IImproving

i Your
Y Sales
S l andd Operations
O ti
Planning (S&OP) Process

Larry Lapide, Ph.D.

Director, Demand Management , MIT-CTL
Research Director, DMSG
p @
llapide@mit.edu

Larry Lapide, 2009

Page 1
Companies Have Been Revising or Implementing
S&OP for their First Time because:

More global selling (internationally into multiple countries)

More global sourcing (internationally from multiple countries)
More fragmented supply lines (e.g., outsourcing )
Longer supply lines and lead times (e
(e.g.
g off-shoring)
Rise of consumerism has led to more competitive environments to plan:
Broader product lines with more Stock-Keeping-Units (SKUs)
Shorter product-life cycles (with more fashion-oriented products)
More Mergers & Acquisitions to gain customers/products
Greater uncertainty and risks

Larry Lapide, 2009

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What Is S&OP?: It Is a Routine Tactical Planning
Process to Match Future Supply and Demand

Vision
Strategic

Strategic Planning

Objectives & Goals

Periodic
Tactical

Demand Supply
S&OP
Planning Planning
Meetings
Sales and Operations Planning
Operational

Daily
Operations
O

Performance Measurements

Source: Peng Kuan Tan, Demand Management: A Cross-Industry Analysis of Supply-Demand

Planning, MIT Master of Engineering In Logistics Thesis,
Planning Thesis June 2006

Larry Lapide, 2009

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Agenda

Importance of the Sales and Operations Planning

((S&OP)) Process

How S&OP is done

Success factors (including the planning hierarchy)

Improving
p g the S&OP pprocess

Larry Lapide, 2009

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S&OP Keeps the Critical Bridge Between Demand
and Supply-Side Management Open

Supply-Side Demand-Side
Management Management

Suppliers
Operations DM Processes Marketing
M k ti
Logistics Customers
Sales
Supply Chain Merchandizing
Procurement Customer Service
Finance
Sales & Operations
Planning

Minimize costs and inventories Maximize revenues and margins

Maximize sustained profitability and other corporate goals

Larry Lapide, 2008

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An Integrated Supply Chain Requires S&OP

Aligning supply and demand plans helps ensure product

availability with minimal waste and inefficiency

Production/
Demand Inventory Planning Procurement

Planning Planning Production/ Planning

Scheduling

Larry Lapide, 2009

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Agenda

Importance of the Sales and Operations Planning

(S&OP) Process
How S&OP is done
Success factors (including the planning hierarchy)
Improving the S&OP process

Larry Lapide, 2009

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Semi-Conductor Companys S&OP

Weekly Weekly Monthly

Consensus Supply Executive
Demand Review Council
R i
Review Meeting Meeting
Meeting

Attended by Sales, Attended by Finance, Attended by CFO,

Marketing and SC; Manufacturing, and SC COO,VP Sales and Biz
often
o te by COO Mgrs
gs
Output: Constrained
Output: supply plan including Output: Supply-demand
Unconstrained Sales outsourced capacity gap including new
plan capacities and buildups

Process driven by Integrated Process Director from Supply Chain (SC)

Plans by month for 18 months
Improvements:
- Automate to allow more demand-side
demand side planning focus
- Incorporate demand uncertainty
- Plan for external fabs and foundries

Larry Lapide, 2009

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Consumer Telecommunications Equipment
Manufacturers S&OP
Weekly Monthly
Sales ?? Executive
Review Council
Meeting Monthly
Meeting
Sales and &
Operations
Attended by Sales Meeting Attended by CFO,
Planning and CMO,COO, and President
Forecasting
g Attended by Forecasting Output: Resolution of
Output: Constrained and Operations revenue and supply gaps
view of demand (e.g., Output: None at this and risks
shipment forecast) meeting

Process driven by Director of Forecasting

Plans by month for 12 months
Supply plan by Operations spotty, because a demand-driven business
Improvements:
- More feedback from Operations
- Use of multi-tier inventory optimization software

