Leadership Forum Denver, CO THE NEW S&OP. Gene Tyndall, EVP, Tompkins International Jim Tompkins, CEO, Tompkins International
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1 20122 Supply Chain Leadership Forum Denver, CO THE NEW S&OP Gene Tyndall, EVP, Tompkins International Jim Tompkins, CEO, Tompkins International
2 Topics Overarching Strategy for S&OP Understanding S&OP Impediments Why Does it Matter? How Does it Work? Benefits Organizational Design Implementation Discussion 2
3 Overarching Strategy for S&OP Understanding what is selling enables us to understand what should be made or bought, as well as shipped and stored. It also helps us synchronize the entire supply chain for total benefits. Demand driven is a strategy, a business model and a critical step toward improved profitability for all trading partners in a supply chain. S&OP is the process that enables true demand driven strategy to work; the demand drivendriven strategy allows S&OP to work effectively. The leaders in S&OP are also the leaders in demand driven. d di 3
4 Understanding S&OP S&OP is, first and foremost, a business process. It is the executive portion of the overall sales and operation planning set of processes. It is decision making activities involving the leader of the business (president, general manager, chief operating officer, managing director), his or her staff, and a number of middle managers and specialists. Its mission is to balance demand and supply at the aggregate level, to align operational planning with financial planning, and to link strategic planning with day to day sales and operational activities. (APICS) It is a continuous improvement process. S&OP is about collaboration, communication and alignment of people, processes and technologies. S&OP is a planning and controlling tool, not only for manufacturing or procurement, but also for the entire supply chain. Enabling Technologies People / Organization Business Processes 4
5 Understanding S&OP Although the general idea is the same, definitions of S&OP range widely, consistent with both the evolving nature of the concept and the business needs of different firms: From the conceptual: Aligning business goals with supply chain tactics (Aberdeen) To the very broad: A process to create a single consensus operational and financial plan for the firm through a series of coordinated reviews led by senior management to integrate strategic, operational and financial plans over an extended horizon (VICS) To the day to day: The function of setting the overall level of manufacturing output (production plan) and other activities to best satisfy the current planned level of sales (sales plan), while meeting general business objectives of profitability, productivity, competitive customer lead times, etc. as expressed in the overall business plan (Association of Operations Management ) To the very narrow: A structured process to reconcile conflicts between demand, supply and inventory priorities created by unplanned variability of any type 5
6 S&OP Impediments Concept Appreciation: Wedon t do itthatway; that we vealways We tried that years ago Why? / What for? / Just a bunch of meetings Where s the payoff? Lack of senior management support Data Complications: Availability at proper level, validity, accessibility, etc. Business Process: How? Who? By when!? Inadequate underlying processes (forecasting, demand planning, supply planning) Too complex for us. / Not comprehensive enough for us. 6
7 S&OP Impediments Siloism / Empires: That s my / not my responsibility. Culture: Limited collaboration or decision making experience with peers Weakly differentiated corporate strategy Performance change not recognized or rewarded 7
8 S&OP: Why Does It Matter? Demand Planning Inventory Inadequate or mislocated supply, potentially starving demand or incurring unnecessary domestic transportation costs for transfers Too little or too much of the wrong product at the wrong location too early or too late Supply Management Incomplete or erroneous demand visibility Management Incomplete demand visibility Lack of coordination between supply and demand Ineffective and untimely communications Operating at cross purposes Lack of alignment with objectives Frustration and morale 8
9 S&OP: How Does It Work? Coordination Alignment Culture Creates a process to increase coordination between demand planning and supply management regardless of industry Provides an ongoing gvalidation of alignment with corporate objectives Establishes a framework to bridge silos and forge unanimity of purpose 9
10 S&OP: How Does It Work? (Manufacturing) PLANNING Curr rent Balances Inve ntory Policies Demand Planning Inventory Management Production Scheduling SUPPLY Open Purchase Orders Open Work Orders Capacity Limitations Current Line Configurations Manufacturing Operations Meeting Preparation S&OP Decision Making Meeting Data Verification Issue Identification Solution Options DEMAND Open Customer Orders Routine Demand Forecast New SKU Forecast Sales Marketing FINANCE Cas sh A/R A/P Cov venants Controller Managerial / Financial Accounting Accounts Payable Accounts Receivable 10
