Planned presentation for the S&OP Chicago IE Event for Consumer Products

Supply Chain Insights
What does Good Look Like?

Supply Chain Insights, LLC © 2012

BRICKS Book
Publishes

Matter
in August
2012

The Role of Supply Chains
in Building Market-Driven
Differentiation

LORA M. CECERE
CHARLES W. CHASE JR.

What’s in
a name?
A rose by any other
name would smell as
sweet.
William Shapespeare
3

What is in a name?
 Integrated business planning (IBP) refers to the technologies, applications and
processes of connecting the planning function across the enterprise to improve
organizational alignment and financial performance. IBP accurately represents a
holistic model of the company in order to link strategic planning, and operational
planning, with financial planning. By deploying a single model across the enterprise
and leveraging the organization’s information assets, corporate executives, business
unit heads and planning managers use IBP to evaluate plans and activities based on
the true economic impact of each consideration.
 Sales and operations planning (S&OP) is an integrated business management
process through which the executive/leadership team continually achieves
focus, alignment and synchronization among all functions of the organization. The
S&OP plan includes an updated sales plan, production plan, inventory plan, customer
lead time (backlog) plan, new product development plan, strategic initiative plan and
resulting financial plan. Plan frequency and planning horizon depend on the
specifics of the industry. Short product life cycles and high demand volatility require a
tighter S&OP planning as steadily consumed products. Done well, the S&OP process
also enables effective supply chain management.

4

5

The Questions to Ask

 What is the goal?
 How do we make decisions?
 What do we measure?

6



7

Supply Chain Organization
Functions Reporting Through Supply Chain Leader
Supply Chain

Supply Chain
Planning (Supply) 80% Chief Operating Officer 43% 69%
Supply Chain
Profit
Planning (Demand) 72% Center
Gen Mgr of Business Unit
(P&L Owner) 26% Managers
Inventory 63%

Deliver (Distribution) 56% Leader of Manufacturing 12%

Transportation 52% Chief Financial Officer 9%
Source
(Procurement) 51%
Head of Procurement 3%
Make
(Manufacturing) 38%

Customer Service 37% Chief Information Officer 2%

Base: Total Sample (117)
Q5. Please tell us how you define your company’s supply chain organization by selecting Supply Chain Insights, LLC © 2012

S&OP Evolution
Greater Benefit
Business- • Growth
Sales Driven
planning Driven • Resilience
Match Demand
Maximize • Efficiency
with Supply
Profitability

Market Driven
Manufacturing- Demand Driven
Driven Maximize
Maximize
Opportunity and
Deliver a Feasible Opportunity
Mitigate Risk.
Plan for Operations Sense and
Orchestrate
Match Demand Shape
Demand
with Supply Demand
Market to Market

S&OP Process
Existence, Goals & Processes

Have a Sales & Operations Planning S&OP Process Goal
Process
Not sure Match demand with supply 43%
3%
No
10% Maximize opportunity and mitigate risk 32%

Develop a feasible plan 14%

Determine the most profitable plan 8%

Yes Other 3%
87%
# Distinct S&OP Processes

5 S&OP 27%
14% 20% 19%
processes 12% 9%
on average

1 2 3 4 5 More than 5




11

12

Typical Organization

CEO

Chief
Customer COO
Officer

Chief
VP of Supply VP of
Marketing Sales CFO
Chain Manufacturing
Officer

Account Customer
Procurement Logistics CIO Quality
Teams Service

Growth Volume Cost


A Supply Chain is a Complex System with Complex
Processes with Increasing Complexity


Profitable Growth

Revenue Cost of Goods

Working Capital

Corporate Social Responsibility

R&D Strategy and Investment Asset Strategy and Investment

Forecast Accuracy Customer Service Inventory

Channel Strategy Product and Supplier Strategy
Service Portfolio
Sales Distribution Manufacturing Logistics Procurement
Policies Policies Policies Policies Policies

Returns Backorders First Pass Yield Empty Miles Material Yield


An Athlete Needs:

Strength

Flexibility Balance


What is Agility?
How Define Supply Chain “Agility”
Shorter supply
Flexibility to make cycles
and deliver
whatever is ordered 3%
10% Ability to recalibrate
plans in the face of
market, demand and
supply volatility and
49% deliver the same or
comparable cost, quality
and customer service
38%
Ability to
adapt to
variations in
demand and
supply

Q11. How would you define what it means for your company’s supply chain to be “agile”?

