 Months
Corrected Supply
Chain by 6 Months
Laggards
(47%)
Sensed Market
Changes in 6 Months
Corrected Supply
Chain in 15 Months
© 2010 Altimeter Group
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What’s in a name?
A rose by any other name would smell as sweet.
William Shapespeare
© 2010 Altimeter Group
Integrated business planning (IBP) refers to the technologies, applications and processes of connecting the planning function across the enterprise to improve organizational alignment and financial performance. IBP accurately represents a holistic model of the company in order to link strategic planning, and operational planning, with financial planning. By deploying a single model across the enterprise and leveraging the organization’s information assets, corporate executives, business unit heads and planning managers use IBP to evaluate plans and activities based on the true economic impact of each consideration.
Sales and operations planning (S&OP) is an integrated business management process through which the executive/leadership team continually achieves focus, alignment and synchronization among all functions of the organization. The S&OP plan includes an updated sales plan, production plan, inventory plan, customer lead time (backlog) plan, new product development plan, strategic initiative plan and resulting financial plan. Plan frequency and planning horizon depend on the specifics of the industry. Short product life cycles and high demand volatility require a tighter S&OP planning as steadily consumed products. Done well, the S&OP process also enables effective supply chain management.
What is in a name?4
© 2010 Altimeter Group
Strategic: Multi-year views in viewed in aggregate
Tactical Planning: Focus within months within the strategic horizon on actionable timelines for decisions on revenue management, operational planning, sourcing strategies, and new product launch
Operational planning for sales deals (weekly views for 4-6 weeks)
Operational planning for customer service (weekly views for 4-6 weeks)
Operational planning for manufacturing (weekly views for 4-6 weeks)
Operational planning for sourcing(weekly views for 4-6 weeks)
Operational planning for service (weekly views for 4-6 weeks)
Executional planning (Daily views within the week)
Executional planning (Daily views within the week)
Executional planning (Daily views within the week)
Executional planning (Daily views within the week)
Executional planning (Daily views within the week)
Transactional views
Transactional views
Transactional views
Transactional views
Transactional views
What is Planning?5
Sell Deliver Make Source Service
© 2010 Altimeter Group
What is the goal?
What does good look like?
How do we align incentives to maximize the outcome?
How do we effectively tie the plan to action?
The Right Questions6
© 2010 Altimeter Group
The Changing Goal7
1985: Deliver a Feasible Plan for Operations
1995: Match Demand with Supply
2005: Demand Driven
2011: Market Driven to Drive Value-based Outcomes
Increasing value…..
© 2010 Altimeter Group
Demand Sensing
Demand Shaping
Designing the
Supply Respons
e
To Drive More Value…..
Demand Orchestration
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Sell Deliver
Make
Source
© 2010 Altimeter Group
2010Revenue(M)
2010 CannondaleComposite Growth
Profit Margin ROA DIO DWCC
Colgate 15564 14 1.5% 14.1% 21.2% 30 41Procter & Gamble 78938 1 2.9% 14.1% 7.3% 32 31General Mills 14796 3 0.7% 11.0% 8.9% 37 41Church & Dwight 2589 54 5.2% 10.5% 9.2% 32 39Campbell Soup 7676 10 4.0% 10.5% 12.8% 40 35Clorox 5534 11 1.5% 10.5% 15.0% 27 34Kellogg 12397 9 -1.4% 10.1% 11.4% 26 22Kimberly Clark 19746 8 3.3% 9.3% 9.2% 43 48Kraft 49207 2 27% 8.4% 5.1% 35 48ConAgra 12079 8 -2.8% 5.5% 6.7% 58 57
Who has the Best Supply Chain?9
© 2010 Altimeter Group
Supply chain strategy
Business strategyWhat are the right things to do to increase company value?
Value-network strategyWhat are the right ways to support the business strategy?
What are the right trade-offs between value drivers for each value network?Right productplatforms
Design the supply response
Build organizational systems and manage talent
Align supply relationships
Building Value Networks
Align demandrelationships
Effective Supply Networks
Execution of buy-side strategies
Continuous Improvement
Capabilities RequiredSupply Chain Network Design
Design Networks
Innovation Methodologies
Demand Networks
Joint Value Creation Strategies
Business Process
How do I do the right things right?
© 2010 Altimeter Group
Value: Price, trade incentives, new products, services, freshness, responsiveness
Variety: Configurations, items, platforms, components, brands, processing technologies
Velocity: Lead-times, order to delivery, inventory turns, time to market
Volatility: Demand, inventory, schedules, reliability, yields
Volume: Plants, warehouses, distribution centers/points, product flow
What drives Variability?
© 2010 Altimeter Group
What is the goal?
What does good look like?
How do we align to maximize the outcome?
How do we effectively tie the plan to action?
