The Myth of the One-Number Plan in Supply Chain Management

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The Myth of the One-Number Plan in Supply Chain Management

  1. 1. Copyright © 2012 Kinaxis Inc. All Rights Reserved. 1
  2. 2. The Myth of the One-Number Plan Trevor Miles vice president, thought leadership e: tmiles@kinaxis.com | m: +1.647.248.6269 | t: @milesahead Copyright © 2012 Kinaxis Inc. All Rights Reserved. 2Copyright © 2012 Kinaxis Inc. All Rights Reserved.
  3. 3. Common (Mis-)Conceptions Copyright © 2012 Kinaxis Inc. All Rights Reserved. 3Copyright © 2012 Kinaxis Inc. All Rights Reserved.
  4. 4. Common (Mis-)Conceptions• It brings in Sales, Marketing, Finance, Production, Materials and Logistics department together for reconciling their individual plans and create a ONE NUMBER plan which will be agreed by all the stakeholders in the Organization Sales and Operations Planning, ITToolBox, Wiki October 13, 2008 Copyright © 2012 Kinaxis Inc. All Rights Reserved. 4
  5. 5. Common (Mis-)Conceptions• “One number planning,” is a sign of excellence. Poor companies produce a sales forecast that is a “tough but achievable” target for the sales force. Production doesn’t believe this forecast, so it generates its own, which usually means large batches to reduce manufacturing costs. Logistics is left to deliver whatever sales manages to sell. Finance doesn’t believe the production or the sales forecast, so it creates its own to manage the cash. 10 Symptoms of Poor Supply Chain Performance, ARC Insights, SIimon Bragg, June 20, 2002 Copyright © 2012 Kinaxis Inc. All Rights Reserved. 5
  6. 6. Common (Mis-)Conceptions• MetaChain helps clients to achieve a one-number planning approach for financial and supply chain related matters. Using this approach all business units are using identical forecast information. In this case a financial long term plan could be compared with an inventory plan. The sales and operational planning enables companies to see financial impacts based on production and distribution plans. Supply Chain Planning & Optimization, MetaChain Supply Chain Management, Date unknown Copyright © 2012 Kinaxis Inc. All Rights Reserved. 6
  7. 7. Different Times; Different Tunes Copyright © 2012 Kinaxis Inc. All Rights Reserved. 7Copyright © 2012 Kinaxis Inc. All Rights Reserved.
  8. 8. Different Times; Different Tunes• Using a demand forecasting tool to generate a one- number forecast, and planning your supply chain accordingly, is too simplistic of an approach to be credible.• To manage risk, solutions need to assess the risk associated with an end-to-end goal and ensure that no decision is made in isolation, without quantifying the additional risks that it creates or the risks that it eliminates. In Managing Recent Risk and Disruptions, Have Supply Chain Management Technologies Failed the Test?, Gartner Inc., Noha Tohamy, June 6, 2011 Copyright © 2012 Kinaxis Inc. All Rights Reserved. 8
  9. 9. Different Times; Different Tunes• Five years ago, a number of companies taking the traditional approach for sales and operations planning (S&OP) asked AMR Research for help. The companies felt that their organizations were stuck in a rut, not maximizing true S&OP potential. They were right. The concepts of one-number forecasting and matching demand with supply were outdated. Sales and Operations Planning: Transformation From Tradition, AMR Research, Lora Cecere, Jane Barrett, Hussain Mooraj, May 12, 2009 Copyright © 2012 Kinaxis Inc. All Rights Reserved. 9
  10. 10. What’s Driving the Need? Copyright © 2012 Kinaxis Inc. All Rights Reserved. 10Copyright © 2012 Kinaxis Inc. All Rights Reserved.
  11. 11. Demand Dynamics• Top CPG companies forecast performance – MAPE for a monthly lag was 33% – MAPE for a weekly lag was 48% – NPI with weekly item/location MAPE was 65% “2011 Forecasting Performance Benchmark Study”, Terra Technology, 2011• High-Tech/Electronics – anecdotal – Struggle to get better than 50% MAPE• Where will breakthrough performance come from? – Learning to forecast and plan better? – Learning to respond profitably to real demand? Copyright © 2012 Kinaxis Inc. All Rights Reserved. 11
