World Class Sales & Operations Planning: A Guide to Successful Implementation and Robust Execution

by Donald Sheldon

Overview

The sales and operations planning (S&OP) process is a major baseline for high-performance companies because, when done correctly, it keeps supply and demand in balance at the volume and detailed mix level, integrates and builds teamwork between general management, sales, operations, finance and product development, and links the company's strategic and business plans to its detailed processes and tools used to run the business on an hourly basis. However, due to a lack of state-of-the-art guidance, most firms still aren't achieving the substantial end-to-end supply chain, profit and shareholder value improvements that this process can help deliver. This comprehensive guide delineates how to accomplish successful top management planning using a step-by-step approach and explains how to implement and execute robust S&OP process excellence. It details the ease with which S&OP can be implemented and how it can be done correctly with little capital while still returning many times the investment. While achieving excellence takes practice, you can expect to begin seeing results almost immediately.

Product Details

ISBN-13:	9781932159530
Publisher:	Ross, J. Publishing, Incorporated
Publication date:	09/01/2006
Edition description:	New Edition
Pages:	240
Product dimensions:	6.00(w) x 9.10(h) x 0.70(d)

About the Author

Donald H. Sheldon, CFPIM, CIRM, is President of DH Sheldon & Associates, an international consulting firm headquartered in New York. Mr. Sheldon is a seasoned practitioner and leading expert in the various processes required to achieve world-class manufacturing excellence. He is a sought-after speaker, has been published in numerous magazines and journals and is the author of Achieving Inventory Accuracy and Class A ERP Implementation and co-authored The Road to Class A Manufacturing Resource Planning (MPR II).

Read an Excerpt

CHAPTER 1

UNDERSTANDING SALES AND OPERATIONS PLANNING

Sales and operations planning (S&OP) has been used in well-managed businesses for years. Also referred to as sales, inventory, and operations planning (SIOP) in many circles, this top-management planning process is the directional management system that sets the monthly cycle and calibrates the execution with the strategic plans of a business. The flexibility as well as effectiveness of this process is obvious. Businesses that enjoy benefits from this planning tool and methodology include manufacturing businesses, banking institutions, distribution companies, and even consulting companies. In fact, any business that manages demand and synchronizes resources such as capital, manpower, machinery, or brick and mortar to that demand has a need for a robust S&OP process.

The S&OP process is an effective, inexpensive improvement mechanism that more and more companies are starting to recognize for its benefits. Managers around the world are starting to focus on improvements in this important area of business control. The S&OP methodology is one of the hottest topics in business today. It is not a new process; in fact some might say that it is an old process. It is, however, garnering a lot of renewed interest — and for good reason: it pays off. Freudenberg-NOK, a well-respected auto manufacturing first-tier supplier known for its "lean" focus, is an example of this focus, as is Electrolux Home Products (Frigidaire), a market leader in kitchen appliances. Many organizations already honed their S&OP processes years ago, such as Honeywell and Nestlé.

WHAT IS THE S&OP PROCESS IN SIMPLE TERMS?

Stated in the simplest terms, the S&OP is a monthly planning cycle where plans for both customer expectations and internal operations are reviewed for accuracy, process accountability, lessons learned, and future risk management. Plans are monitored, updated at specific times, and reviewed predictably. Process owners are defined with clarity, top-management expectations and roles are clearly understood, and measurements are not only reviewed but are visible to the organization for communications and synchronization purposes.

As the monthly cycle progresses, process owners throughout the business are monitoring plans and updating the go-forward proposals. The forecast for demand is revised during the month, with demand reviews facilitating these discussions weekly. On the first week of the month, top managers are presented with options for approvals to forecasts and operations commitments. Inventory and backlog plans are either approved or revised by top management at this meeting.

In start-up, once the process is implemented in a business, normally it only takes about three complete monthly cycles before the returns start to become obvious. In some businesses it can even be shorter. The benefits are obvious and include improved communications and shared goals, decreased costs, decreased inventory, and increases in customer service. There is no magic to this planning process, just discipline administered in a top-management application, a discipline difficult to accomplish in many organizations without a formal process.

Virtually all high-performance organizations do some form of an S&OP process regularly. In these organizations, the S&OP is a monthly top-management planning meeting where metrics and performance are reviewed. Adjustments and analyses are done in preparation for this review based on recommendations developed from data collection. The key to success is preparation, data streams, and good data mining in advance of the decision process. Managing the data into workable product families is also a prerequisite for success. Historical data are always anticipated to be a major factor and can be. However, in reality, data collected from history are only a part of this data stream. New influences from the marketplace and actions from the sales and marketing team also must be plugged into the forecast. Data collection is followed by analysis and risk assessment. It is at this point that the forecasts influence operational commitments. Once these plans are all on the table, an analysis is done of the 12month rolling horizon.

