APICS-SVChapter Meeting

APICS-SVChapter Meeting

APICS-SV Chapter Meeting Trends Shaping the Evolution of S&OP & Integrated Business Planning Stephen P. Crane Stephen Crane Consulting, LLC Supply Chain Risk Consortium November 19, 2015 Background Principal & Founder Stephen Crane Consulting, LLC B.S. Chemical Engineering - University of New Hampshire APICS CSCP Certified Supply Chain Professional Board Member Supply Chain Council & APICS Member of The Supply Chain Risk Consortium

30+ years industry experience from Air Products, Wacker-Chemie and Firmenich Implemented Sales & Operations Planning in 12 businesses, 3 companies, 4 countries Implemented best-in-class supply chain organizations and planning processes Practitioner focused on sustainability of benefits Stephen Crane/APICS-SV/November 19, 2015 2 Agenda S&OP vs. Integrated Business Planning Greatest Challenges to Improving S&OP Six Trends Shaping the Evolution of S&OP & IBP Key Takeaways Questions? Stephen Crane/APICS-SV/November 19, 2015 3 S&OP vs. Integrated Business Planning

Stephen Crane/APICS-SV/November 19, 2015 4 S&OP & IBP: Decades of Evolution Stephen Crane/APICS-SV/November 19, 2015 5 Evolution of S&OP In the past, S&OP is most often identified as a Supply Chain based process and has been too singularly focused to engage and provide value across functions to provide true business optimization. The S&OP process develops tactical plans that provide management the ability to strategically direct its businesses to achieve competitive advantage on a continuous basis by integrating customer-focused marketing plans for new and existing products with the management of the supply chain. The process brings together all the plans for the business (sales, marketing, development, manufacturing, sourcing, and financial) into one integrated set of plans. (APICS Dictionary, 14th edition) Stephen Crane/APICS-SV/November 19, 2015 6 Evolution of S&OP

Traditional Sales and Operations Planning (S&OP) processes and supporting technologies are no longer sufficient in todays 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 the financial analysis in relation to the business goals and strategy. The broader strategic mandate for S&OP is key to superior returns. S&OP leaders are aggressively converting S&OP from an operations level demand and supply balancing process to the mechanism of choice for integrated business planning and strategy deployment. Stephen Crane/APICS-SV/November 19, 2015 7 Evolution of S&OP Every company needs to decide on how they want to use S&OP in their business. Best-In-Class companies use S&OP as a way of running the business supporting a companys growth strategy by routinely reviewing customer demands, anticipating shifts in business patterns, and aligning an extended enterprise of resources, suppliers and service providers to deliver on expectations in a dynamic and evolving global marketplace. Managements handle on the business All P&L impacts integrated into process Is an Executive decision making process A set of decision making processes Provides "long range vision to issues before they become a crisis Stephen Crane/APICS-SV/November 19, 2015 8

Month-End Close Drives Price/Volume Variance Analysis and Monthly Outlook Stephen Crane/APICS-SV/November 19, 2015 9 Companies That Have implemented S&OP See Benefits Across Many Areas - Performance Benefits (% Improvement) Stephen Crane/APICS-SV/November 19, 2015 10 Greatest Challenges to Improving S&OP Stephen Crane/APICS-SV/November 19, 2015 11 Unwritten Rules Causing Profit Leakage Always under promise and over deliver Never submit your real budget the first time Always inflate your budget, as it will likely be cut Always make your budget, its what really matters Avoid specific measures, especially if you cant control them Get the most people reporting to you and protect your budget

Stephen Crane/APICS-SV/November 19, 2015 12 Lost Business Value Cost Reduction (Conference Board) 90% of organizations that launch cost reduction programs fail to sustain results for > 3 years Execution (McKinsey) Organizations realize only 63% of the value of their strategies Complexity (AT Kearney) Complexity costs organizations 3-5% of sales Stephen Crane/APICS-SV/November 19, 2015 13 Greatest Challenges to Improving S&OP

