S&OP Process

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This is a detailed Sales & Operations Financial Planning (SOFP) master-class decribing the what, how, who, and when of the process. In addition, it describes the impact of the major types of capacity …

This is a detailed Sales & Operations Financial Planning (SOFP) master-class decribing the what, how, who, and when of the process. In addition, it describes the impact of the major types of capacity planning models to the strategic planning process deployed in SOFP.

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  • 1. SALES & OPERATIONS FINANCIALPLANNING (SOFP)• Leonard Jayamohan, Management Consultant, SASS Advantage• Chin Kok Poh, Management Consultant, SASS Advantage SASS Advantage Copyright (2011) 20 March 2011 1
  • 2. AgendaIntroductionsWhat is Sales & Operations Financial Planning?Why is SOFP important?Principles of SOFPFive Step Process Foundation: Standardise 1. Capture 2. Synchronise 3. Decide 4. Execute & ReviewCase Studies SASS Advantage Copyright (2011) 20 March 2011 2
  • 3. AgendaIntroductionsWhat is Sales & Operations Financial Planning?Why is SOFP important?Principles of SOFPFive Step Process Foundation: Standardise 1. Capture 2. Synchronise 3. Decide 4. Execute & ReviewCase Studies SASS Advantage Copyright (2011) 20 March 2011 3
  • 4. Imagine a Scenario at an Executive Meeting… President: This shortage situation is terrible. When will we get our act together? Whenever the business gets good, we run out of product and our customer service is lousy! VP Operations: I’ll tell you when. When we start to get some decent forecasts from Sales. VP Sales: Now, wait a minute! We forecasted this upturn. VP Operations: …in time to do something about it. Yeah, we got the revised forecast -- 4 days after the start of the month. By then it was too late. VP Sales: I could have told you that months ago. All you had to do was ask. VP Finance: I’d like to be in on those conversations. We’ve been burned more than once by building inventories for a business upturn that doesn’t happen. Then we get stuck with tons of inventory and run out of cash… Houston, We Have a Problem! SASS Advantage Copyright (2011) 20 March 2011 4
  • 5. Sales and Operations Financial Planning • A disciplined, cross-functional, integrated planning process  Sales, Marketing, Operations, and Finance  It’s a process, not an event  Executive meetings typically occur monthly • Some key objectives:  Balance supply and demand  Synchronize all operational plans  Key outputs o Consensus bookings forecast (new orders expected per period) o Sales and allocations plan (expected shipments, revenue per period) o Production plan (expected production per period)* Bookings forecast +/- changes in backlog = shipping forecast, Shipping forecast +/- changes in inventory = production plan SASS Advantage Copyright (2011) 20 March 2011 5
  • 6. Sales and Operations Financial Planning Process Financial Planning •Quarterly Rolling Plan •Budget Demand Meeting SOFP Management Supply Meeting •Consensus forecast Meeting •Production plan •Strategic •Inventory plan Design-ins Product Management • Product EOL • Product launch • Promotions • Product ROI SASS Advantage Copyright (2011) 20 March 2011 6
  • 7. AgendaIntroductionsWhat is Sales & Operations Financial Planning?Why is SOFP important?Principles of SOFPFive Step Process Foundation: Standardise 1. Capture 2. Synchronise 3. Decide 4. Execute & ReviewCase Studies SASS Advantage Copyright (2011) 20 March 2011 7
  • 8. Traditional Sales and Operations Financial Planning Your CompanyFinancial Production New Product Sales Quotas Marketing MeasurementPlanning Planning Planning Forecasting & Reporting Manual processes, Multiple, multiple data non-integrated sources systems No connection between plans Misalignment between metrics and objectives Unreliable forecasts and production plans SASS Advantage Copyright (2011) 20 March 2011 8
  • 9. Traditional Sales and Operations Financial Planning Your Company Fragmented, “siloed”Financial planning Production New Product Sales Quotas Marketing MeasurementPlanning Planning Planning Forecasting & Reporting Multiple Lack of plans and Collaboration forecasts Manual processes, Multiple, multiple data non-integrated sources systems An event, Manual Lack of not a processes metrics Lack of process No connection between plans decision Misalignment between metrics and objectives support & Unreliable forecasts and production plans automation SASS Advantage Copyright (2011) 20 March 2011 9