Larry Lapide, 2009

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Computer System Manufacturers S&OP

Monthly Weekly Monthly

Sales Supply- Executive
Forecast Demand C
Council
il
Rollup Call Meeting

Attended by Finance and Attended by Sales Finance and Supply Run by CFO and
Sales Integration Team Planning
g attended by CEOs
operational staff
Output: In-quarter product Additional input: Six-quarters product
family-level unconstrained family-level demand plan from Marketing Output: High-level
demand plan constrained supply-
Output: Weekly constrained supply plan demand plans
at components level

Process driven by Senior Director, Supply Planning and Mgmt

Plans by week for one year
Improvements:
- More input and accountability from Marketing
- Simplify tools to get information to suppliers quicker
- More focus on extended
extended lead-time
lead time products

Larry Lapide, 2009

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An S&OP Process Is Typically Driven by a Baseline
Forecast Predicted on a Pre-Defined Demand Plan
S&OP Meetings
Demand Supply
Marketing Finance
Logistics/
Sales
l O
Operations
ti
Rough Cut Supply Plans
Baseline Demand Forecast Supply Constraints

Must be estimate of true

unconstrained
t i d d demandd Review/
Consensus Meeting
The Sanity check
Must represent unbiased,
unemotional view Unconstrained Demand Forecast
Often generated via Co
Constrained
st a ed Demand
e a d Forecast
o ecast
statistical methods Supply Plans
Should include all known
impacts on demand such
- New product plans
- Promotional/pricing
plans
- Competitive landscape

Larry Lapide, 2009

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Agenda

Importance of the Sales and Operations Planning

(S&OP) Process
How S&OP is done
Success factors (including the planning hierarchy)
Improving the S&OP process

Larry Lapide, 2009

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S&OP Success Factors
1. Ongoing routine S&OP meetings
2. Structured meeting agendas
3
3. P
Pre-workk to
t supportt meeting
ti inputs
i t
4. An unbiased baseline forecast to start the process
5
5. Cross-functional participation
6. Participants empowered to make decisions
7. An unbiased,, responsible
p organization
g to run a disciplined
p
process
8. Internal collaborative process leading to accountability/
consensus*

*A p
planning
g hierarchy
y is important
p to a collaborative p
process

Larry Lapide, 2009

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Manufacturer One Number Functional
Accountability

One Number
Forecast/Plan
Accountability/Commitment

General Manager/CEO/CFO
Company

Divisions / Regions Divisional GMs /Presidents

Marketing/Sales
Product Lines / Channels
/ Sales Territories

Production Lines / Operations/ Logistics

W h
Warehouses// SKUs
SKU

Larry Lapide, 2009

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Retailer One Number Accountability

One Number
Forecast/Plan
Accountability/Commitment

General Manager/CEO/CFO

Company

Divisional GMs /Presidents

Chain / Channels

M h di
Merchandisers / Buyers
B
Items / Category

Departments
p / Stores Store Operations

Larry Lapide, 2009

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Forecasting & Planning Hierarchies
Single number forecasts/plans need to be translated into terms stakeholders can
understand

Demand-side Views Supply-side Views Financial Views

Com m Com m
Co ny Co ny Com ar
pan pan Ye
y pa y pa pan
y
Reg t Wa
io ns o duc es re h
ous nts Div ers
Pr
ori es Pla i
BU sions/ art
a te g s Qu
C
n
Acc Shi
p uctio
o un and
s Loc -to d Op
ts Br atio Pro ines e eks
ns L Uni rating We
Sal ng ts
es V ng Log turi Bu
i eti is fa c dge
($) ew rk Vie tics nu w tar e
Ma View s) (Un w Ma Vie ts) (Re Units y Tim nues
it i v ve
Un Ca its, (Un Ma enues
( $ , se s rgin & (Re & s)
) n
s $) rgi
Ma

