Converting S&OP Strategies into Detailed Planning Direction, Scenarios and Guideposts

Converting S&OP Strategies into Detailed Planning Direction, Scenarios and Guideposts

Preamble One of the biggest disconnects in S&OP implementations is the transfer of process information The conversion from strategic plans to tactical is not always obvious This connection is poorly described in S&OP training material / literature A presentation during a Kinaxis Webinar with Dick Ling became the impetus for an article in the IBF journal 2

Agreed Plans, Guideposts, Scenarios, & 3 Directions An Agreed Plan is the primary output of S&OP What is the agreed plan? Exclusive of the Agreed Plan Direction is the most common reference to output of S&OP process What is direction? What happens to all of the work / assumptions / conclusions coming out of the S&OP process? Scenarios are oft talked about, but under leveraged What s a scenario and how is it converted into something actionable? Guideposts How do you keep the plan on track, know when it is off track, and understand what to do if it is off track

Existing Models Don t Discuss These Elements Sometimes Direction Will Appear in the Circular Models 4

Alternate Sourcing Capacity Plans / Projects Market Strategies Decision(s) Approval Issues Plans Alternative(s) Deviations Valuation Senior Management Review Pre-S&OP Direction(s) Plan (s) Guidepost(s) Demand Shaping Events Inventory Targets New Product Direction / Priorities Approved Alternate Scenarios Demand Load Project Plans / Adjustments Agreed Plan SC and Financial Portfolio Life Cycle New Product Demand Consensus Supply Balancing RCCP NPI Market Research Metrics POS Demand Plan Consensus and Statistical DRP MPS Sequencing Monthly or Weekly Planning Process (Tactical) Error Constraints Network Design Inventory Attainment MRP Budget / Financial Gaps Trade Spend / Promotions ABC Analysis POS Shipments Financials Production Values Change in Constraints Line Scheduling Resourcing Ship to Plan Forecast Consumption (Re) Sequencing Traffic Management Expedites Attainment Share Metrics Data Layer Diversions Deviations Weekly Daily Re-Planning Process (Execution)

S&OP Directional Weaknesses What assumptions went into the plan? What happens if? (demand surges, yield fails, QC is an issue, demand drops) What are the targets baked / assumed in the plan? (inventory, production, yield, consumption) What to measure? Are we on track? What is the overarching business strategy? The Plan is most often poorly articulated and uncertainty is not discussed 6

What is a Guidepost? guide post S&OP A guidepost is one or more of the following: 1. A set of directions or assumptions used to explain an S&OP plan so that it can be effectively converted into tactical and execution-oriented plans 2. A planning element or target used to enhance detailed plan definition. 3. A measure, metric, or signal used to track or sense the progress of the S&OP plan or a plan element over some time horizon. 4. A set of alternate plans, scenarios, options, secondary sources of supply, etc., to use in the event that plans deviate significantly from a tracking signal or targeted value. These alternate plans are usually derived from scenario planning. 5. A prioritization of one plan element vs. another, one product over another, one project over another, one group of customers over another or a change in the timeline of new product development, designed to aid in the creation of a tactical plan. 6. A conversion of approved supply chain strategic plans and/or optimization into tactical/execution steps, inputs, settings, or configurations. 7

What is an Agreed Plan? Forecast (Demand and Financial) Supply and Demand Balance Inventory Targets Assumptions, Rationale Banded (Ranged) Forecasts? Banded Supply Plan? Alternate Sourcing? Hedging Targets? Statusing Metrics? SINGLE NUMBER? Most S&OP processes don t try to deal with uncertainty 8

Decisions Made During this Cycle 2. Strategy about Widget II Demo units is that new builds will take priority unless otherwise defined by US Sales and Marketing leadership. Decisions Required Recommendations & Costs 2. For the remaining Wigit II Demo units we need to decide if additional material be purchased for remanufacturing. Canto FY06 CA 2% AP 10% EU 45% US 34% JP 6% FY06 NLA 1% SLA 2% Major Assumptions (In Data) 2. Widget II Launch schedule US IVD Clearance estimated Sep 06 Japan Registration approved to sell Canto II in August. China and Taiwan registration estimated by end of FY07 3. Based on current inventory and open purchase orders the assumption is that the current Widget supply will satisfy current demand of 48 units (Aug 06 to Aug 07). No additional demand can be satisfied. Risks and Opportunities Not in Data 2. High volume for Widget lines still causing serious constraints in test. 3. Chassis availability for Widget II is still an issue. Supplier concern about meeting current requirements for September. Major Changes this Cycle (In Data) 2. Last Month s statement (Current Widget I Demand from July to August 07 is 45 units. No additional Widget I can be built based on material availability.) 3. Europe increased Widget II demand by 16 units for the period of August and September. Emerging Issues and Gaps In Data 2. Widget II mix is still not stable and could create supply issues. 3. Production still unable to meet plan. Production resources will be stretched in September. Copyright 2012 Ling-Coldrick/Kinaxis Inc. All Rights Reserved.