  12. 12. Demand DynamicsCompanies can’t predict thefuture,…build organizations that willsurvive and flourish under…any possible future.Dynamic management: Better decisions in uncertain times, McKinsey Quarterly, December 2009 Copyright © 2012 Kinaxis Inc. All Rights Reserved. 12
  13. 13. Portfolio Dynamics0 2 YEARS 4 YEARS The Evolution of S&OP, IndustryWeek Webcast, Dick Ling, Mar 29, 2012Copyright © 2012 Kinaxis Inc. All Rights Reserved. 13
  14. 14. Portfolio Dynamics Make a Difference 2 40 2 YEARS 4 YEARS 3 0 2 YEARS 4 YEARS Dead next ‘year’ Growing 1 0 2 YEARS 4 YEARS 5 Surviving, just Line Extension and Promos Existing Portfolio 0 2 YEARS 4 YEARS 0 2 YEARS 4 YEARS Dead next ‘month’ Thriving The Evolution of S&OP, IndustryWeek Webcast, Dick Ling, Mar 29, 2012 Copyright © 2012 Kinaxis Inc. All Rights Reserved. 14
  15. 15. The Myth of the One-Number Plan Scenarios – An Integrated Historic Data Set of Plans;Providing Trend Notand Seasonality ‘Baseline’ One Number “Roughly Right Not Detail Operational Focus Precisely Wrong” SHORT- 2-3 HISTORY TERM YEARS The Evolution of S&OP, IndustryWeek Webcast, Dick Ling, Mar 29, 2012 Copyright © 2012 Kinaxis Inc. All Rights Reserved. 15
  16. 16. S&OP – Balancing Competing Goals Adapted from AMR ResearchCopyright © 2012 Kinaxis Inc. All Rights Reserved. 16
  17. 17. So What’s the Solution? Copyright © 2012 Kinaxis Inc. All Rights Reserved. 17Copyright © 2012 Kinaxis Inc. All Rights Reserved.
  18. 18. It’s Not a Suite of Segmented Planning Solutions Planning Horizon Business 1 – 10 yearsLong Planning Within 1 year quarters with monthly bucketsterm Outside 1 year years with quarterly bucketsCustomerOrders Sales & Rough Cut 0 - 1 year Demand Operations CapacitySales Planning Planning Planning Within 3 months months with weekly bucketsHistory Outside 3 months quarters with monthly buckets One Aggregate Master Schedule Inventory Levels / Targets Material Capacity 0 - 3 monthsMedium Requirements Requirements Planning Planning Months with weekly / daily bucketsterm Planned orders of 4 - 12 weeks 0 - 3 monthsShort Purchasing/ Detailed Response Supplier Collab Scheduling Managementterm Weeks with daily / hourly buckets Fixed horizon of 2 weeks Copyright © 2012 Kinaxis Inc. All Rights Reserved. 18
  19. 19. Integrated Business Planning is the Goal Planning Horizon Business 1 – 10 years Long Planning Within 1 year quarters with monthly buckets term Outside 1 year years with quarterly buckets Customer Orders Sales & Rough Cut 0 - 1 year Demand Operations Capacity Planning Sales Planning Planning Within 3 months months with weekly buckets History Outside 3 months quarters with monthly bucketsInventory Levels,Targets Material Capacity 0 - 3 months Capable to Promise Medium Clear to Build Requirements Requirements Planning Planning Months with weekly / daily buckets term Planned orders of 4 - 12 weeks PO Releases/ Detailed Response 0 - 3 months Short Expedites/Cancels Scheduling Management term (Daily buckets) (Daily buckets) Weeks with daily / hourly buckets Fixed horizon of 2 weeks Copyright © 2012 Kinaxis Inc. All Rights Reserved. 19
  20. 20. creating MANY scenarios and a shared set of outcomesCopyright © 2012 Kinaxis Inc. All Rights Reserved. 20
  21. 21. Collapse time to make profitable coursePlan, monitor, and corrections respond to all aspects of supply and demandbalancing in minutes- not days or weeks Reduce risk, increase customer satisfaction, and improve profitability Copyright © 2012 Kinaxis Inc. All Rights Reserved. 21
  22. 22. Copyright © 2012 Kinaxis Inc. All Rights Reserved. 22
  23. 23. Thank you! Questions? Trevor Miles | e: tmiles@kinaxis.com | m: +1.647.248.6269 | t: @milesahead Copyright © 2012 Kinaxis Inc. All Rights Reserved. 23Copyright © 2012 Kinaxis Inc. All Rights Reserved.
  24. 24. Copyright © 2012 Kinaxis Inc. All Rights Reserved. 24

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