  • 10. Traditional Sales and Operations Financial Planning You cannot manage your business effectively if you have: • Fragmented planning and demand data • Individual department numbers expressed in different levels of detail and units of measure • Multiple spreadsheets and manual processes • Poor internal collaboration • Few or no performance metrics • Little support for global operations SASS Advantage Copyright (2011) 20 March 2011 10
  • 11. Poor or lack of SOFP Can Result in… • Back orders • Dissatisfied customers • High inventories • Late shipments • Cash-flow problems • Finger-pointing •… SASS Advantage Copyright (2011) 20 March 2011 11
  • 12. A well executed Sales & Operations Financial Planning … • Provides the necessary link between the company’s business plan Financial Planning and the operations of • Quarterly Rolling Plan each department • Budget • Provides a means for orchestrating all departments as it Demand Meeting SOFP Management Supply Meeting communicates the plans • Consensus forecast Meeting • Production plan both horizontally and • Strategic • Inventory plan vertically Design-ins • Yields a realistic plan capable of achieving the Product Management company’s objectives • Product EOL • Product launch • Promotions • Eliminates “hidden • Product ROI decisions”Source: Orchestrating Success – Improve Control of the Business with Sales & Operations Planning – Richard C. Ling & Walter E. Goddard SASS Advantage Copyright (2011) 20 March 2011 12
  • 13. Leveraging SOFP for Competitive Advantage The results of 2004 SOFP benchmark study demonstrate that: • SOFP has transformed from a balancing of supply and demand, to a powerful process that allows companies to maximize financial performance and customer satisfaction • All companies, regardless of size and SOFP maturity, can benefit from enhancing their SOFP capabilities • Better SOFP = improved profits, increased revenues, less inventory, a more dynamic product portfolio, and longer-term customersSource: The Sales and Operations Planning Benchmark Report: Leveraging SOFP for Competitive Advantage (2004) © 2004 Aberdeen Group.**Study of more than 200 companies. SASS Advantage Copyright (2011) 20 March 2011 13
  • 14. Industry Results - Summary• Summary slides of more advanced topics.• Full sized screens are available with the purchased version. SASS Advantage Copyright (2011) 20 March 2011 14
  • 15. AgendaIntroductionsWhat is Sales & Operations Financial Planning?Why is SOFP important?Principles of SOFPFive Step Process Foundation: Standardise 1. Capture 2. Synchronise 3. Decide 4. Execute & ReviewCase Studies SASS Advantage Copyright (2011) 20 March 2011 15
  • 16. Before we begin… • We have added some SOFP ‘road signs’ to highlight key points about the process. This is what the signs mean. This is an important principle to remember. You need to ANCHOR your process on these points. This means, it is an area you need to watch out for. M This like an EXPLODING BOMB if not handled correctly. SASS Advantage Copyright (2011) 20 March 2011 16
  • 17. If You Can Only Remember ONE THING TODAY,Then REMEMBER THIS• SOFP is the process to help you Make Money Now And In the Future. SASS Advantage Copyright (2011) 20 March 2011 17
  • 18. Secret of SOFP Success in Nutshell• Sales & Operations Financial Planning is a SUPERIOR DECISION- MAKING process that helps people in companies to provide excellent customer service and to the run the business better, WHEN IT IS DONE CORRECTLY. Tom Wallace Sales & Operations Planning The How-To Handbook SASS Advantage Copyright (2011) 20 March 2011 18
  • 19. Principles of SOFP• Summary slides of more advanced topics.• Full sized screens are available with the purchased version. SASS Advantage Copyright (2011) 20 March 2011 19
  • 20. Principles of SOFP• Summary slides of more advanced topics.• Full sized screens are available with the purchased version. SASS Advantage Copyright (2011) 20 March 2011 20
  • 21. Various Best Practice Models of SOFP• Summary slides of more advanced topics.• Full sized screens are available with the purchased version. SASS Advantage Copyright (2011) 20 March 2011 21
  • 22. AgendaIntroductionsWhat is Sales & Operations Financial Planning?Why is SOFP important?Principles of SOFPFive Step Process Foundation: Standardise 1. Capture 2. Synchronise 3. Decide 4. Execute & ReviewCase Studies SASS Advantage Copyright (2011) 20 March 2011 22
