1 S&OP Defined The Real Cost of Inventory Presented by: M. Scott Moon Tompkins International
What is S&OP? It is an Iterative Process Ensures Constrained Sales/Manufacturing Forecasts Stay In-Sync Must Include Senior Leaders Support Requires Trade-offs, are Understood and Aligned with the Corporate Strategy Tactical Plan- Critical Deliverable 1.Global Plan Alignment 2.Global Positioning 3.Future Investment/Strategy 1.Trade-off Reconciliation 2.Strategic Alignment 3.Market Positioning Step E Executive S&OP 1.Financial Review 2.Cost of Trade-Off s 3.Planned Performance Step F Global Alignment Step D Supply & Demand Balancing S&OP KPI Measurement Step A Historical Analysis Step C Supply Planning Step B Demand Planning 1.Site Performance 2.Product Category Performance 3.Financial Performance 4.Product Performance 2 1.Sales vs. Demand Forecast/Plan 2.Marketing Reconciliation 1.Production vs. Sales Plan 2.Available Supply 3.Available Production Windows
What if I am a Global Player? Global Reconciliation Required Plans Finalized to Sync with Global Strategy Regional Plans Finalized After Global Alignment Achieved Regional Analysis (Historical Data, Demand Plan) Regional S&OP (Plan, Targets, Strategy) Regional Supply Plan (Capacity, Staff Needs, Cost Profile) Centrally Managed Global Consolidation (Demand, Supply, Strategy) Global S&OP (Strategy, Profit, Marketing, Shareholder Requirements) 3
Keys to Success.. 1. There Must be an Owner of the Process 2. Meetings Must be Planned, Managed, and Purposeful 3. Members Must do Homework to Drive Solutions Come Prepared 4. Cross Functional Team Empowered to Make Decisions 5. Information Must be Unbiased and Grounded on a Statistical Baseline 6. Supply-Demand Planning Must be Balanced and Includes Entire Team Input 7. Business Trade-off s Must be Clear Trade-off Decision Making 4
Why is it so Difficult? 1. True Collaboration Can Only Come From True Respect of Each Player By Each Player 2. All Voices Must be Viewed as of Equal Importance 3. Risks Must be Clearly Defined and Accepted 4. Clear Trade-off s Should be Defined and Decisions Made 5. Decisions Must Not be Second Guessed All Roles Feel of Equal Importance Acceptance of True Collaboration Clear Tactical Plans 5 Metric Alignment Understanding of Supply Chain Complexities
6 Supply Chain Extension
Hidden Cost in Today s Global Supply Chain.. 7 1. Vacillating Oil Prices Makes Cargo-ship Fuel Unpredictable 2. Wages in China are now Five Times what they were in 2000 Rising at an Annualized Rate ~20 percent 3. U.S. Labor Unions Are More Amenable now than in the Past 4. U.S. Natural-Gas Availability has Dramatically Lowered Operating Costs 5. Continued Process Improvements (e.g. Robots) Reducing Impact of Labor in Evaluation 6. Low-Cost Country Costs Advantages Negated by Hidden Waste, Overhead, and Increased Inventory Investment Impacts Cost of Cash Flow 7. Unplanned Demand (i.e. Air Freights) Drains Profit Lack of ecommerce Understanding Driving Confusion 8. Quality Management Critical to Success 9. Supplier Management More Complex Driving Increased Cost and Time
Hidden Costs are Weighing on Outsourcing Decisions 1. Tapping Into the Global Talent Pool Directly Impacts Your Corporate Culture 2. Clarity of Communication (i.e. Literal Word Translation) is Critical in Making it Successful 3. Lower Labor Cost May Come at the Cost of Lower Quality 4. Payments Made in Foreign Currency Introduces a Currency Risk 5. Reacting to Market/Demand Shifts are Slow and Costly Global Outsourcing Market Banks, Insurance & Financial Sector 35% Telecommunication & Information Technology 25% Manufacturing Industry 15% Retail Industry 7% Transportation & Sports 5% Miscellaneous 13% 8
Inventory Utilization Percent S&OP AND THE REAL COST OF INVENTORY MAY 2, 2018 Inventory Levels Continue to Grow Since 1992, Retail Inventory (Excluding Auto) Levels have Doubled 1 Efficiency of Use to Support Sales has Increased 9 Retail Inventory ($M) ecommerce Share of Retail Continues to Grow Growth Faster than the Rate of Retail Percent of Retail Sales Share 1 Adjusted for Inflation
Increased Inventory Introduces Risk 1. Demand Shifting Risk Excess/Obsolescence 2. Inability to Respond to New Trends (e.g. Color, Style, Features) Long Lead Time Means Delayed Response 3. Increased Cash Tied up in Finished Goods Inability to Use Cash for Other Return Generating Investments 4. Increased Markdown Exposure to Respond to a Changing Market Competitors are Working to Steal Your Customers 5. ecommerce Exposure Today s Deal Risk 6. Loss/Damage Exposure More Hand-off s the Greater Opportunity for Damage/Loss/Theft 7. Higher Owned Inventory. Higher Insurance Protection 10
Increased Service Level Does Not Have to Result in More Inventory. A Items Handled in Each DC B Items... Localized Based on Planned Demand C Items Centralized 11 Corporate Vendor Ocean Freight West Coast DC Customer Delivery East DC Your Service Model Defines the End Impact on Inventory Positioning & Transportation Network
12 Critical Infrastructure
Consolidate Analysis Structured Product Master 1. Product Hierarchy Volume Roll-up 2. Product Attribute Management Demand Attributes 3. System Attribute Management 4. Event Management De-build Base Demand 5. ERP/MRP Component Uses/Demand De- Build 6. Demand Forecasting Tools/Skills Step E Executive S&OP Step F Global Alignment S&OP KPI Measurement Step A Historical Analysis Step B Demand Planning 13 Step D Supply & Demand Balancing Step C Supply Planning
S&OP. Candid Discussion of Business Priorities 14 E&O Exposure Facility Storage Capacity Working Capital Position Future Investment and the Cost of Borrowing Money Production Capacity Cost of Idle Plants Margin Exposure/Risk Demand Aggregation Seeing Trends in Behavior (e.g. Product Attribute, SC Support, etc.) Demand Predictability Managing Risk Competitive Position Leader vs. Follower New Product/Competitor Introduction
Your S&OP Journey. 1. Define a Clear Mission Have a Clear Owner 2. Empower Quick Decision Making Must Respect the Voice of ALL Players 3. The Cheapest First Cost is not Always the Lowest Total Cost Costs to Outsourcing 4. Today s Dynamic Market Does not Reward Excessive Forward Inventory Customer SLA is King 5. There are Hidden Costs to Managing a Successful S&OP Process 6. Clear Trade-off Clarification Key to Success in S&OP Process 15 Develop a Winner s Mindset
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