Sales and Operational Planning Manual

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Sales and Operational Planning Manual Powered By Docstoc
					       Taking Sales & Operations Planning
                      to the Next Level

1247 Ward Ave, Suite 200   ●   West Chester, PA 19380   ●   610-719-1600


Executive Summary                                 3

What is Sales & Operations Planning (S&OP)?       4

Traditional S&OP Process                          4

Common Challenges in the S&OP Process             6

Opportunities for Improvement                     7

The Prescient S&OP Solution                       8

Conclusion                                        10


    Sales & Operations Planning (S&OP) is a formal business planning process owned by
    executives and senior management. The strategic objective of the S&OP process is to ensure that
    operating plans across the enterprise are aligned with, and support, the business strategy in the
    most effective and profitable manner.

    Tactically, S&OP usually focuses on ensuring demand and supply are kept in balance and
    customer service targets are maintained as demand and the availability of capacity and critical
    resources changes. A key goal of S&OP is to create realistic, feasible plans.

                                             One critical success factor that can easily get overlooked
                                             is that the “quality” of the whole S&OP process is only as
                                             good as the data and the detailed demand and supply
                                             plans that support it. Given the complexity of the
                                             business scenarios and the importance of the decisions
                                             made in the S&OP meetings, it’s surprising to note that
                                             most companies doing formal S&OP today rely on
                                             spreadsheets to aggregate and analyze their
                                             information; few use software to help with the task.

                                             And a daunting task it is. The sheer volume of data
                                             required to support the S&OP process is enormous.
                                             Unfortunately, in most organizations, this data is either
                                             not available, or because of its discrete and un-
                                             integrated nature, is difficult to bring together without a
S&OP provides a single common view           lot of time-consuming data preparation.
   across the whole organization

    There are fundamental challenges associated with the implementation of S&OP. These are
    caused by the functional silos that exist between demand and supply planning in most
    organizations and compounded by the plethora of different operational planning tools upon which
    S&OP relies.

    Supply chain planning software providers, like Prescient, are now incorporating an S&OP module
    as part of the entire planning suite, driven from the details of the traditional planning data. This
    approach dramatically streamlines the process, delivering a single integrated view of all of the
    key S&OP data (sales, inventory, production etc.), together with the underlying detailed planning
    tools used to create and modify the demand and supply plans.

    This not only improves the mechanics of S&OP by eliminating all of the manual tasks needed to
    maintain spreadsheets with many different data sources, but also provides an opportunity to use
    S&OP proactively as a continuous improvement tool. The result is a better and more rapid S&OP
    process, with the added benefit of improved cross-functional communications.


Ask 10 organizations what S&OP means to them and the chances are you will get at least 10
different answers!

S&OP is a formal business planning process owned by executives and senior management.
According to APICS, the S&OP process “brings together all the plans for the business (sales,
marketing, development, manufacturing, sourcing, financial) into one integrated set of plans.”

Simply speaking, most companies implementing S&OP are seeking business alignment. In the
most practical sense, S&OP focuses on ensuring demand and supply are kept in balance and
customer service targets are maintained as demand, capacity, and resources availability
fluctuates. When viewed in this context of supply chain management, the implications of effective
S&OP are clear.

S&OP offers companies many benefits, including:

• Strategic alignment; executives are able to better steer the company to maximize the benefits
  to the business as a whole. The availability of “one plan for all” improves communications,
  teamwork and accountability.

• Cost savings; improved balance between supply and demand can reduce finished goods
  inventory, lead times, shortages and transportation costs.

• Customer service; better planning and review processes can identify potential issues earlier,
  creating a more responsive organization and improved customer service at lower cost.

• Communication; S&OP provides a method of synchronizing and coordinating activities across
  the business, both vertically and horizontally.


While there are undoubtedly differences in the details of the way every company views and
implements its S&OP process, they all share a number of common factors.

Although S&OP is “owned” by executives and senior management, the process itself involves
contributions from staff at operational, middle management and senior/executive level.

The process typically starts in August or September (for companies operate on a calendar fiscal
year) with the construction of the annual sales and operating plans for the next 12-24 months.
The annual sales plan involves budget driven top-down planning (usually by month/period at
category/group level in financial and volume terms), together with detailed bottom-up demand
planning (often at customer/SKU level in volume terms). These plans are then compared and

reviewed and the implications on production capacity and supply are examined until the final
annual sales and operating plans are agreed and issued toward the end of the year.

On a regular, periodic basis (usually monthly but sometimes weekly depending on the business),
an executive S&OP meeting is held to review actual performance against plans – typically for the
last three periods – as well as reviewing future plans across a rolling 12-24 month time frame.
Deviation and cumulative deviation from plan are both used as measures of performance and to
identify trends. In some companies, multiple plans with different assumptions are generated to
examine what-if “best” and “worst” case scenarios (as well as the most likely scenario).