  • 23. Five Steps Process for SOFP4.EXECUTE (Fulfillment Mix) 1.CAPTURE (Demand Management)Execute To Plan Sense the Multiple Demand Signals Forecast Propose 1st Delivery Date •Sales Target 1st Cut Forecast Dealers •Production Plan OEM Production •Inventory Plan Master Dealers Product Allocation •Allocation Plan •Financial Plan Actual Shipment STANDARDISE (Policy & Measurement) Regional Sales KPIs and Exception Structure, Policy and Goal Setting Business Units •Statistical Tools •New Products KPI SOP •Scenario Forecasting •End of Life Volume •Waterfall Analysis •Assumptions Level of Details Total Zoom In & Out Plan and Synchronize Company Business Unit Rationalize Execution Product Family Forecast Sales, Production, Allocation Plan Market Segments •Sales History Distributions, Logistics Hubs •Economic Conditions •Pricing Strategies SOFP with Fin.Plan Models, Engine, Options, Colours •Events / Promotions Mix •Market / Trends Budgets, Costs, Profit Sales Mfg. Fin. Demand Management Plan Plan Plan Explore Options Demand Forecasts (Unconstrained) And Forecasting Rough Cut Cap. And Material •Material Plan Pre SOFP •Capacity Plan Supply •Statistical Tools Master Prod. Supply Demand •Master Production Forecasts •Scenario Forecasting •Distribution Plans (Production) •New Products Detail Planning •Matl Allocation Plans •End of Life & Execution •AssumptionsDecide and Prioritize On Available Options Achieve Consensus and Communicate Plan3.DECIDE(SOFP Meeting) 2.SYNCHRONISE(Demand-Supply Plan) SASS Advantage Copyright (2011) 20 March 2011 23
  • 24. AgendaIntroductionsWhat is Sales & Operations Financial Planning?Why is SOFP important?Principles of SOFPFive Step Process Foundation: Standardise 1. Capture 2. Synchronise 3. Decide 4. Execute & ReviewCase Studies SASS Advantage Copyright (2011) 20 March 2011 24
  • 25. SOFP Enemy: Data vs. Information You need less data than youM think but more information than you have. Bob Reary and Chin KP SCM Evangelists, Oracle SASS Advantage Copyright (2011) 20 March 2011 25
  • 26. SOFP Enemy: Data vs. Information We are drowned in oceansM of data; nevertheless it seems as if we seldom have sufficient information. Eliyahu M. Goldrat The Haystack Syndrome - Sifting Information Out of the Data Ocean SASS Advantage Copyright (2011) 20 March 2011 26
  • 27. Laying The Foundation: Standardize• Summary slides of more advanced topics.• Full sized screens are available with the purchased version. SASS Advantage Copyright (2011) 20 March 2011 27
  • 28. AgendaIntroductionsWhat is Sales & Operations Financial Planning?Why is SOFP important?Principles of SOFPFive Step Process Foundation: Standardise 1. Capture 2. Synchronise 3. Decide 4. Execute & ReviewCase Studies SASS Advantage Copyright (2011) 20 March 2011 28
  • 29. Demand Signal Capture• Summary slides of more advanced topics.• Full sized screens are available with the purchased version. SASS Advantage Copyright (2011) 20 March 2011 29
  • 30. AgendaIntroductionsWhat is Sales & Operations Financial Planning?Why is SOFP important?Principles of SOFPFive Step Process Foundation: Standardise 1. Capture 2. Synchronise 3. Decide 4. Execute & ReviewCase Studies SASS Advantage Copyright (2011) 20 March 2011 30
  • 31. Synchronize Demand & Supply• Summary slides of more advanced topics.• Full sized screens are available with the purchased version. SASS Advantage Copyright (2011) 20 March 2011 31
  • 32. Synchronize – Understanding Capacity Types• Summary slides of more advanced topics.• Full sized screens are available with the purchased version. SASS Advantage Copyright (2011) 20 March 2011 32
  • 33. AgendaIntroductionsWhat is Sales & Operations Financial Planning?Why is SOFP important?Principles of SOFPFive Step Process Foundation: Standardise 1. Capture 2. Synchronise 3. Decide 4. Execute & ReviewCase Studies SASS Advantage Copyright (2011) 20 March 2011 33
  • 34. S&OP Meeting - Decide• Summary slides of more advanced topics.• Full sized screens are available with the purchased version. SASS Advantage Copyright (2011) 20 March 2011 34
  • 35. AgendaIntroductionsWhat is Sales & Operations Financial Planning?Why is SOFP important?Principles of SOFPFive Step Process Foundation: Standardise 1. Capture 2. Synchronise 3. Decide 4. Execute & ReviewCase Studies SASS Advantage Copyright (2011) 20 March 2011 35
  • 36. Executing The S&OP Decisions• Summary slides of more advanced topics.• Full sized screens are available with the purchased version. SASS Advantage Copyright (2011) 20 March 2011 36
  • 37. SOFP – The Leadership Factor • There is NO SUBSTITUTE FOR LEADERSHIPM in achieving Sales & Operations Financial Planning excellence. Implementing a successful Sales and Operations Financial Planning (SOFP) process is job one in the journey to becoming demand driven. Our research indicates that SOFP has the greatest impact and the fastest rate of maturity when it is driven by a senior executive that is responsible for both revenue and profitability. Lora Cecere AMR Research Report Feb 2006 SOFP Leadership: A Guide to Commonly Asked Questions Management Leadership Checklist in S&OP SASS Advantage Copyright (2011) 20 March 2011 37
