28% 1-2. years 11% Other. Spreadsheets In-house developed system Business warehouse w/data feeds from various systems ERP.

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1 CUSTOM RESEARCH by kara romanow The Value of S&OP Processes Continue to Evolve as Companies Embrace the Benefits One of the perks of being at CGT is the ability to observe industry trends over time, and the evolution of the sales and operations planning process (S&OP) has been nothing short of impressive. We now have research dating back to 2011 when only 57 percent reported a formal process in place. Today, S&OP is ubiquitous and this month CGT again partners with Logility to expand this year-over-year research and look at the structure, drivers and technology in place, to support this important process that connects enterprises in a unique fashion. Aside from increased adoption, there haven t been major upheavals in the process, but rather subtle shifts as companies embrace the benefits of S&OP. Supply chain still owns the process, but 78 percent report involvement from a collaborative, balanced team of sales, marketing, supply chain operations, manufacturing, procurement and finance. Most S&OP meetings are held monthly and the plans are produced for the next one to two years, with 19 percent planning similar time frames for integrated business planning. Previously, the plans were at specific levels, often split between volumes at an intermediate product grouping and financial numbers at the product family level and customer/sku volumes in unit level, but this year we observed a shift to multi-level planning by 42 percent. Companies are continually working on improving their S&OP processes, and the drivers behind the enhancements have shifted primarily because of the slowdown in business growth, cited by half of respondents. In prior years, better return on net assets was the primary driver, which has moved to second, followed by rising customer order fill rate expectations. Profit-based S&OP is still in the future, but there was a jump from prior years in the number of companies currently implementing these capabilities. The biggest qualitative improvements have shifted, yet are still in line with the metrics used to measure success. Forecast accuracy has been the top determinant of success since 2011 and it is the second most cited improvement. Better communication remains the top upgrade, with improved planner productivity breaking the top three list for the first time. The most challenging factor for 31 percent of those surveyed is sales bias in demand plans, with executive involvement only a challenge for 11 percent. Interestingly, lack of tech support was an issue for only 22 percent; given the challenges around lack of integration between applications and difficult what-if analysis, we expected that to be higher. Improvements to technology architecture have been made over the years, with a dip in the number of companies using spreadsheets and an increase in companies using ERP or an integrated business warehouse for S&OP. Yet, there is still a bias based on company size, with 48 percent of companies under $5 billion depending on spreadsheets versus 36 percent of companies over $5 billion. 31% Sales bias in demand plans Most Challenging Factor in S&OP Process Biggest Qualititative Improvement that has Occurred Due to S&OP Note: top three responses only Better communication between departments Improved forecast accuracy Improved planner productivity 22% 22% Inadequate tech support Lack of consensus among departments Improved order fill rate Greater agility 11% Lack of exec involvement/ support Improved forecast accuracy Reduced inventory Visit consumergoods.com to download the full research report. Download the 2011 and 2013 research at: * * Other 14% Time Frame for S&OP and Integrated Business Planning (IBP) processes Note: multiple responses permitted. 89% Spreadsheets In-house developed system Business warehouse w/data feeds from various systems ERP 28% 1-2 years 17% 14% 3-5 years Standalone S&OP application Best of breed supply chain suite No system support 0% 0% >5 years Current Architecture of S&OP Versus 2013 and 2011 Drivers for Improving the S&OP Process Note: rating combines percentages of majorly concerned and key driver responses only. S&OP IBP 19% 19% S&OP & IBP are the same 48% of companies under $5 billion use spreadsheets versus 36% of companies over $5 billion Better return on net assets while maintaining or improving customer service 47% 50% 54% Complexity caused by growth in new products/services 37% 42% 44% Increasing transportation and logistics costs 28% 40% 28% Shrinking profit margin 25% 38% 28% Rising customer order fill rate expectations 45% 38% 44% Slowdown in business growth 50% 29% 37% Extended and uncertain lead-times due to global supply sourcing 20% 27% 28% Rising variable costs (ie: energy, raw materials, etc.) 23% 20% 24% Complexity due to increase in choices for sourcing 12% 11% 17% because of international manufacturing facilities expert perspective By Karin Bursa, EVP Marketing, Logility From S&OP to IBP S&OP, SIOP, IBP no matter what you call it, the sales and operations planning process is a key factor in the success or failure of today s fast-paced supply chains. When companies grow and supply chains mature, so must your S&OP prowess. The S&OP maturity spectrum takes companies from a short-term, tactical focus (proactive planning and reactive execution) to a longterm, collaborative planning process. Typically, S&OP processes operate within a 24-month window, while Integrated Business Planning (IBP) looks 10 years into the future. Regardless of the time horizon, both are rooted in the same fundamental business goals to profitably balance demand and supply. Maturing your S&OP process beyond the 24 month window provides more than just greater efficiency, it ties your supply chain to the strategic initiatives of the business, allowing your organization to begin evaluating multiple scenarios across multiple time horizons. A mature S&OP initiative also brings together financial and volumetric information. This is a critical capability with tremendous value for the long-term viability of the business and engagement in the context of key executive roles across the organization. As the Consumer Goods industry knows all too well, nothing is static. Changing consumer needs and preferences, tied with shorter and more frequent new product launches necessitates our ability to be prepared. Analyzing multiple scenarios whenever and wherever, and having a plan in place for today, tomorrow and 10 years down the road; these are what will help ensure your success. 20 cgt october 2015 consumergoods.com consumergoods.com october 2015 cgt 21

