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Stephen P. CraneStephen Crane Consulting, LLCSupply Chain Risk ConsortiumNovember 19, 2015
APICS-SV Chapter Meeting
Trends Shaping the Evolution of S&OP & Integrated Business Planning
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Principal & Founder – Stephen Crane Consulting, LLC B.S. Chemical Engineering - University of New Hampshire APICS CSCP – Certified Supply Chain Professional Board Member – Supply Chain Council & APICS Member of The Supply Chain Risk Consortium 30+ years industry experience from Air Products, Wacker-Chemie and Firmenich Implemented Sales & Operations Planning in 12 businesses, 3 companies, 4 countries Implemented best-in-class supply chain organizations and planning processes Practitioner focused on sustainability of benefits
Background
Stephen Crane/APICS-SV/November 19, 2015
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S&OP vs. Integrated Business Planning
Greatest Challenges to Improving S&OP
Six Trends Shaping the Evolution of S&OP & IBP
Key Takeaways
Questions?
Agenda
Stephen Crane/APICS-SV/November 19, 2015
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S&OP vs. Integrated Business Planning
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S&OP & IBP: Decades of Evolution
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Evolution of S&OP
The S&OP process develops tactical plans that provide management the ability to strategically direct its businesses to achieve competitive advantage on a continuous basis by integrating customer-focused marketing plans for new and existing products with the management of the supply chain. The process brings together all the plans for the business (sales, marketing, development, manufacturing, sourcing, and financial) into one integrated set of plans. (APICS Dictionary, 14th edition)
In the past, S&OP is most often identified as a Supply Chain based process and has been too singularly focused to engage and provide value across functions to provide true business optimization.
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Evolution of S&OP
“Traditional Sales and Operations Planning (S&OP) processes and supporting technologies are no longer sufficient in today’s business environment. Sales and Operations Planning has evolved to become Integrated Business Planning. It is a truly cross-functional, multi-dimensional process that includes all elements of demand, supply, and the financial analysis in relation to the business goals and strategy.”
“The broader strategic mandate for S&OP is key to superior returns. S&OP leaders are aggressively converting S&OP from an operations level demand and supply balancing process to the mechanism of choice for integrated business planning and strategy deployment.”
8Stephen Crane/APICS-SV/November 19, 2015
Evolution of S&OP
Every company needs to decide on how they want to use S&OP in their business. Best-In-Class companies use S&OP as a way of running the business supporting a company’s growth strategy by routinely reviewing customer demands, anticipating shifts in business patterns, and aligning an extended enterprise of resources, suppliers and service providers to deliver on expectations in a dynamic and evolving global marketplace.
Management’s handle on the business…
All P&L impacts integrated into process…
Is an Executive decision making process…
A set of decision making processes…
Provides "long range vision“ to issues before they become a crisis…
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Month-End Close Drives Price/Volume Variance Analysis and Monthly Outlook
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Companies That Have implemented S&OP See Benefits Across Many Areas - Performance Benefits (% Improvement)
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Greatest Challenges to Improving S&OP
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Always under promise and over deliver
Never submit your real budget the first time
Always inflate your budget, as it will likely be cut
Always make your budget, it’s what really matters
Avoid specific measures, especially if you can’t control them
Get the most people reporting to you and protect your budget
Unwritten Rules Causing Profit Leakage
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Cost Reduction (Conference Board)
─ 90% of organizations that launch cost reduction programs fail to sustain results for > 3 years
Execution (McKinsey)
─ Organizations realize only 63% of the value of their strategies
Complexity (AT Kearney)
─ Complexity costs organizations 3-5% of sales
Lost Business Value
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Greatest Challenges to Improving S&OP
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Lack of Executive support, commitment, and engagement
o Leadership team needs to be committed to a new style of running the business
o Organizations need to comprehend the true scale of what the process can achieve for the business
o The sizable challenge of overcoming the traditional thinking of operating in functional silos and mis-aligned incentives
o Integrating all the key areas of the business (Sales, Product Management, Manufacturing, Purchasing, Finance, R&D) into a single integrated business planning process
o There is no one owner of the management process
Greatest Single Challenge to Improving S&OP
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Six Trends Shaping the Evolution of S&OP & Integrated Business Planning
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1. Speed of Business Continues to Accelerate
2. Complexity, Volatility, Lack of Value Based Planning
3. One Size Does Not Fit All
4. Develop Planning Talent
5. Global is More Than a Template
6. Software is Not a Silver Bullet
Six Trends Shaping the Evolution of S&OP & Integrated Business Planning
Stephen Crane/APICS-SV/November 19, 2015
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Speed of Business Continues to Accelerate
1The need for organizational alignment is more critical than ever. The speed of business continues to accelerate driven by the consumer now dictating the channels, any confusion about priorities or delays in orders can result in increased costs, inventory or even loss of business.
Need to capture timing and volume shifts is critical to maintaining customer service and fulfill orders profitably
The need for strategic focus on Sales Forecasting has never been greater
S&OP is the perfect process mechanism to recognize, evaluate, and determine the impact of these changes
Effectively communicate changes and align the organization to “one plan”
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Companies need to better manage complexity and volatility which are squeezing margins and decreasing profitability. By focusing on value based planning, companies can maximize their profitability.
Increasing complexity of products and length of global supply chains
Increased product proliferation and shorter lifecycles
Demand volatility is increasing while customers require increased responsiveness and better service
Value based planning not integrated into S&OP
Complexity, Volatility, & Lack of Value Based Planning Squeezing Margins
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Companies should leverage segmentation techniques in planning to target performance improvement opportunities and capitalize on those opportunities. By combining portfolio and planning techniques, organizations can drive segmented strategies to achieve maximum business profitability.