Larry Lapide, 2009

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A Hierarchy Is Leveraged By Top-Down and
Bottom-Up Forecasting in Baseline Forecasting

Company (Units) Company ($)

Warehouses
Category 1 Category 2 Category 3

Shi T 1
Ship-To Shi T 2
Ship-To
Brands

Larry Lapide, 2009

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Hierarchy Also Leveraged When Incorporating
Market Intelligence Into Forecasts/Plans

Logistics
M
Manager
Brand
Manager

Larry Lapide, 2009

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Agenda

Importance of the Sales and Operations Planning

(S&OP) Process
How S&OP is done
Success factors (including the planning hierarchy)
Improving the S&OP process

Larry Lapide, 2009

Page 19
Current S&OP Processes Are Challenged in
Seven Ways

1. Operations and APICS-oriented, and often not

Marketing & Sales friendly
2. Dont leverage organizational capabilities well
3. Internally-focused
4. Not globally-focused
5. Blind to uncertainties and risks
6 Lack adequate process measurement
6.
7. Technology-challenged

Larry Lapide, 2009

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1. Functional Balance Needs the Most
Improvement?

Frequent Imbalance in Functional Participation/Accountability

s&OP or S&oP instead of S&OP

Larry Lapide, 2009

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1. S&OP Does This by Enabling Joint Demand
and Supply Planning

Demand S&OP Meeting(s) Supply

Unconstrained
U i d bbaseline
li Demand Planning Supply Planning
Rough-cut supply plans
demand forecast Product Purchasing
introductions Manufacturing Manufacturing constraints
Rough-cut Marketing&
Promotions Inventory Other supply limitations
Sales plans Pricing actions Transportation
Sales programs Warehousing g

Unconstrained demand forecast

Constrained demand forecast
Supply plans
Demand plans
Financial plans

Need a process that is able chase

demand or supply y quickly
y
Larry Lapide, 2009
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2. Organizational Capabilities: Types of Manager
Mindsets*

Facts Futuristic
Numbers Doing what is Doing what is Possibilities
Analyses true new Creative

Doing what is
right
g

Decisive
Judgmental
Impatient
I ti t

*Sources: Larry Lapide, Sales and Operations Planning (S&OP) Mindsets, Journal of Business Forecasting Spring 2007 (26/1)
Larry Lapide, "S&OP Psych 101", Supply Chain Management Review, April 2007

Larry Lapide, 2008

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2. Major Mindsets of S&OP Participants

Marketing

Finance,
Finance Sales
Logistics and Doing what is Doing what is
Operations true new

Doing what is
Supply right
g

Chain

Larry Lapide, 2008

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2. Roles in the S&OP Process That Leverage
Mindsets

Sales: Identifying the sales possibilities, sales plans and market

assumptions.
assumptions

Marketing: Identifying the demand plans, market assumptions, and

possibly forecasting the demand.

Operations & Logistics: Developing the supply plans and possibly

forecasting the demand.

Finance: Monetize the supply-demand financial plans.

Supply
pp y Chain: Moderating g a disciplined
p collaborative pprocess and
possibly forecasting the demand.

Larry Lapide, 2009

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3.Too Internally-focused

Internal Four Walls Concept With Little External Collaboration

S&OP Process Meeting(s)

Marketing Finance Customer

Supplier Logistics/
Information Sales Operations Information

Review/
Consensus Meetings

Larry Lapide, 2009

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3. Greater Use of Downstream and Upstream
Collaborative Information is Needed
The Bull Whip Effect can be reduced and better understood using
multiple upstream and downstream data in the S&OP process

Distribution
Suppliers Manufacturer Consumer
Channel

Sales

Sales
Sales

Ti
Time Ti
Time
Time

Upstream Supply Availability Information S&OP Downstream Demand Signals

On-hand inventories
Process
POS, consumption, and
Availability forecasts warehouse withdrawals
On-hand inventories
Demand and replenishment
forecasts (e
(e.g.,
g VMI
VMI, CPFR)