THE HISTORY OF S&OP

The history of S&OP probably started through lessons learned and process testing and experimentation in many companies. It is not perfectly clear, but probably some credit has to go to the late father of MRP (material requirements planning), Oliver Wight, back in the 1980s and maybe even as early as the late 1970s. Although by the time Oliver knew he had a winning formula, many businesses were starting to share experience through organizations like APICS (American Production and Inventory Control Society) and were evolving the process. A lot of water has gone over the dam since those early S&OP days. The first book to document the widely recognized process from the Oliver Wight organization was written by Richard Ling and Walt Goddard (Orchestrating Success, Wiley, 1988). About this same time, both the Oliver Wight and the David W. Buker organizations were selling video tools that helped organizations accomplish this top-management planning process. That's how long this process has been evolving. Of course, as expected, there have been many lessons learned and resulting improvements in the methodology since the 1980s.

Sales and operations planning has grown into a strategic weapon in a very competitive world. Companies of all sizes, from $1 million to $10 billion, find this process helps manage risks and gets everyone to the table in the handshake decisions, thereby resulting in better decisions overall.

To describe the process in just a few words, the S&OP process is top management's "knobs" on the business. If one of the top-management teams in an organization wants to turn up the marketing effort in some specific area, if they want to dial back inventory, or if they want to change direction totally and keep the entire organization in synchronization with any of these changes, the S&OP process is an important management system to ensure the decisions are implemented as top-management desires.

BALANCING THE NEEDS OF THE BUSINESS

Markets are changing every minute of every hour. High-performance organizations have skilled executives that understand this fact and either forecast these changes and allow preplanning or adjust to surprises by changing course quickly and nimbly. This is the case in almost every market today with successful companies. Once while I was working within the supply chain in the young-adult sneaker (also called tennis shoe) market, it became excruciatingly obvious that demand could shift almost at the speed of light as one sneaker style would go out of favor and be replaced by another just by some splashy new commercial on Friday night television. The problems that had to be dealt with were numerous. If demand grew rapidly for one particular style, the supply chain had to react just as quickly. Not reacting quickly enough could easily mean getting to market just as the next favorite sneaker was moving to the top spot in demand. This could only result in missed opportunity and inventory that would end up on the discount rack. Fashion, like many markets, tends to be fickle. Businesses that operate in these spaces need to minimize risk and keep both demand and supply sides of the business headed in the same direction, even when the direction is changing constantly and quickly. The more a market changes like this, the more a robust S&OP process can help minimize risk and manage the change throughout the entire business. No small task, and one that is very valuable indeed!

Slower markets can be just as difficult. Kitchen appliances, for example, are products that, except for electronic controls, really haven't changed that much over the years. Most consumers do not buy a refrigerator just to get the latest style. Refrigerators tend to have a reasonably long service life. This does not stop the need for robust planning. In this market the competitive pressures are enormous. When a business is making thousands of units a day, just a couple cents per unit can make a significant difference in the profitability of the business unit. The S&OP in the kitchen appliance market serves to help with demand changes as the market shifts. For example, economic factors such as an overnight oil price surge may decrease consumer spending or affect new housing construction start dates. Demand can move from side-by-side units back to top-mount refrigerators because of a shared frugal economic outlook. Consumers may go the other way for other reasons. They may unexpectedly begin to demand water-through-the-door features on cheaper models just because of the convenience. The S&OP process is the forced event that requires these issues to be looked at and decisions made by top management as to how the business will react to these changes — if at all. The S&OP does not take the place of good judgment or provide easy answers. The process simply forces the right people to talk about the right areas of focus in a timely manner. This often increases the chances of making the right decisions in the right time frames. It is all about supply and demand synchronization. (See Figure 1.1.) The better job that is done balancing these two elements of business, the more likely the business will succeed.

ERP AT THE CENTER OF S&OP

At the center of this S&OP need is the business system. In most manufacturing businesses today, the term "business system" refers to the ERP (enterprise resource planning) business systems. At the top end of this system is the strategic planning process that includes long-term strategy as well as shorter-term business imperatives. Intertwined with this strategy and tactical planning process is the market need, with supporting decisions on how to deal with the market variation. (See Figure 1.2.) Within the ERP model, the top-management processes must link with the operations planning and execution processes if the strategy is to be implemented effectively.

To clarify, when used in the context of this book, ERP is not referring to the software system, which is used to implement ERP. In this book, ERP system tools are just that: the tools that allow efficiency in an ERP process. The S&OP methodology makes up the top end of the ERP business model. The S&OP process allows the once-a-month approved plan to be communicated on an expected and regular basis. Management receives regular feedback from the organization and meets at the same time every month to assess the data and either approve or alter plans for the next 12 rolling months. There is no substitute for this type of regular and predictable (in terms of schedule) management direction. Organizations focused on lean manufacturing and/or Six Sigma are not immune to the need. These businesses are just as reliant on robust planning processes and top-end management direction. See Figure 1.3.

There are few arguments that support the absence of top-management planning. In one baking company with four major baking factories in the United States, the S&OP planning allowed the frequent shifting of product from one plant to another, saving thousands of dollars in freight in a market where moving product across the country added unnecessary cost to the product rapidly. In another example, a first-tier European auto-manufacturing supplier found that the S&OP process allowed much lower inventory to be engaged without affecting customer service negatively. Also, a plastics company has its S&OP process directly linked to its customers in a monthly sharing of top-management planning data. All of these companies share little in terms of market needs and customer requirements, but in every case, the S&OP process is a powerful part of their strategic competitive advantage.