The 80/20 rule (Pareto)
Measure and manage complexity
Focus on synergy areas: procurement, product design, manufacturing, planning and order fulfillment.
One Size Does Not Fit All
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With recognized talent gap in the marketplace, companies should establish talent management programs and career paths that attract and retain planning talent. Career paths need to include opportunities to move into other functional areas in the organization to broaden planners’ experience and establish context for better decision making.
New generation of the workforce expects to be mentored
Universities are not providing the necessary planning skills, so companies should expect to develop these skills
Culture and capability differences makes it difficult to plug-and-play new talent from other companies
Develop Planning Talent
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Area 1. PF 2. PPR 3. MPP 4. PP 5. DP 6. SP 7. IM 8. S&OP Total
ZEU 76% 75% 77% 78% 88% 65% 74% 63% 76%ZNA 74% 63% 66% 73% 80% 58% 74% 66% 70%ZCN 80% 73% 82% 75% 91% 59% 83% 70% 78%ZLA 88% 82% 86% 75% 89% 85% 76% 81% 83%ZSEA 81% 72% 74% 74% 86% 74% 69% 82% 77%WW 81% 83% 73% 76% 94% 80% 90% 85% 83%ZIMEA 82% 67% 69% 78% 74% 74% 80% 46% 73%ZJPN 65% 67% 64% 52% 79% 62% 61% 79% 67%Total 78% 72% 75% 74% 86% 68% 75% 71% 76%
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As companies look to expand S&OP globally, standardized process templates can help efficiently establish a common understanding of desired process. However differences exist in data, skills, and market structure that can significantly impact planning capabilities regionally. So companies should review go-to-market strategies and align their global S&OP process with regional considerations to optimize business capabilities and performance.
Globalization is core to most growth strategies
Templates are a good start, but not enough
Global vs. regional vs. local, regional considerations to increase alignment and engagement
Global is More Than a Template
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Gather and update data
Supply Network Planning
Demand Planning
Guidance on BU Priorities
Vetted Supply Options
Correct Sales
History
Validate Sales Agent
Forecast
Make Stat/Market Intell Forecast Adjustme
nts
Historical Sales vs.
Prev. Sales Plan
Pre-Demand Changes Complet
ed
Update and Add
New CVCs
Upload/Enter
Customer
ForecastsGenerate
24 Month
Unconstrained
Forecast
Conduct Pre-
Supply Review w/Plant
s
KPIs DP Released to CO for Financial Forecast
Review Supply Metrics
Review &
Confirm
Available
Inventory
Create Statistic
al Forecast
Update Resourc
e Capaciti
es & Assump
tions
Refresh Inactiv
e Version
/ Release DP to SNP
Review Financial Projections vs. AOP
& Gap Closure
Measures
Review Major Supply Chain
Risks and Top Issues
Review KPIs,
Revenue, Cost
Projections, &
Gaps to AOP
Lock & Deploy S&OP
Plans for Executio
n Pre-Alignment
Executive Sign-off
Publish Minutes, Decisions
, and Action Items
Review Supply Options
Financial Implicati
ons
Review Business Strategy
& Objectives
Review Demand & Supply
Plans
Review Major
Business Issues
Review Capital & Resource Requests
Summarize
Supply Option
Proposals
Make Changes
to Constrain Final
Forecast
Run Heuristics for
24 Month Supply
Plan
Communicate
Decisions & Actions
to Organizat
ion
Competitive/Market
Intelligence
1.0 2.0
3.0
4.0
5.0
Upload Sales History to
APO
Add New Customer
Items to R3
Review Demand Metrics
Publish Assumpti
ons, Minutes, Decision
s, and Action Items
Validate Changes to Sales Plan and Update Months 1 and 2
Identify Supply Imbalan
ces / Review Supply AlertsSubmit
Supply Options to BU
for Approva
l
Financial
Impact of
Supply Options
Finalize Supply Options
& Assump
tions
Conduct Supply Review
Publish Minutes
, Decisions, and Action Items
Publish 24
Month Raw
Material Forecas
t
Update Networ
k Source Change
s
Preferred
Sources
Assigned to
Demand
Summarize Key
Decisions & Top Issues
Still Outstandi
ng
Iteration loop
Demand Review Approve Unconstrained
Forecast
Finalize 3-month
Sales Plan
Order Book (Sales
Backlog)
Conduct Pre-
Demand Reviews
Stat Forecast Copied to BW
Provide Supply Constraints to
DP
Review Supply Options
to Balance Demand
Summarize top
issues/actions &
decisions expected
ESO
Adjust SNP
Supply Plannin
g Constra
ints
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Software is Not a Silver Bullet
6Companies continue to invest money, time, and resources into buying and implementing software, typically ignoring segmentation, analytics, and skill development critical to maximizing their return on these investments. To generate real improvements in S&OP, companies should refocus their efforts on building planning competencies and capabilities to ensure real and sustainable benefits on investments.
Use segmentation to apply software automation appropriately (ABC Pareto)
Remember, software does not solve business problems
Focus on defining the questions that need to be answered first, then build the capabilities to provide those answers
Competency development starts with teaching people how to think, followed by teaching them how to click – not the other way around
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Key Takeaways
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New dynamics are creating complexities that require enhanced integrated planning capabilities to drive efficiency and effectiveness – people, process, technology
A renewed focus on Planning For Growth provides a platform for collaboration, internally with Commercial Teams and externally with trading partners
One size does not fit all – leverage segmentation to apply appropriate focus and capability to specific situations
Building an effective Planning organization requires development of portfolio and planning competencies
Executives have to lead the changes
Key Takeaways
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Thank you!
Stephen P. CraneStephen Crane Consulting, LLCSupply Chain Risk [email protected]