11 S&OP: How Does It Work? (Retail) PLANNING Curr rent Balances Inve ntory Policies Demand Planning Inventory Management Allocation SUPPLY Open Purchase Orders Lead dtimes Purchasing Supply Chain Meeting Preparation S&OP Decision Making Meeting Data Verification Issue Identification Solution Options DEMAND Open Store Transfers Routine Demand Forecast Promotion Forecast New SKU Forecast Merchandising Store Operations FINANCE Cash A/R A/P Cove enants Controller Managerial / Financial Accounting Accounts Payable Accounts Receivable 11
12 S&OP Benefits: Inventory Management Reduce Inventory Reduced overstock, reserves, write off and out of stock situations Shorten Lead Time Increase Customer Service Increased ability to coordinate supply to meet not only routine demand, but especially, promotion demand Increase Profitability Shorter customer order backlogs Rd Reduced dinventory working capital and holding costs, increased capture of promotion opportunity, reduced air freight costs and minimized domestic transfer transportation t ti costs Shipments, Receipts and Inventory Inventory Demand / Sales / Shipments Supply / Receipts Increase Competitive Advantage Increased product availability reliability, reduced leadtimes, increased responsiveness Months 12
13 Additional S&OP Benefits Enhanced Collaboration Team work to get one number or one version of truth breaks functional silos Increased Communication Effectiveness Better Visibility and Accountability Higher Productivity Improved Financial Plan & Shareholder Value Earlier forward planning enable suppliers and plants to more effectively manage supply and capacity Effective New Product Launches Monthly S&OP process provides effective tool to align with company financial goals and performance 13
14 S&OP s Monthly Cycle Performance Assessment Demand Forecast Aggregate Demand Planning Exception Management Supply Forecasting Execution Aggregate Supply Planning Executive S&OP Pre S&OP Meeting 14
15 S&OP Process Development Overview Establish Governance Develop Process Maps Ready the Solution Set tools, data, etc. Pilot the Process Implement / Reach Steady State Develop plans for operational, managerial and executive level processes, as appropriate; p Identify participants Develop plans for operational, managerial and executive level team charters Complete current state process maps and identify foundational issues Develop plans for addressing foundational issues Design and document new S&OP process Develop extracts for demand forecast, current inventory and supply plan Develop calculations for proforma inventory Define go forward path Prepare and execute conference room pilot Prepare, execute live parallel pilot Refine the S&OP process accordingly Implement S&OP process in next monthly cycle Assess operation; Measure progress toward optimal demand supply balancing Refine process as required until stable and institutionalized 15
16 Organizational Design & Change Management (ODCM) Without a focused people effort, most projects will experience project delays, missed ROI, and/or loss of morale and productivity at all levels. 16
17 ODCM Reduces Both the Depth & Duration of Productivity Losses Productivity During Transition Status Quo Personal 21% Social/Gossip 19% Productive Work 60% Transition Retraining 23% Personal 21% Social/Gossip 40% Gains Pe erformance e Losses Effective Organization Change Management minimizes the depth and length of the loss in productivity Change Introduced Change causes stress which results in lost productivity Partially effective Organization Change Management reduces the overall negative impact of the change and allows recovery Ineffective or nonexistent Organization Change Management allows the loss of productivity to worsen over time Time Productive Work 16% 17
18 Change Management Will Span All Phases of the Redesign FromPlanThrough Implementation Plan Design Implement Change Readiness Assessment Transition/ i Communication Execute Plan Communication Plan Strategy Stakeholder Assessment Role Mapping Stakeholder Analysis High Level Impact Analysis (who, what, when, where, how, how many) Change Readiness Survey Stakeholder Interviews Change Leadership Strategy Org/Job Role/ Governance Strategy Change Leadership Plan Org/Job Role Design Execute Plan Execute Plan Training Strategy Training Requirements Execute Plan 18
19 S&OP Implementation Tips & Solutions Educate others Clarify value statement Get executive buy in and hands on commitment Create mid level management steering committee Build business transparency and collaboration Hold people accountable for execution Aggregate systems and data Deliver quick wins through mini pilots Measure and communicate success 19
20 Discussion
21 Discussion Questions How does your S&OP process compare to what we have described din this session? Where is your company in the continuum of S&OP implementation? What lessons have you learned from your S&OP process? Are you planning any major changes to your S&OP process in the near future? How has your company used technology to help drive the S&OP process? 21
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