Leveraging S&OP- Not Just Your Father's Supply/Demand Balance Anymore

Leveraging S&OP

A Webinar
by

Tom Wallace
sponsored by

Steelwedge Software
March, 2012

EXECUTIVE S&OP by Tom Wallace WWW.TFWALLACE.COM

News Flash!
S&OP Certification
What: Become certified in S&OP
How: Pass the Certification Exam
Who: - The S&OP Institute
- Ohio State University
When: Exams can be taken beginning Sept 1

More info: sopinstitute.com (after 3/20)
tom@tfwallace.com

The Four Fundamentals
How Much?
Rates

X
Sales & The Big Picture
Operations
Volume Product Families
Planning Strategy/Policy/Risk
Monthly/18 months+
Top Management
Demand Supply
Which Ones?
Timing/Sequence
The Details
Products, SKUs, Orders
Mix Tactics/Execution
Wkly/Daily, 2 days – 6 mos
Middle Management


Sales & Operations Planning

?????
Executive S&OP
Volume

Demand Planning/ Demand Supply Supply (Capacity)
Forecasting Planning

Mix

Master Scheduling
Supplier and Plant Scheduling
Distribution Scheduling


The Executive S&OP Process
Step #5
Executive Decisions &
Meeting Game Plan

Step #4
Pre- Conflict Resolution,
Meeting Recommendations &
Agenda for Exec. Mtg.
Step #3
Supply
Planning Capacity constraints
2nd-pass spreadsheets
Step #2
Demand
Planning Management Forecast
1st-pass spreadsheets

Step #1
Data
Gathering Sales Actuals,
Statistical Forecasts
&
Supply Actuals
End of Month


Last Time We Discussed . . .

• BASF
• Cisco Systems
• V&M Star
• Dow Chemical


Executive S&OP in Retail Delivery

Staples, Inc.
Framingham, MA
Products: Office Equipment and Supplies
Corporate Annual Sales: $24.5 billion


S&OP at Staples Delivery

Data Gathering
Aggregate Demand Process/Meeting
• Review recent performance to forecast
• Generate forecast for 12 future months
• ID “gaps” in the forecast and plans to mitigate
(between Demand Planning and Merchant teams
versus what’s been submitted to corporate)


Aggregate Supply Process/Meeting
• Generate supply plans based on new demand plan
(vendor purchase plans and logistics plans)
• Review/resolve supply constraints (forecast translated
from $$$ into case counts, cubic feet, labor hrs)

• Capability updates (process improvement, new business
initiatives, shifts in suppliers/customers, cost/benefit analyses)


STAPLES THE “STANDARD” MODEL
• Data Gathering • Data Gathering
• Demand Planning • Demand Planning
• Supply Planning • Supply Planning
• Core Team Meeting • Pre Meeting
• Exec Team Meeting
– President, NA Delivery
• Exec Meeting
– Sr. VP Heads of 3 BU’s
– Sr. VP Finance
– Sr. VP Supply Chain


Benefits

Krist Lutz, Director of Sales & Operations
Planning for Staples Delivery:
Hard benefits include the traditional ones . . . :
- higher in-stock positions with lower inventories
- increased revenue due to lost sales avoidance
- decreased service expense
- better working capital and cash flow


Benefits, continued

Kris Lutz again:
• Soft benefits are communication and teamwork.
• Teams discuss items earlier and much better
than before.
• This makes for a more nimble organization,
one where ideas and initiatives can be executed
faster and with greater precision


The Moral of the Story

There are far more similarities than differences
between Staples’ use of Executive S&OP and a
how a manufacturing company does it.

Implications: if you have units in your corporation
that do not produce physical products, they may
still be candidates for S&OP.


Executive S&OP in Advanced
New Product Launch
Applied Materials
Process Diagnostics and Control Business (PDC)
Rehovot, Israel
Products: Equipment for the manufacture of:
Semiconductors
Flat Panel Displays
Photovoltaic Cells
PDC Employment: ~900


Applied Materials: Process Diagnostic and
Controls Business (PDC)

• S&OP user for over 10 years
• New products dominate the business: over
40% of sales in 2010 (some years over 60%)
• New products at PDC require strong
alignment between customer penetration
strategy and build and supply chain plans
• Thus, they created a separate S&OP process
for new products


The Stage-Gate Process (phase-gate)

The stage–gate model is a technique in which
new product development (or other initiative) is
divided into stages separated by gates.

