SCM World | Integrated Business Planning Webinar

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Linking financial decision-making to supply chain performance

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Christian Verstraete, CTO worldwide manufacturing & distribution industries, Hewlett-Packard

Nari Viswanathan, vice president and principal analyst, Aberdeen Group

Published in: Business, Economy & Finance
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SCM World | Integrated Business Planning Webinar

  1. 1. Integrated Business Planning: Balancing Supply Demand and Finance Nari Viswanathan, VP/Principal Analyst Aberdeen Group May 28, 2009
  2. 2. Agenda 1. Business Context 2. Traditional S&OP is Outdated 3. Definition of Integrated Business Planning 4. Best-in-Class Definition 5. Best-in-Class Differentiators 6. Technology Gaps 7. Call-to-Action 2
  3. 3. Business Context – Top Pressures Forcing Organizations to Focus on S&OP Need to Improve top line revenue 51% Need to reduce supply chain operating costs 50% Management of increasing demand volatility 41% Customer mandates for faster, more accurate and 36% more unique fulfillment Lack of integration between the financial planning 35% and budgeting process and the S&OP process Need to utilize manufacturing assets with 29% maximum efficiency 0% 10% 20% 30% 40% 50% 60% N=126, Nov 2008 3
  4. 4. Traditional S&OP Outdated?  Old concepts may be too supply chain focused:  The Sales and Operations Plan is a managerial tool used for manufacturing planning and control. Its fundamental objective is to reconcile sales forecasts with production plans in terms of volume[1]. To do so, the S&OP has to coordinate planning efforts among the various departments involved in the process. Time for the Next Generation S&OP? “Traditional sales and operations planning (S&OP) processes and supporting technologies are no longer sufficient in today’s high-pressured business environment. Sales and Operations Planning has evolved to become Integrated Business Planning. It is a truly cross-functional, multi-dimensional process that includes all elements of demand, supply and financial analysis in relation to the business goals and strategy.” - “Technology Strategies for Integrated Business Planning”, June 2006 4
  5. 5. Elements of Integrated Business Planning  Simultaneous consideration of supply, demand and finance  a. Demand, including product / customer profitability and product mix optimization  b. Financials should be both a constraint and an output  c. All of these elements must be considered simultaneously and not in silos  Financial modeling needs to be very deep in order to properly consider and evaluate impact on working capital, profits, cash flow and other financial metrics.  In addition, the financial modeling needs to replicate the company’s reporting structure in order to feed directly into the budgeting and planning process including modeling multi- currency, differential tax rates and partial ownership situations. 5
  6. 6. 1. Sales Revenue Planning  New Product Planning  Sales Opportunity Planning  Revenue, Margin and Profitability Planning  Alignment to Corporate Goals 5. Management Review 2. Demand Planning  KPI Measurement  Demand Forecasting  Working Capital  Demand Collaboration  Gross Margins (sales, marketing,   Inventory Turns Plan vs. Actual Integrated Business  operations input) Demand Shaping   Forecast error Root Cause Analysis Planning Process (promotions, other events, new product introduction)  Consensus Forecasting 4. Profit based Supply/ Demand Balancing 3. Supply Planning  Product Mix  Capacity Planning  Constraint Management (Labor Leveling,  What-if Analysis resource Planning)  Allocation of Demand  Inventory Optimization to Supply  Material Planning  Consensus  Transportation - “Technology Strategies for Integrated Business Planning”, June 2006 6
  7. 7. Existing Process Capabilities are Inadequate……. Respond to unplanned events in a timely manner 18% that aligns with S&OP objectives 91% 31% Ability to rightsize inventory levels at SKU levels 87% Align the S&OP Plan with the company's financial 23% goals 67% Consider phase in/phase out of products during 22% the S&OP Process 61% Perform constrained planning during supply 31% demand balancing 58% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100 % Strong Need Capabilities N=126, Nov 2008 7