  • 38. Recommended& Related Topics for Further Investigation SASS Advantage Copyright (2011) 20 March 2011 38
  • 39. SOFP - A Cornerstone of DDSN Leadership • SOFP, a cornerstone for DDSN leader change management efforts, offers the greatest financial impact when it is implemented with other DDSN best practices to improve channel and supply network transparency. As companies focus on becoming demand driven, Sales and Operations Financial Planning (SOFP) is becoming a Standard Operating Procedure (SOP). It is the translation of upstream demand data into an actionable operational plan. This collaborative process profitably aligns demand with supply against a defined business strategy. Today, the SOFP process is being redefined, morphed into industry-specific processes, and used as a key initiative to drive cross-functional teamwork and actualize Demand-Driven Supply Network (DDSN) initiatives. This SOFP renaissance is driven by the need to increase revenue and be more profitable in a tougher business environment. Lora Cecere, Debra Hofman, and Guy Dunkerley AMR Report July 2005 Sales and Operations Planning: A Cornerstone of DDSN Leadership SASS Advantage Copyright (2011) 20 March 2011 39
  • 40. SOFP – Advanced Models for Mature Practitioners• Summary slides of more advanced topics.• Full sized screens are available with the purchased version. SASS Advantage Copyright (2011) 20 March 2011 40
  • 41. Advanced Quality Systems Configurations• Summary slides of more advanced topics.• Full sized screens are available with the purchased version. SASS Advantage Copyright (2011) 20 March 2011 41
  • 42. AgendaIntroductionsWhat is Sales & Operations Financial Planning?Why is SOFP important?Principles of SOFPFive Step Process Foundation: Standardise 1. Capture 2. Synchronise 3. Decide 4. Execute & ReviewCase Studies SASS Advantage Copyright (2011) 20 March 2011 42
  • 43. Case Studies• Summary slides of more advanced topics.• Full sized screens are available with the purchased version. SASS Advantage Copyright (2011) 20 March 2011 43
  • 44. IN SUMMARY SASS Advantage Copyright (2011) 20 March 2011 44
  • 45. Six SOFP “Must Haves" Profit, Financials and Process Focus – the ability to plan and 1 measure for financial profit; not just supply/demand balancing Value Chain Scope – include decision makers from both within and the extended 2 enterprise Improved Decision Making – empower SOFP teams to collaborate; dynamically adjust 3 demand, supply plans to adapt to changing conditions Better Risk Management – multiple contingency and "what-if" simulations, evaluate 4 cost to service trade-offs Automation and Intelligence – integrate business intelligence, decision support, work 5 flow, transaction systems as part of infrastructure Drive Continuous Improvement – systematically assess & improve assumptions and 6 the SOFP process against actual resultsSource: The Sales and Operations Planning Benchmark Report: Leveraging SOFP for Competitive Advantage (2004) © 2004 Aberdeen Group. SASS Advantage Copyright (2011) 20 March 2011 45
  • 46. The Ability to Effectively Answer Questions Such as… • What has changed since last month? • Are we on plan financially? • How are we performing to performance metrics? • What new risks do we need to consider? • What decisions need to be made now? • What decisions need to be made in the near future? • How are product families performing? • Are we on track with product development? • Do we have any critical constraints? • Is there any need to revise long term plans?Adapted from “Enterprise Sales and Operations Planning” by Palmatier & Crum SASS Advantage Copyright (2011) 20 March 2011 46
  • 47. Sales and Operations Financial Planning Key Capabilities to Implement Best Practices • Consolidation of demand signals and effective demand analytics • Ability to balance demand, supply and budgets • Ability to balance service levels and costCapabilities • Inventory optimizationto Implement • Manage product mix – new and existing productsBest • Automation of manual, labor-intensive “prep” workPractices • Ability to collaborate • Performance management, intelligence and Decision Support Let’s hope we avoid this … SASS Advantage Copyright (2011) 20 March 2011 47
  • 48. THANK YOU• If you would like to purchase a copy of the full master-class material (in PDF format) or have us conduct a S&OP master-class, please contact us at x121@outlook.com SASS Advantage Copyright (2011) 20 March 2011 48