2 Consumer Goods Technology August 2015

3 1. Tell us about the governance of your S&OP process. Who is involved Who "owns" the process and attends meetings Sales 25% 44% Marketing / Demand Management 19% 58% Supply Chain Operations 58% 25% Manufacturing 0% 53% Procurement 3% 50% Finance 17% 47% Collaborative balanced team of sales, marketing, supply chain operations, manufacturing, procurement, finance 6% 78% No formal S&OP process in place 8% 6%

4 2. How frequently do you hold S&OP meetings? Multiple responses permitted. S&OP Meetings % Daily 3% Weekly 33% Monthly 64% Quarterly 17% Annual 6% 64% Daily Weekly Monthly 33% Quarterly Annual 17% 3% 6%

5 3. Please rate the importance of the following drivers to your company for improving your S&OP process: Not concerned Somewhat concerned Concerned Majorly concerned Shrinking Profit Margins % 17% 20% 37% 14% 11% Slowdown in business growth 12% 24% 15% 29% 21% Complexity caused by growth in new products / services Key driver 3% 17% 43% 17% 20% Rising customer order fill rate expectations 11% 17% 28% 28% 17% Extended and uncertain lead-times due to global supply sourcing Complexity due to increase in choices for sourcing because of international manufacturing facilities 9% 37% 34% 17% 3% 34% 31% 23% 9% 3% Increasing transportation and logistics costs 14% 36% 22% 25% 3% Rising variable costs (energy, RM costs, etc.) 9% 40% 29% 20% 3% Better return on net assets (RONA) while maintaining or improving customer service 6% 22% 25% 28% 19%

6 4. Please choose the inputs to drive your S&OP process. Respondents were allowed to choose "Current" and "Ideal", if applicable. Current Ideal inputs inputs Point of sales data 58% 56% Demand History 94% 22% Shipment History 83% 19% Sales targets 64% 25% Promotion targets 53% 42% Causal events 36% 44% Syndicated data for industry sales 44% 28% Financial Plan / Budget 69% 22% Material constraints 50% 28% Capacity constraints 67% 25% Safety stock targets 58% 25% Transportation constraints 44% 39% Costs 56% 33%

7 5. Which of the following best describes your company's current S&OP technology architecture? Current technology architecture % Spreadsheets 44% In-house developed system 17% Business warehouse integrated with data feeds from various enterprise solutions 14% ERP system 14% Standalone S&OP application 8% Best-of-Bread Supply Chain Suite 3% No system support 0% Spreadsheets In-house developed system Business warehouse integrated with data feeds from various enterprise solutions 44% ERP system Standalone S&OP application Best-of-Bread Supply Chain Suite No system support 17% 14% 14% 8% 3% 0%

8 6. Please select the areas where you have supporting technology as part of your S&OP technology architecture. Multiple responses permitted. Areas % Demand Forecasting and Collaboration 86% Sales and Market Data Collection 77% Supply and/or Production Constrained Plan 57% Inventory Optimization 49% Performance Based Alerts and Metrics 34% What if Analysis 23% Demand Shaping 9% Demand Forecasting and Collaboration Sales and Market Data Collection Supply and/or Production Constrained Plan 86% 77% Inventory Optimization Performance Based Alerts and Metrics 57% 49% What if Analysis Demand Shaping 34% 23% 9%

9 7. At what level is the S&OP plan produced in your organization? Level % All of the answer choices 42% Volumes at some intermediate product grouping level (more granular than the product family but not at the individual SKU level) 19% Financial numbers at product family level as well as customer/sku combination volumes in unit level 17% Financial numbers at product family level 11% Volumes at a product family level 11% 42% All of the answer choices Volumes at some intermediate product grouping level Financial numbers at product family level as well as customer/sku combination volumes in unit level Financial numbers at product family level Volumes at a product family level 19% 17% 11% 11%

10 8. What is the time frame (planning horizon) for your S&OP and Integrated Business Planning processes? Multiple responses permitted. Time frame % 1 to 2 years (S&OP) 89% 3 to 5 years (S&OP) 17% Greater than 5 years (S&OP) 0% 1 to 2 years (IBP) 28% 3 to 5 years (IBP) 14% Greater than 5 years (IBP) 0% S&OP and IBP are the same 19% 1 to 2 years (S&OP) 3 to 5 years (S&OP) Greater than 5 years (S&OP) 1 to 2 years (IBP) 89% 3 to 5 years (IBP) Greater than 5 years (IBP) S&OP and IBP are the same 17% 28% 14% 19% 0% 0%