  8. 8. Best-in-Class Definition  Increased Return on Net Assets (RONA) over last 2 years  Increased Gross Margin over the last 2 years  Return on Net Assets  Customer service levels (on-time and complete to the customer’s requested date)  Average cash conversion cycle  Average forecast accuracy at the product family level 8
  9. 9. Best-in-Class Differentiators - Process Ability to compare scenarios KPI's side by side and 10% 25% against target values 26% Ability to identify the cause of an IBP metric being off- 13% 21% target 25% Ability to proactively monitor daily performance against 10% 15% IBP metrics 25% Ability to project from actual to future performance 10% 15% against IBP metrics 23% 0% 5% 10% 15% 20% 25% 30% Best-in-class Average Laggard N=126, Nov 2008 9
  10. 10. Best-in-Class Differentiators - Knowledge Management High-level reporting designed for executive 38% 42% management 52% Ability to identify the stakeholders required to 21% 24% resolve the underlying issue 42% Ability to identify the person responsible for the 10% 18% underlying cause of the off-target metric 33% Ability to have all stakeholders collaborate in a 13% 17% scenario 30% 0% 10% 20% 30% 40% 50% 60% Best-in-class Average Laggard N=126, Nov 2008 10
  11. 11. Technology Gaps for Integrated Business Planning 17% Demand Planning 25% 52% S&OP 21% Supply Planning 29% 42% 21% Inventory planning 27% 39% 14% Executive reporting/Dashboards 20% 35% 10% New product introduction (phase in/phase out) 11% 33% 7% Ability to optimize product mix 8% 25% Ability to construct and compare different supply and 7% 12% demand scenarios based on volumes 25% IBP 10% Promotion Planning 8% 25% Ability to construct and compare different supply and 3% 5% demand scenarios based on cash flow and ROA 21% 3% Price Optimization 5% 15% 0% 10% 20% 30% 40% 50% 60% Best-in-Class Average Laggard 11
  12. 12. Call to Action: Best in Class IBP Process Capabilities Results in a 2.5X-6X Advantage in Key Performance Improvements 90% 84% 83% 81% % achieving metric improvement in past 2 years 77% 80% 73% 70% 60% 48% 50% All Others 40% 40% 33% BIC 30% 23% 23% 26% 18% 20% 10% 0% Customer Finished Complete Average Gross Margin Logistics Retention (%) goods days of Order Fill Forecast (% of costs as a % inventory Rate (%) Accuracy at revenue) of sales the Product Family Level S&OP Supply Demand Matching Strategies June 2008 12
  13. 13. Best in Class IBP Process Capabilities Results in a 2.5X-6X Advantage in Key Performance Improvements 90% 84% 83% 81% % achieving metric improvement in past 2 years 77% 80% 73% 70% 60% 48% 50% All Others 40% 40% 33% BIC 30% 23% 23% 26% 18% 20% 10% 0% Customer Finished Complete Average Gross Margin Logistics Retention (%) goods days of Order Fill Forecast (% of costs as a % inventory Rate (%) Accuracy at revenue) of sales the Product Family Level S&OP Supply Demand Matching Strategies June 2008 13
  14. 14. Best in Class IBP Process Capabilities Results in a 2.5X-6X Advantage in Key Performance Improvements 90% 84% 83% 81% % achieving metric improvement in past 2 years 77% 80% 73% 70% 60% 48% 50% All Others 40% 40% 33% BIC 30% 23% 23% 26% 18% Integrated  20% Business Planning 10%  0% Link financial planning & budgeting with supply chain  Continuously monitorFill Forecast Grossof plan versus Customer Finished Retention (%) goods days of Order performance(%Margin costs as a % Complete Average of Logistics actuals inventory Rate (%) Accuracy at revenue) of sales the Product Family Level S&OP Supply Demand Matching Strategies June 2008 14
  15. 15. Nari Viswanathan, VP/ Principal Analyst Nari.Viswanathan@aberdeen.com | 972-580-0940 15
  16. 16. Manufacturing & Distribution Industries – Thought Leadership Series Integrated Business Planning Close the Supply Chain Loop Speaker: Christian Verstraete, CTO MDI Date: May 28th, 2009 © 2009 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice
  17. 17. Three levels in analysis Operational addressing Operational Tactical Strategic production scheduling, sales order management and inventory. Tactical is related to market development, product development, business scenario’s, customer plans and resource/capacity adaptation Strategic focuses on markets, technologies, customer priorities, organizational set-up and investments. Source: Managing demand uncertainty in supply planning, Gupta and Maranas 17 5 June 2009 © 2009 Hewlett-Packard Development Company, L.P. Technology for better business outcomes