At each gate, a manager or a steering committee
decides on whether or not the project should go
forward.


The Stage-Gate Process at PDC

• Gate 3: project approval received
• Gate 3.5: product can enter S&OP
• Gate 4: product ready to ship as alpha and
then beta test version
• Gate 5: product ready to move from new
product status to the ongoing
(“sustaining”) product line


COMBINED PDC
S&OP BUILD PLAN

SUPPLY REVIEW MTG
TEST FOR CAPACITY

NEW SUSTAINING
PRODUCTS PRODUCTS
S&OP BUILD PLAN S&OP BUILD PLAN

Products Products
between beyond
Gates 3.5 and 5 Gates 5

Gate 5
Transition from
New Product to
Sustaining Product


Benefits
As cited by Shelly Zafrir, Director of Sales &
Operations Planning, Silicon Systems Group in
Santa Clara (formerly head of S&OP at PDC)

NEW PRODUCT LAUNCH
In new product launch, perhaps the most
important metric is lead times to customers.
It was more than one year before S&OP. It is now
3 - 5 months and less on occasion.


Benefits, continued
As cited by Shelly Zafrir:

MANUFACTURING CYCLE TIME
Down 15 - 20% on ongoing products, more on
new products, while volume increased four-fold
since 2009

EXCESS & OBSOLETE INVENTORY
Less than half of 2009 level and expected to drop
even more

Three points:
1. New Product Launch is filled with uncertainty
and change
2. S&OP helps companies deal with uncertainty
and change
3. The larger the role that New Products play in
your company, then the larger the role that
S&OP should have in New Product Launch.
A classic example: Applied Materials PDC


Executive S&OP Support for
Earnings Calls

The Procter & Gamble Company
Cincinnati, OH
Products: Consumer Packaged Goods


The Operating Environment

• 300 unique brands, sold worldwide
• Plants in 40 countries
• Operations in 80 countries
• S&OP used throughout the company


A Single S&OP Process

• Only one standard S&OP process for
all businesses and “regions”
• Only one standard set of metrics
• Each business evaluated once per year to:
– Insure compliance
– Provide road map for improvement
• S&OP done on two axes: business unit
region

Figure 12-1 27

Procter & Gamble
Business Unit and Region Integration

BU1 BU2 BU3 BU4

Reg1 X x

Reg2

Reg3


Alignment
Region 1’s forecast of what it expects to sell of
Business Unit 1’s Products
=
What Business Unit 1 expects Region 1
to sell of its products
This alignment is the foundation for:
• Running the business internally with one set of
numbers
• Using S&OP as an important foundation for
quarterly earnings calls to Wall Street

P&G’s S&OP Assessment Tool

Six sections, ~ 20 items per section
• Leadership
• Operating Strategy
• Initiative Planning
• Demand Planning
• Supply Planning
• S&OP


The Annual Assessment Process
1. Self-assessment by the BU’s and Regions
using the Assessment Tool
2. Self-assessment validated by qualified assessors from
outside that business
3. Assessment interviews and document reviews by the
“outsiders”:
1. With business leaders
2. Assessors may attend Exec meeting
4. Assessment summary
a. Set final score
b. Strengths and improvement opportunities
c. Action Plan



Companies should have a formal assessment
process to:
• maintain the integrity of its S&OP processes
• improve those processes

Are your earnings calls (to corporate or the
financial community) based on S&OP?

If not, why not?


Summary – S&OP at P&G

• One of the very best S&OP processes in the
world
• Made possible by the Assessment Process
• A quote from Dick Clark, formerly Associate
Director, Global Network Supply Operations:
S&OP plays a substantial role at P&G. It is
one of the – some might say the – primary
planning processes used to run the business.


In Memory

Richard A Clark
Associate Director,
Global Network Supply Operations
The Procter & Gamble Company
1953 – 2011

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Leveraging S&OP- Not Just Your Father's Supply/Demand Balance Anymore

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