S&OP Leadership Exchange: Profit Plan Gap Closers


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Every Company will have to manage "Gaps" in their Operating Plans. Understanding the key drivers of these gaps is critical to a robost S&OP Process.

Check out this webinar on-demand at http://plan4demand.com/Video-Profit-Plan-Gap-Closers

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S&OP Leadership Exchange: Profit Plan Gap Closers

  1. 1. S&OP Leadership Exchange: Gap Closers The Web Event will begin momentarily with your host: Andrew McCall
  2. 2.  Quick Introduction Defining a “Gap to Plan”: What is this in your organization? Risk & Opportunity: How do they fit into the Gap closing discussion? Different types of Gaps to consider Developing Solid Gap Closing Activities Discussion & Closing
  3. 3. • Five Compelling Facts from the Research o Best-in-Class companies have 15% -25% higher average Customer Service Levels than All Others. o Best-in-Class companies have three times lower Cash-to-Cash cycles than All Others. o Best-in-Class companies have 35% greater forecast accuracy at the product family level than All Others. o Thirty percent (30%) of Best-in-Class companies have increased their inventory turns in the last six months as compared to 10% of All Others. o Sixty percent (60%) of Best-in-Class companies have increased their perfect order percentage to customers versus 20% of All Others.Strategic Actions Taken by Best-in-Class Companies Create a profit optimized supply- 50% 24% demand balanced plan 28% Manage demand forecasts within the 39% 53% S&OP plan 51% Trying to reduce inventory to free up 39% 52% working capital 46% Integrate financial planning and 33% 35% budgeting with the S&OP process 43% Manage supply constraints within the 31% Best-in-Class 36% Average S&OP plan 29% LaggardsSource: Aberdeen Group, July 2009 0% 10% 20% 30% 40% 50% 60% Percentage of Respondents, n = 214
  4. 4. Item Best in Class Your Current Potential Results* StateInventory Reduction 15% - 25%Service Level Improvement 3% - 5%Excess & Obsolete Reduction 25%Forecast Accuracy (product family level) 82%  Soft Benefits: o Improvement of Accountability & Control o Detailed Assumptions Supporting Plan from Marketing and Sales, through the Planning and Operations organizations and ultimately integrated with finance. o Earlier visibility into issues o Embedded Communication & Complex Project Management Capability o Action Orientation o Exception and KPI focused* Aberdeen Group 7/2009* Tom Wallace - S&OP Cost & Benefits 2009
  5. 5.  Does some of this sound familiar?  Your organization has moved towards an integrated S&OP Process  You have made investments in the processes to support it, as well as technology to enable it in some way, shape or form  You are evolving the process to be more sensitive to market conditions and fundamental drivers of your demand  You have broad based involvement in S&OP, across many organizations and layers in the organization  And you work hard on this operating plan, but in some way – our view of the future is not matching up with our expectations….
  6. 6.  We have a Gap to plan…What does that mean:  Projected Shortfall against expectations  Market Share and Growth are not trending according to our plans/assumptions  Volume commitments to our plants or suppliers may not be met  Impact on compensation and incentive based pay – from executives to sales people to the resources on our plant floor – this has an impact Change Management Point – S&OP needs to exist in a culture that is transparent, expects to uncover trouble and gaps in time to do something about it – that can’t happen where we don’t deal with some hard truths. It’s a fact based, data driven environment.
  7. 7.  Risks  Potential drivers of a non-trivial, negative impact that are NOT "baked" into the S&OP one-set-of-numbers.  These may be factors outside of your control, or they may be gaps to stated annual plan due to soft demand.  Examples:  Production Capacity not meeting planned ramp up  Supplier Performance below standard  Revenue is soft across the industry Opportunities  Potential drivers with a non-trivial, positive impact that are NOT "baked" into the S&OP one-set-of-numbers.  These may be factors outside of your control, or they may be positive deviation from stated annual plan.  Examples:  New Product Introduction ready to Launch  Additional Capacity available to support promotional push of specific products  Geographic Expansion
  8. 8.  Critical Elements to using these effectively:  Consistent, Continuously updated set of R&O that travel from meeting or process step to the next.  A depth of horizon that allows us to develop these over the course of many cycles. Lots of cross functional work goes into flushing these out and making them realistic – the early the visibility, the better.  Common Language, and principles for applying these. Can not have a version of these for Finance, that is stated differently in marketing, sales and production.  They are dynamic – they will evolve month over month and get more realistic, as they evolve, the need to be tested and continually measured
  9. 9. • New Product Introductions• Cash Flow • Market Expansions• Margin/Mix • Pricing• Gross Profit • M&A • Market Share/Growth Assumptions • Forecasted Demand • Capacity • Product Mix • Schedule Attainment • Sales Goal Attainment • Suppler Performance • New Product Demand • Inventory Position Projections • Customer Fill Rates
  10. 10. • Outline Drivers • Understand ImpactIdentify Gap • Identify Timing • Root Cause Analysis • Quantify ImpactEliminate Risk • Develop ActionDriving Gap? • Implement • Feasibility • Quantify & Agree on Upside • Detail Investment RequirementsCapitalize on • Risk ManagementOpportunity to • Develop Action Close Gap • Implement
  11. 11.  Executive Team Sets Direction in Motion Each team owns a component of the solve Cycle process works the problem through a cycle (or more) Once adopted, impact is now included into the Plan Assumptions are updated for tracking as plan is executed and moves forward Constant Monitoring outside of S&OP – Management “to do” list or action log Example: Walk through the Profit Gap
  12. 12.  Every company will have to manage Gaps to the operating plan. Understanding your key drivers of these gaps is critical to a robust S&OP process. The process needs to constantly work on quantifying Risks & Opportunities, so that a consensus evolved around the impact of risk, and the feasibility of taking advantage of opportunities Gap closers, once put in place are part of the number – Assumptions, and “risk to plan” are used to monitor progress Sets the direction for the org from an execution standpoint (demonstrated performance becomes the link)
  13. 13. February 29th March 28th April 25th What does Harnessing Innovation - “Good” Getting to one number Planning Challengeslook like to your organization?