The Right Questions12
© 2010 Altimeter Group
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© 2010 Altimeter Group
CostVolumeGrowth
Typical Organization14
CEO
Chief Customer
Officer
Chief Marketing
OfficerSales
Account Teams
COO
VP of Supply Chain
Customer Service Procurement Logistics
CFO
CIO
VP of Manufacturin
g
Quality
© 2010 Altimeter Group
Getting to Letter Perfect….Common Practice Optimal Practice
S Ask sales Focus on market drivers
& Direct integration to supply
Design of the value chain to optimize trade-offs, minimize risk, balance cycles, and orchestrate demand
OP Manufacturing plan Trade-offs between make, source and deliver
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© 2010 Altimeter Group
The Need for Balance16
S: Go-to-Market
Strategies
OP: Demand Orchestratio
n
Commodity Strategies
Network Strategies: Make/Source & Deliver
Inventory: Form & Function
Competition
Market Drivers
&
Goal
© 2010 Altimeter Group
What is the goal?
What does good look like?
How do we align to maximize the outcome?
How do we effectively tie the plan to action?
The Right Questions17
© 2010 Altimeter Group
Manufacturing View (
Units)
Sales View ($) Marketing View
($, U
nits)
Logistics View
(Units, Cases)
Ship-from Locations
Warehouses
Global
Production L
inesPlants
Global
Supply-side Views
Downstream Data
Account-LevelA
VMI C
DistributionNetwork
Supplier Supplier Supplier Supplier
DistributionNetwork
DistributionNetwork
Demand-side Views
Translating demand: Demand hierachies
© 2010 Altimeter Group
Manufacturing View (
Units)
Sales View ($)
Accounts (Ship-to
locations
Countries
Global
Marketing View
($, U
nits)
Brands
Produ
ct
Catego
ries
Global
Logistics View
(Units, Cases)
Ship-from Locations
Warehouses
Global
Production L
inesPlants
Global
Supply-side Views
AdaptiveTranslation
Downstream Data
Account-LevelA
VMI C
DistributionNetwork
Supplier Supplier Supplier Supplier
DistributionNetwork
DistributionNetwork
Demand-side Views
© 2010 Altimeter Group
Demand-side Supply-side
Finance
Goal: Make the financial budget. Tops-down Focus. Desires control and wants predictability of operations.Forecast definition: The budget
Goal: A feasible plan. Bottom-up focus. Wants to minimize risk and disruptionForecast definition: The demand plan
Supp
ly
Cha
in
Operations
Goal: Factory optimization, improve costs and minimize demand uncertainty
Forecast definition: Manufacturing Plan
Sales and Marketing
Goal: Maximize revenue & market share, wants guaranteed product availability
Forecast definition: Sales plan
Start with a Common Goal
© 2010 Altimeter Group
Demand-side Supply-side
Finance
Goal: Make the financial budget. Tops-down Focus. Desires control and wants predictability of operations.Forecast definition: The budget
Goal: A feasible plan. Bottom-up focus. Wants to minimize risk and disruptionForecast definition: The demand plan
Supp
ly
Cha
in
Operations
Goal: Factory optimization, improve costs and minimize demand uncertainty
Forecast definition: Manufacturing Plan
Sales and Marketing
Goal: Maximize revenue & market share, wants guaranteed product availability
Forecast definition: Sales plan
Start with a Common Goal
© 2010 Altimeter Group
What is the goal?
What does good look like?
How do we align to maximize the outcome?
How do we effectively tie the plan to action?
The Right Questions22
© 2010 Altimeter Group
Company 2003Relative Ranking of Forecast Accuracy
2011Relative Ranking of Forecast Accuracy
Organizational: Regional versus Global Focus
A 1 5 Matrix Organization with a change in Reporting through Go-to-Market Teams
B 2 2 Centralized with a Strong Focus on Analysis
C 3 4 Strong Regional Focus
D 4 1 Matrix’d Organization with Global Reporting through Supply Chain
E 5 3 Centralized with Strong IT/Line of Business Partnering
Forecasting: Trading Places23
© 2010 Altimeter Group
Collect sales and market
Cycles
Week 1
Develop a demand plan
Demand consensus refinement
Constrained pan by Supply
What if by supply for Trade-offs
Develop a demand plan
Demand consensus refinement
What if for Demand
Constrained plan by Supply
What if by supply for Trade-offs
Executive plan review
Publish the constrained plan
Measure and communicate the plan
Week 2 Week 3 Week 4 Week A Week B Week C
Operational Review 1
Operational Review 2
Operational Review 3
Operational Review 4
Collect sales and market
What if for Demand
Executive plan review
Publish the constrained plan
Measure and communicate the plan
Week D
© 2010 Altimeter Group
Peter Murray, Dupont at IBF conference:“The hardest change was changing to
focus on market driversOur work on S&OP reversed a 12 year
slide in margin.The downturn made us believers in
strong horizontal processes at the executive level”
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© 2010 Altimeter Group
Summary
In tough economic times, horizontal excellence is paramount.
S&OP: Letter perfect. Practice imperfect.
Focus on the AND with the End in Mind.
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© 2010 Altimeter Group
About Us
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Altimeter Group is a research insights group providing
companies with a pragmatic approach to understanding
disruptive technologies. We have four areas of focus:
Leadership and Management, Customer Strategy,
Enterprise Strategy, and Innovation and Design.
Visit us at http://www.altimetergroup.com or contact
info@altimetergroup.com.
© 2010 Altimeter Group
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Lora Cecerelora@altimetergroup.com
Blog: www.supplychainshaman.com
Twitter: lcecere
Linkedin: linkedin.com/pub/lora-
cecere/0/196/573
Thank you