At an operational level, the two key activities that support S&OP (as well as tactical planning and
execution) for manufacturing companies are Demand Planning and Supply/Production Planning.
Monthly (sometimes weekly), the planners create new forecasts over a rolling 12-24 month
future horizon, which are used to drive future production plans. Traditionally, this is a discrete,
serial process, starting with the demand plans, which are then passed on to production planners
to create the supply plans.

Both demand and supply plans may be reviewed (individually) weekly for exceptions, but the first
time the demand-supply balance is formally reviewed and assessed is likely to be in the monthly
pre-S&OP meeting between planners and middle managers – the results of which are then
submitted with recommendations for review by the S&OP executive team.

The S&OP categories that are reviewed in the executive S&OP meeting differ from business to
business but almost always include at a minimum: the Sales plan (based on the forecast), the
Operating plan (Production or Supply plan), and the Inventory plan. Other categories that may
be included are New Product Development, Promotions/Events, Orders, Shipments, Backlog and
Financials. This review is usually conducted at product group level and focuses on volumes (not
values) to produce a good overview of the business. Frequently however, it is also necessary to
examine the data in a number of dimensions – for example, by market, channel, major account
or business unit.

Whatever recommendations or decisions are made, they must be communicated effectively and
in a timely manner across the company and the agreed actions should be monitored and tracked.


The vast majority of companies conducting S&OP today use a manual (paper-based) system or
use homegrown spreadsheets to help them with the process.

In some ways, this is not too surprising. Spreadsheets are already widely used in most
organizations - mainly because they are perceived to be low cost, highly flexible and easy to use
– and S&OP can be viewed as a deceptively simple process.

However, this approach has a number of drawbacks that are amplified by the continually
increasing pace and complexity of business:

Time Constraints
S&OP requires access to a diverse range of data and information. Collecting and integrating this
data manually or into spreadsheets is usually extremely time consuming because of the many
different software tools typically used in organizations for forecasting, demand planning,
budgeting, production planning, inventory planning etc. In many manufacturing companies – and
especially in those that do not have integrated planning systems and have poor cross-functional
communication – this data gathering and integration process is the constraining factor on the
whole process and effectively determines the process cycle time.

Historical Perspective
In addition to looking at the future plans, S&OP examines performance against plans, usually for
at least 3 periods of history. Users who are constructing the monthly S&OP spreadsheets must
also manage the process of storing the right historical data and ‘cycling’ this each period.

Multiple Aggregate Views
With the possible exception of very complex and sophisticated spreadsheets, the data and
reports in most home grown systems are not very flexible with static and one dimensional data

such as sales . Because the underlying data and data structures are not available, its is often
simply not possible to examine the data by different views. For example to make the right
decisions, it is useful to view demand and supply data aggregated by product group, business
unit, category and market, and to examine these aggregations by cost, price or margin. The
inability to do flexible aggregations severely limits the useful decision support such solutions are
able to provide.

In fact, these problems are not solely related to spreadsheets but are a fundamentally caused by
the functional silos that exist between demand and supply planning in many organizations and
the use of a variety of different operational planning tools upon which S&OP relies.


The benefits of implementing a formal S&OP process are as numerous as             “Overall, the findings show
they are significant. Companies will be better able to balance supply and         that while Sales & Operations
demand as communication across the organization improves. For those               Planning has been widely
companies already practicing S&OP as well as those just considering its           adopted, there is significant
use, these four simple steps can yield further improvement in the S&OP            room for improvement … the
process:                                                                          time has come to focus less
•   Clear definition of all of the S&OP business processes & steps                on the adoption of S&OP and
•   Explicit definition of key success criteria                                   more on its perfection.”
•   Education of the participants across the organization                                           Oliver Wight
•   Consistent evaluation of the review and decision making process itself            (recent survey of over 200
                                                                                      manufacturing executives)
Better Quality Demand and Supply Plans
One critical success factor that can easily get overlooked is that the “quality” of the whole S&OP
process is only as good as the data and the detailed demand and supply plans that support it.
Using integrated Supply Chain Planning software will dramatically improve these plans. Improving
the quality of the forecast using Demand Planning alone will have a big positive impact as it is
the input to all of the downstream planning processes. Supply Planning using advanced planning
and scheduling (APS) tools that consider realistic production and material constraints will
maximize the benefits of a good forecast by improving inventory and production plans and
customer service levels. Doing this will provide synchronized high quality demand and supply
plans – essential to improving S&OP.

Better Efficiency in Collecting and Presenting S&OP Data
Dramatically reducing time and improving the efficiency of processing data is an integration
issue. Selecting a Supply Chain Planning suite where the Demand Planning, Supply Planning and
the S&OP modules are fully integrated significantly speeds up the mechanics of the S&OP

Better Visibility of Demand – Supply Balancing Issues
S&OP software also can automatically highlight exceptions where there is an imbalance between
demand and supply and allow the user to drill down and view the underlying data from multiple
dimensions. This helps users not only find the source of the problems but suggest possible paths
to resolution.

