S&OP IE EVENT January 2011

S&OP: Letter Perfect. Practice

Imperfect

1

Lora Cecere, PartnerApril 2011

© 2010 Altimeter Group

Leaders sensed Market Changes 5X Faster

2

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


3

What’s in a name?

A rose by any other name would smell as sweet.

William Shapespeare


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


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)





Transactional views

Transactional views

Transactional views

Transactional views

Transactional views

What is Planning?5

Sell Deliver Make Source Service


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


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…..


Demand Sensing

Demand Shaping

Designing the

Supply Respons

e

To Drive More Value…..

Demand Orchestration

8

Sell Deliver

Make

Source


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


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?


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?


What is the goal?


How do we align to maximize the outcome?




13


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


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

15


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


What is the goal?






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


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


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


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


What is the goal?






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


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




Collect sales and market

What if for Demand

Executive plan review

Publish the constrained plan

Measure and communicate the plan

Week D


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”

25


Summary

In tough economic times, horizontal excellence is paramount.

S&OP: Letter perfect. Practice imperfect.

Focus on the AND with the End in Mind.

26


About Us

27

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

[email protected].

http://www.altimetergroup.com/


28

Lora [email protected]

Blog: www.supplychainshaman.com

Twitter: lcecere

Linkedin: linkedin.com/pub/lora-

cecere/0/196/573

Thank you

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