SUMMARY OF THE ROLES OF PLAYERS IN THE S&OP

The S&OP process belongs to the top manager active in the business. Normally this is the president or CEO. In some companies the responsibility can be granted to a position slightly lower in the organization, like the COO, but it is rarely effective unless the COO is the power base within the organization or has the complete support and faith of the top manager. This may sound amazing, but the kinds of decisions made at the S&OP process can affect millions of dollars of resource, inventory, and most importantly, profit. The right people need to be plugged in and attuned to the S&OP cycle and the opportunities.

The S&OP roles will be documented in detail in a later chapter, but to provide better understanding, here are brief descriptions of some of the more important roles:

• President or chief executive officer (CEO) — The top manager in the business or organization is responsible for the following:

• Reviewing plan spreadsheets in preparation for the S&OP

• Discussing risks with key employees such as the master scheduler before the S&OP meeting to be as finely prepared as possible

• Leading the S&OP monthly meeting by asking the tough questions

• Keeping the meeting at the same time each month and insisting on attendance from key players

• Acting as the process owner for the financial performance plan, called the business plan in the S&OP process

• Understanding and evaluating root causes for process variation in the business plan accuracy and driving changes accordingly

• Vice president of sales and/or vice president of marketing — Depending on the organizational structure and size of company, the S&OP roles of the demand-side leader include:

• Communicating frequently with the supply side of the organization

• Attending the weekly demand reviews or at least sending valid authorized representation

• Reviewing and approving the final demand plan (forecast) and updates to same

• Distributing the demand plan to the supply side of the organization by the end of the month, every month

• Measuring the demand plan accuracy and posting visibly for the organization to observe performance

• Serving as the process owner for the demand plan

• Understanding and evaluating root causes for process variation in the demand plan accuracy and driving changes accordingly

• Answering the demand-side questions in the S&OP meeting

• Vice president of operations — The top supply-side manager also has an important role in the S&OP process. The role includes:

• Preparing the operations plan by product family for review at the S&OP meeting

• Measuring the operations plan accuracy and posting same

• Serving as the process owner for the operations plan

• Understanding and evaluating root cause for process variation in the operations plan accuracy and driving change accordingly

• Answering the supply-side questions in the S&OP meeting, especially as these questions apply to the build plan rate or capacity

• Supporting the master scheduler in the full role of providing an accurate MPS (master production schedule)

• Chief financial officer (CFO) — The CFO is involved in the currency impact of plan accuracy. This top manager's role includes:

• Preparing the financial plan accuracy by product family

• Providing the measurement performance for the business plan

• Reviewing root causes for any process variation within the business plan accuracy

• Master scheduler — The S&OP role for the "master of schedules" within operations is extremely important. The master scheduler is responsible for:

• Leading the demand review sessions each week with the demand side of the organization

• Facilitating the pre-S&OP meeting at the end of the month in preparation for the S&OP

• Developing and documenting the schedule changes in the monthly operations plan

• Preparing the spreadsheets for the S&OP process (usually with the exception of the financial business plan performance, which is done by the CFO)

• Preparing the CEO with areas of plan accuracy risks prior to the S&OP meeting

• Communicating directly with the sales or demand-side team regarding capacity issues, lead time, inventory, customer service levels, and so on

• Serving as process owner for the weekly schedule accuracy (not normally reviewed at the S&OP)

There are others that can play a role in the S&OP, and these details will be covered more fully in Chapter 8, "Roles in the S&OP Process." Many of these people are support personnel that are involved in the detail work that makes both the S&OP and the company successful.

TIMETABLES FOR THE S&OP

In high-performance organizations the S&OP process is a top-management meeting that is scheduled at the same time each month. In many companies that schedule would be the second or possibly the third or fourth workday of the month. This schedule does not get preempted. People that need to attend put it on the calendar months in advance and schedule other required plans around this top-management priority. Having the right decision makers at the meeting every month helps keep the meeting not only effective but also efficient. It should be considered a "must" by all of the top staff.

(Continues…)

---

Excerpted from "World Class Sales & Operations Planning"
by .
Copyright © 2006 Donald H. Sheldon.
Excerpted by permission of J. Ross Publishing, Inc..
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

---

Table of Contents

Preface,
About the Author,
Acknowledgments,
Web Added Value,
1. Understanding Sales and Operations Planning,
2. Why Is the S&OP Process Important?,
3. Business Planning Behind the S&OP Process,
4. Creating the Demand Plan,
5. Operations Planning for the S&OP Process,
6. The S&OP Meeting Structure,
7. S&OP Tools for High Performance,
8. Roles in the S&OP Process,
9. Connecting Suppliers to the S&OP Process,
10. Getting It Right: Evaluating Risks and Metrics Used,
11. Connecting the S&OP Process to Customers,
12. The S&OP Process in Service Industries,
13. Implementing the S&OP Process,
Appendix A: S&OP Check Sheet for Excellence,
Appendix B: When and How to Celebrate Success in the S&OP Process,
Glossary of Terms,