Better Communication of Decisions Across the Organization
Communication is often regarded as human and process issues. However, the Supply Chain and
S&OP Planning software can enable workflow with good audit trailing and saved messages to
make the planning processes more robust. This improves direct communication of the planning
decisions across the organization as well as tracking and monitoring compliance.

More Flexible Planning Cycles
The traditional planning processes today are so consumed with inefficient data collection that
the demand and supply balance issues do not come to light until just before or at the S&OP
meeting itself. Today’s dynamic, competitive marketplace requires companies to be much
faster in their ability to react to change and more flexible in their internal processes.
Competitive companies view S&OP as an opportunity to proactively plan, backed up with fully
integrated supply chain planning tools to support their decisions.


Prescient’s S&OP module – part of the Prescient product suite - integrates supply and demand
planning with excellent decision support capabilities and the flexible multi-dimensional views
required for effective analysis and planning at both operational and S&OP levels. Because
Prescient is delivered on a common data model, the S&OP module is integrated with Prescient
Demand Planning and Supply Planning applications.

Prescient S&OP offers executives a fully integrated view of their whole supply chain with the
ability to track action items that result from their S&OP review meetings – allowing them to see
at any time how the organization is performing against plan, to quickly establish where future
demand or supply issues may arise, and to evaluate the outcome of different demand-supply
balancing options on the business.

In contrast to the more traditional and often disconnected activities shown earlier, this
architecture enables a different process as depicted below.

Note that the activities at level  include the detailed Demand & Supply (Advanced Planning &
Scheduling) planning activities. Because the Demand and Supply planning tools in Prescient 5
share common data and are fully integrated, there is no time delay – the current data and plans
are immediately available. This allows supply planners to see the latest forecast and demand
data at any time, and allows demand planners to see what impact manufacturing or supply
constraints might have on the ability to support the demand plan.

The Prescient S&OP module has an S&OP dashboard which brings together key demand and
supply plans on one screen, providing an overview of the demand-supply balancing issues at any
time in the planning process.

Right from the outset, demand and supply planners can operate in a coordinated manner with
excellent cross-functional communication, and this lower level demand-supply balancing can be
conducted on a continuous basis if desired. In practice, this means that most issues can be
proactively addressed and resolved prior to the S&OP meeting with middle management (level
  ) - and similarly of course, with the Executive S&OP meeting (level ).

The Prescient S&OP solution has several additional important design advantages:

•   Prescient’s Demand Planning suite is based on user-specified multi-level pyramids to define
    the many facets/dimensions by which data can be summarized and viewed. The S&OP
    module can be powered by any defined pyramid, making it very easy to view S&OP data at
    any level in the business from almost any business perspective. Thus while it is common to
    view aggregate data at group/category level in terms of volume, it is just as easy in the
    S&OP module to view the data at any other level – say by Class or Account – and in other
    units (e.g. financial).

•   Prescient 5 offers system-wide Notes and Audit Trailing functions. These can be used in the
    system to communicate adjustments (and reasons for adjustments to plan), to make notes
    about certain decisions and also for monitoring and tracking actions in future review

•   With a common user interface, based on the standard Microsoft Outlook look-and-feel, the
    Prescient 5 GUI can mix graphics and tabular data, is very intuitive and easy to use and
    requires little training.

•   As with all Prescient 5 modules, the contents and look-and-feel of the S&OP display are easily
    customized by the users. Both the categories to be included (e.g. sales plans, inventory
    plans, production plans etc.) and the contents of each category are very easily tailored to
    meet a customer’s exact requirements. Leveraging the Prescient Demand Planning app, the
    S&OP module can include additional categories and data not usually available in other S&OP
    systems – for example, the ability to include collaborative input to the forecasting process.

•   Because the S&OP module is fully integrated within the Prescient 5 suite and fed by the
    Demand Planning module, it requires almost no additional installation effort.


Although businesses and business systems have evolved rapidly over the last 10-15 years, Sales
& Operations Planning has remained largely unchanged due to the lack of effective tools.

The Prescient 5 Supply Chain Planning solution provides a suite of fully integrated tools for
planning demand and supply, for collaboration, performance measurement, and sales and
operations planning. Prescient’s S&OP module can provide immediate benefits, including:

•   The ability to dramatically improve the mechanics and dynamics of the S&OP process.

•   Visibility to the same data and measurements across the organization including senior
    managers, middle managers and the planners who create the demand and supply plans.

•   A single Dashboard which is used by senior management for the monthly S&OP process on
    critical issues as well as by the demand and supply planners to identify and solve issues on a
    continuous basis which reduces the number of issues surfaced at the regular S&OP meeting.

•   A high degree of flexibility with virtually no implementation or maintenance burden.

•   Responsiveness to the customers business needs.


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