What is Direction? Plan Approval Decisions Made and Impacts Follow-up, Unresolved Issues Strategy and Metrics Priorities? New Products Customers Channels Optimization Efforts Project Plans 10

Know Unknowns There are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns there are things we do not know we don't know. Former United States Secretary of Defense Donald Rumsfeld 11

What is Scenario? Supply Chain Modeling Alternate Potential Realities Planned in Advance Financial impacts pre-determined Solutions determined in advance Pre-Emptive path measurement What if s / Disaster & Risk Testing Approach to handle SC uncertainty Mitigates SC risk Bounds tests the plan 12

Myth of One Number Historic Data Providing Trend and Seasonality Baseline Strategic Direction Robust Latest View Scenarios An Integrated Set of Plans Not One Number Detail Operational Focus HISTORY SHORT- TERM 2-3 YEARS From Dick Ling Kinaxis Webinar Presentation

Scenario: New Product Demand Exceeds Plan Banded forecasts are common for new product introductions.scenario planning within S&OP should provide a reasonable set of answers to what happens if? How Do I Know? Sensing? Targets? Priorities?? Limits? Suppliers? Mix? Hedging? Capacity? How to Handle?

Real Examples of S&OP Scenario Planning Routine (seen often) Testing bounds of next years operating plan during budgeting process Testing impacts of current year s plan direction within S&OP process on achieving budget, new product objectives etc. Tweaking S&OP plan on new news such as a listing changes, discontinuation, customer exit, mergers / consolidations Anticipatory (planning for reasonable events) Major Food company estimating impact of a strike on the stuffing business i.e. how long they could survive, how much should they pre-build etc. Dessert company determining optimal seasonal pre-build for whipped frosting Health and Beauty company hedging on inventory due to limited (unresponsive) capacity for new product launch using banded forecast as baseline and alternative views of demand Developing OB based on three different potential views of new product mix, cannibalization impacts, customer takeaway and retailer acceptance

Real Examples of S&OP Scenario Planning Reactive (often as a result of extreme unplanned event) A global chemical company re-sourcing output of 3 Gulf Coast manufacturing facilities to other facilities after Katrina shutdown operations in Texas for 6 months A personal products company reformulating, and re-planning both global supply and demand after loss of several key raw ingredient due to Japanese tsunami (Re)-planning of highly constrained production capacity after Wal-Mart listing change Optima Food company re-sourcing customer distribution network after shutting down two contract manufacturers, and two distribution points Beverage Company planning secondary source of supply for critical raw ingredient with long lead time. Beverage Company determining outsourced vs. expanded co-owned manufacturing Juice manufacturer making buy now or later decisions based on commodity prices

Five Simple Starters Model your planning process understand data flows (and user needs) in and out of the S&OP process Start by developing a summary document coming out of each S&OP process meeting decisions taken, rationale, reasoning, tradeoffs, considerations etc. Leverage the sub process summaries into a transition documentation to SC Look for the uncertainty in your business. Focus on high risk demand & supply use this to create a list of out of bounds demand and supply events Model your supply chain so that reasonable scenario s can be tested. 17

Other Information Contact Information Linkedin most of what I have written plbowerone@yahoo.com (direct email) Prior Experience: S&OP Lead at Snapple, Combe S&OP Consultant: GSK, Bayer, Lanxess, American Girl, Farley and Sathers etc. etc. etc. Consultant: Numetrix SCM Systems: Kraft Foods 18

Challenges with S&OP Scenario Planning Not common place Misunderstanding of the role of scenarios and possible use of alternate plans Let s just do S&OP cycle more frequently The transfer of S&OP agreed plan and directions is often weak Sometimes due to poor implementation of S&OP process The conversion to tactical / execution planning is poor Directions, guideposts, rarely translated to tactical implications Real supply chain parameters were not used when planning - often times the scenarios were developed without realistic constraints or an understanding of the impact of mix shifts Plan was not vetted through supply chain planning or scenario tools therefore have weak or non-existent connections to supply chain planning tools or process. Sensing mechanisms / tools are not articulated / available Supply Chain planning does not know what to measure to determine whether they are on the right track or not where are the guideposts for measuring plan compliance / assumptions?