  18. 18. Integrated Business Planning It’s all about trade-offs Strategic • How do I structure my end-to-end Supply Chain to maximize profits? • To what potential risks do I expose my company? Tactical • What is the most profitable way to deliver these orders? • Which products generate most profit? Operational • Which Customers should be served first? • What orders do I deliver? 18 5 June 2009 © 2009 Hewlett-Packard Development Company, L.P. Technology for better business outcomes
  19. 19. Operational - Balancing Supply & Demand…. …. But do it profitably Predictable Profit & Accurate Customer Demand Supply Satisfaction Order Visibility Inventory Visibility Forecast Accuracy Capacity Planning Event Management 19 5 June 2009 © 2009 Hewlett-Packard Development Company, L.P. Technology for better business outcomes
  20. 20. Data Integration plays an important role Orders, Forecasts, Demand, Price, Revenues, Quality, … Inventory, Capacity, Status, Costs, Environment, Events, Traceability, … 20 5 June 2009 © 2009 Hewlett-Packard Development Company, L.P. Technology for better business outcomes
  21. 21. An Integrated Control Tower • Financials Control Tower • Demand • Supply Demand Driven ERP Orders, Forecasts, Demand, Price, Revenues, Quality, … Customers Suppliers Inventory, Capacity, Status, Costs, Environment, Events, Traceability Demand to Replenishment Order to Cash 21 5 June 2009 © 2009 Hewlett-Packard Development Company, L.P. Technology for better business outcomes
  22. 22. Tactical - Portfolio management process HP won Frank Edelman Award for their contribution Pre-launch: Post-launch: ROI Screening Portfolio Management with RCO Example Complexity ROI Calculator Example RCO Output 100 % of revenue covered 80 60 40 20 0 0 300 600 900 1200 # of products 22 5 June 2009 © 2009 Hewlett-Packard Development Company, L.P. Technology for better business outcomes
  23. 23. Strategic – Understand your Operations Strategic decisions based on numbers • Time Dimension is critical to understand behavior of the eco-system • Modeling the eco-system is a pre-requisite to sound scenario analysis • Analysis provides a base for rational decision making • The emotions are removed from the decision process, facilitating acceptance 23 5 June 2009 © 2009 Hewlett-Packard Development Company, L.P. Technology for better business outcomes
  24. 24. Strategic – Understand your Operations Strategic decisions based on numbers • Time Dimension is critical to understand behavior of the eco-system • Modeling the eco-system is a pre-requisite to sound scenario analysis • Analysis provides a base for rational decision making • The emotions are removed from the decision process, facilitating acceptance 24 5 June 2009 © 2009 Hewlett-Packard Development Company, L.P. Technology for better business outcomes
  25. 25. An integrated process, covering operational, tactical and strategic Gather data Decide & Up- and Implement Downstream Develop Use analysis scenario’s tools to and identify understand implications the situation 25 5 June 2009 © 2009 Hewlett-Packard Development Company, L.P. Technology for better business outcomes
  26. 26. An integrated process, covering operational, tactical and strategic Gather data Decide & Up- and Implement Downstream Develop Use analysis scenario’s tools to and identify understand implications the situation 26 5 June 2009 © 2009 Hewlett-Packard Development Company, L.P. Technology for better business outcomes
  27. 27. Integrated Business Planning: Linking financial decision making to supply chain performance Trevor Miles, director product marketing tmiles@kinaxis.com
  28. 28. Today’s Supply Chain Challenges Global outsourcing Increasing demand volatility Shorter product lifecycles A new era of surprise and compromise requires capabilities of integrated and collaborative demand-supply planning, monitoring, and response to change 29 Copyright © Kinaxis 2009. All rights reserved. Kinaxis Confidential
  29. 29. Key System Requirements Near real-time … Plan  Targets & Metrics • Financial • Operational  Multi-tier visibility  Alerting  Multi-tier collaboration IBP  What-If analysis  Scenario evaluation Respond Monitor • Financial • Operational 30 Copyright © Kinaxis 2009. All rights reserved. Kinaxis Confidential
  30. 30. Contact Trevor Miles, director product marketing tmiles@kinaxis.com Office +1 905-901-2336 Mobile +1 647-248-6269

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