Larry Lapide, 2009

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4. S&OP Needs to Support Larger, More Complex
Global Businesses

Christopher Michael Honstain, Sales & Operations Planning in a Global

Business, MIT Master of Engineering In Logistics Thesis, June 2007:
Research question: How do you break up S&OP for global businesses?
Literature review and interviews with industry experts

Findings:
Break up S&OP process into closest entities that represent Profit & Loss
(P&L) centers
Have Finance consolidate pieces
So it becomes important to translate operational plans into financial
plans

Larry Lapide, 2009

Page 28
5. Blind to Uncertainties

Most S&OP process use point forecasts and plans, assuming certainty

Need to incorporate
p risk management
g techniques
q and methods to account for
uncertain supply as well as demand:
Francis Bacon: If a man will begin with certainties, he shall end in doubts; but if he will be
content to begin with doubts, he shall end in certainties.

Yanika Daniels and Timothy Kenny, Leveraging Risk Management in the

Sales and Operations Planning Process , MIT MLOG thesis, June 2008
Funded
u ded by Demand
e a d Management
a age e t Solutions
So ut o s Group
G oup (DMSG)
( SG)
Research Question: What risk management techniques can be brought into S&OP?
Survey, literature reviews and case studies, industry expert interviews, and site visit

Findings:
Use of range and scenario forecasts ( to represent uncertainty)
Methods such as buffer strategies, multiple sourcing, etc.
Customer and product segmentation (importance vs forecastability /order lead times)

Larry Lapide, 2009

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5. Blind to Uncertainties

Demand Side Risk Supply Side Risk Management

Management Techniques Techniques
Varied Use of Fixed, Variable and Spot Rate Supply
Inventory Buffers Contracts
Variable Customer Service Level Promising Dual Sourcing Key Supplies
Product and Customer Segmentation Product and Customer Segmentation
Varied Use of Centralized and Decentralized
Component Commonality Inventory
Demand Shaping Maintain Reserve Production Capacity
Range and Scenario Planning Range and Scenario Planning
Postponement of Final Steps in Production Lock-in Supply of Scare Materials and Components

Yanika Daniels and Timothy Kenny, Leveraging Risk Management in the Sales and Operations Planning Process , MIT
MLOG thesis, June 2008

Larry Lapide, 2009

Page 30
6. S&OP Needs More Process-Based
Performance Metrics (e.g., KPIs)

Demand-side
Forecast accuracy ( compared to demand variation)
Variance to baseline forecast
Demand versus budget
Adherence to demand plan
Supply-side
Adherence to manufacturingg /operational
p pplans
Supply-Demand
Efficient Perfect Order (the ultimate measure of S&OP)
S&OP)*

* See: Larry
y Lapide,
p , Not-So-Perfect Order,, Supply
pp y Chain Management
g Review,, July/August
y g 2007

Larry Lapide, 2009

Page 31
7. Lastly, An Integrated Supply-Demand Planning
Technology Enabling Architecture is Needed

S&OP Workbench
Dashboards
Scorecards
What-Ifs

Demand-Side Planning Supply-Side Planning

Demand Supply Planner/DRP
Planner Inventory Mgmt
Demand Inventory Optimizer
Collaborator Supply Collaborator

ERP Systems Legacy Systems

MRP/MES Systems Other Transactional
CRM Systems Systems

*Larry Lapide, Sales and Operations Planning Part II: Enabling Technology, JBF, Winter 04/05, (23/4)

Larry Lapide, 2009

Page 32
 Thank you

Questions?

Larry L
L Lapide,
id Ph.D.
Ph D
Director, Demand Management , MIT-CTL
Research Director, DMSG
llapide@mit.edu

Larry Lapide, 2009

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