11 9. Which of the following describes the execution of the supply plan within your organization? Execution % The S&OP plan is communicated to the operations which build to the plan. If there are near term problems in the execution, then there is feedback to the S&OP process re: 61% the problem. The S&OP plan is communicated to the operations which then build to the plan. 22% S&OP plan is not communicated to operations. 11% The S&OP plan is communicated to the operations which use it as a reference. 6% The S&OP plan is communicated to the operations which build to the plan. If there are near term problems in the execution, then there is feedback to the S&OP process re: the problem. The S&OP plan is communicated to the operations which then build to the plan. S&OP plan is not communicated to operations. 61% The S&OP plan is communicated to the operations which use it as a reference. 22% 11% 6%

12 10. Which of the following describes the usage of profit based S&OP in your organization? Usage of profit % The vision is great but we are not there yet. 72% We are currently in the process of implementing profit based S&OP. 22% We tried doing this but could not get implemented due to other reasons. 3% We tried doing this but did not have enough data to make it happen. 3% We have already implemented profit based S&OP. 0% The vision is great but we are not there yet. We are currently in the process of implementing profit based S&OP. We tried doing this but could not get implemented due to other reasons. 72% We tried doing this but did not have enough data to make it happen. We have already implemented profit based S&OP. 22% 3% 3% 0%

13 11. Which of the following metrics will your company use to measure improvement due to implementation of your S&OP processes and technologies? Respondents were allowed to select their top 3 metrics. Metrics % Forecast Accuracy 67% % Complete Order Fill Rate / Customer Service / Perfect Orders 42% Inventory Turns 33% Profitability 25% % Out of Stocks 19% % Volume Growth 19% Lead-times 19% Stockouts 19% % Capacity Utilization Rate 14% % Gross Margin 11% Increased Sales / Increased Assets 11% Total Delivered Cost / Unit 11% $ Sales / Employee 3% $ Gross Margin / Employee 0% % Customer Retention 0% Forecast Accuracy % Complete Order Fill Rate / Customer Service / Perfect Orders Inventory Turns Profitability % Out of Stocks 67% % Volume Growth Lead-times 42% 33% Stockouts % Capacity Utilization Rate % Gross Margin Increased Sales / Increased Assets Total Delivered Cost / Unit $ Sales / Employee 25% 19% 19% 19% 19% $ Gross Margin / Employee % Customer Retention 14% 11% 11% 11% 3% 0% 0%

14 12. What are the top 3 qualitative improvements that have occurred due to S&OP? Respondents were allowed to select up to 3. Qualitative improvements % Better communication between departments 61% Improved forecast accuracy 47% Improved planner productivity 33% Improved order fill rate 31% Fewer supply disruptions 28% Reduced inventory 19% Reduced lead-times 17% Reduced stockouts 17% Greater agility 14% Improved gross margin 14% Improved customer retention 0% Better communication between departments Improved forecast accuracy Improved planner productivity Improved order fill rate Fewer supply disruptions Reduced inventory Reduced lead-times 61% Reduced stockouts 47% 33% 31% 28% 19% 17% 17% 14% 14% Greater agility Improved gross margin Improved customer retention 0%

15 13. What are the top 3 barriers to realizing value due to technology enablement of S&OP? Respondents were allowed to select up to 3. Barriers % Applications are not integrated to each other 53% Difficult to do what if analysis 42% Users are more comfortable with spreadsheets 39% Inadequate reporting capabilities 33% Applications are too complicated to implement and maintain 25% Too expensive to implement and maintain 25% Too difficult to run the S&OP application more frequently 19% Data gets outdated very fast 17% Other 8% Applications are not integrated to each other Difficult to do what if analysis Users are more comfortable with spreadsheets 53% Inadequate reporting capabilities Applications are too complicated to implement and maintain 42% 39% 33% Too expensive to implement and maintain Too difficult to run the S&OP application more frequently Data gets outdated very fast 25% 25% Other 19% 17% 8%

16 14. What do you find the most challenging about your S&OP process? Most challenging % Sales bias in demand plans 31% Inadequate technology support 22% Lack of consensus among departments 22% Lack of executive involvement / support 11% Other 14% Sales bias in demand plans Inadequate technology support Lack of consensus among departments 31% Lack of executive involvement / support Other 22% 22% 11% 14%

17 15. What was your company's annual revenue for 2014? Annual revenue for 2014 % Less than $50 million 8% $50M to $249M 11% $250M to $499M 17% $500M to $999M 8% $1 billion to $5 billion 25% $5 billion to $10 billion 8% Over $10 billion 22% Less than $50 million $50M to $249M 25% 22% $250M to $499M $500M to $999M 17% $1 billion to $5 billion $5 billion to $10 billion 8% 11% 8% 8% Over $10 billion