Agility Importance vs. Performance

Agility Importance vs. Performance
(7-Point Scale)
6%
5%

40% Low (1-3)

89% 32% Middle (4)

62 % Points
(Gap in Performance
vs. Importance)
27% High (5-7)

Importance Performance

Q12. How important is it for your company’s supply chain to be “agile” in 2012? Please

Agility Today vs. Past

Agility vs. 5 Years Ago, 1 Year Ago

9% LESS Agile
15%

17%

54%
Just as Agile

68% Ongoing
Increases
in Agility
38%
MORE Agile

Vs. 5 Years Ago Vs. 1 Year Ago


The Role of Demand Signals in Becoming Market Driven
Sell Deliver Make Source
Network Design: Channel Network Design Supplier Network.
Probability of Design. Cost- Supplier
Demand to-Serve Rationalization
Analysis
Supply Chain Category Sales and Operations Planning Category
Tactical Management New Product Launch Management
Planning:
Demand
Forecast
Supply Chain Contract Corporate Social Responsibility Contract
Policy: Demand Management Revenue Management Management
Shaping Working Capital Management

Market-driven Demand/ Demand Orchestration Supplier Sensing
Signal Channel Demand Translation
Management Sensing

Transactional Order Order-to-Cash Purchase Order
Processing: Management Procure-to-Pay Management
Order and
Shipment
Processing

Demand-side Views Supply-side Views

Hole in Enterprise
Architectures

Account-Level
VMI C
A Supplier Supplier Supplier Supplier

Downstream Data Distribution Distribution Distribution
Network Network Network

Demand-side Views Supply-side Views

Demand
Translation

Account-Level
VMI C
A Supplier Supplier Supplier Supplier

Downstream Data Distribution Distribution Distribution
Network Network Network

A Forecast is not a Forecast is not a Forecast
Increasing need for value
network strategy alignment

Business Planning

Forecasting

Constrained Forecast

Increasing levels of
granularity

22

What drives Variability?

Value: Price, trade incentives, new products,
services, freshness, responsiveness
Variety: Configurations, items, platforms,
components, brands, processing technologies
Velocity: Lead-times, order to delivery, inventory
turns, time to market
Volatility: Demand, inventory, schedules,
reliability, yields
Volume: Plants, warehouses, distribution
centers/points, product flow


Getting to Letter Perfect….
Common Practice Market-driven Focus
S Ask sales Focus on market drivers:
How do we best shape demand?
& Direct integration to supply Design of the value chain to
optimize trade-offs, minimize risk,
balance cycles, and orchestrate
demand
OP Manufacturing plan Trade-offs between make, source
and deliver

24

The Need for Balance
S: Go-to-
OP: Demand
Market
Strategies & Orchestration

Goal

25



26

S&OP Process
Plan Execution

S&OP Plan Execution

Execution is not connected to S&OP plan 9%

We try to execute the S&OP plan, but hardly do
in practice 25%

We execute the S&OP plan most of the time 35%

We execute the S&OP plan nearly all of the
time 19%

We monitor market events and adjust to S&OP
plan within limits 13%

Base: Have a S&OP process (102)

Stage 2: Benefits received from S&OP processes
What benefits have you received from your work with S&OP processes?

28

Historically, we have:
• Tried to get precise on inaccurate data.
• Believed that the most efficient supply chain is the most
effective supply chain.
• Built efficient chains, but not effective networks.
• Focused inside-out, not outside-in.
• Rewarded the urgent, not the important.

29

Comparison of Revenue/Employee for
the Period of 2000-2011
P&G Colgate Unilever Kimberly-Clark Nestle Kraft
700
Revenue/Thousands of Employee

600

500

400

300

200

100

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Comparison of EBIT/Employee for the
Period of 2000-2011
P&G Colgate Unilever Kimberly-Clark Nestle Kraft
140.0

120.0

100.0
EBIT/Employee

80.0

60.0

40.0

20.0

0.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Consumer Products: Comparison of
Days of Inventory
P&G Colgate Unilever Nestle Kraft
80

75

70

65

60

55

50
2002 2003 2004 2005 2006 2007 2008 2009 2010

Consumer Products: Cost of Sales as a
Percentage of Revenue
Unilever Kellogg Kraft General Mills
Campbell Hershey P&G
70%
Cost of Sales as a % of Revnue

65%

60%

55%

50%

45%

40%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Technology
Goal
A feasible plan • Model the network
• Recognize and respect
constraints
• Gain plan visibility
Match demand with supply • What-if analysis
• Multi-tier inventory analysis
• Network design
Deliver the most profitable • Demand translation
• Supply orchestration
Plan • Optimize financial drivers

Demand-driven • Sense channel demand
• Shape demand
• Drive the most profitable
response
Market-driven • Sense buy and sell-side market
conditions
• Bi-directionally orchestrate
demand
Key:
Demand Planning Supply Planning Inventory Planning Financial Planning Demand Translation Market Sensing
34
Platform

Ask the Right Questions


35

Who is Lora?
•Founder of Supply Chain Insights
•Partner at Altimeter Group (leader in open research)
•7 years of Management Experience leading Analyst
Teams at Gartner and AMR Research
•8 years Experience in Marketing and Selling Supply
Chain Software at Descartes Systems Group and
Manugistics (now JDA)
•15 Years Leading teams in Manufacturing and
Distribution operations for Clorox, Kraft/General
Foods, Nestle/Dreyers Grand Ice Cream and Procter
& Gamble.


Where do you find Lora?

Contact Information: loracecere@gmail.com
Blog: www.supplychainshaman.com (3500
pageviews/month)
Twitter: lcecere 2900 followers. Rated as the
top rated supply chain social network user.
Linkedin: linkedin.com/pub/lora-
cecere/0/196/573 (2300 in the network)


Planned presentation for the S&OP Chicago IE Event for Consumer Products

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Planned presentation for the S&OP Chicago IE Event for Consumer Products