Stephen Crane/APICS-SV/November 19, 2015 14 Greatest Single Challenge to Improving S&OP Lack of Executive support, commitment, and engagement o Leadership team needs to be committed to a new style of running the business o Organizations need to comprehend the true scale of what the process can achieve for the business o The sizable challenge of overcoming the traditional thinking of operating in functional silos and mis-aligned incentives o Integrating all the key areas of the business (Sales, Product Management, Manufacturing, Purchasing, Finance, R&D) into a single integrated business planning process o There is no one owner of the management process

Stephen Crane/APICS-SV/November 19, 2015 15 Six Trends Shaping the Evolution of S&OP & Integrated Business Planning Stephen Crane/APICS-SV/November 19, 2015 16 Six Trends Shaping the Evolution of S&OP & Integrated Business Planning 1. Speed of Business Continues to Accelerate 2. Complexity, Volatility, Lack of Value Based Planning 3. One Size Does Not Fit All 4. Develop Planning Talent 5. Global is More Than a Template 6. Software is Not a Silver Bullet Stephen Crane/APICS-SV/November 19, 2015 17 Speed of Business Continues to Accelerate 1 The need for organizational alignment is more critical than ever. The

speed of business continues to accelerate driven by the consumer now dictating the channels, any confusion about priorities or delays in orders can result in increased costs, inventory or even loss of business. Need to capture timing and volume shifts is critical to maintaining customer service and fulfill orders profitably The need for strategic focus on Sales Forecasting has never been greater S&OP is the perfect process mechanism to recognize, evaluate, and determine the impact of these changes Effectively communicate changes and align the organization to one plan Stephen Crane/APICS-SV/November 19, 2015 18 Complexity, Volatility, & Lack of Value Based Planning Squeezing Margins 2 Companies need to better manage complexity and volatility which are squeezing margins and decreasing profitability. By focusing on value based planning, companies can maximize their profitability. Increasing complexity of products and length of global supply chains Increased product proliferation and shorter lifecycles Demand volatility is increasing while customers require increased responsiveness and better service Value based planning not integrated into S&OP Stephen Crane/APICS-SV/November 19,

2015 19 One Size Does Not Fit All 3 Companies should leverage segmentation techniques in planning to target performance improvement opportunities and capitalize on those opportunities. By combining portfolio and planning techniques, organizations can drive segmented strategies to achieve maximum business profitability. The 80/20 rule (Pareto) Measure and manage complexity Focus on synergy areas: procurement, product design, manufacturing, planning and order fulfillment. Stephen Crane/APICS-SV/November 19, 2015 20 Area Develop Planning Talent 4 ZEU ZNA ZCN

ZLA ZSEA WW ZIMEA ZJPN Total 1. PF 2. PPR 3. MPP 4. PP 76% 74% 80% 88% 81% 81% 82% 65% 78% 75% 63% 73% 82% 72% 83% 67% 67% 72% 77% 66% 82% 86%

74% 73% 69% 64% 75% 78% 73% 75% 75% 74% 76% 78% 52% 74% 5. DP 88% 80% 91% 89% 86% 94% 74% 79% 86% 6. SP 65% 58% 59% 85%

74% 80% 74% 62% 68% 7. IM 74% 74% 83% 76% 69% 90% 80% 61% 75% With recognized talent gap in the marketplace, companies should establish talent management programs and career paths that attract and retain planning talent. Career paths need to include opportunities to move into other functional areas in the organization to broaden planners experience and establish context for better decision making. New generation of the workforce expects to be mentored Universities are not providing the necessary planning skills, so companies should expect to develop these skills Culture and capability differences makes it difficult to plug-and-play new talent from other companies Stephen Crane/APICS-SV/November 19, 2015 21

8. S&OP 63% 66% 70% 81% 82% 85% 46% 79% 71% Total 76% 70% 78% 83% 77% 83% 73% 67% 76% 1.0 Global is More Than a Template 5 2.0 Make Upload/

Gather and Demand Planning Update Create Stat Stat/Mar Enter Validate Historical Review Correct update data and Add Statistic Forecast ket Intell Custome Sales Sales vs. Demand Sales New al Copied Forecast r Agent Prev. Sales Metrics History CVCs Forecast to BW

Adjustme Forecast Forecast Plan Publish nts s Validate Generate Demand Assumpti Make KPIs PreDP Changes Conduct 24 ons, Changes Review Demand Released to Sales Order Book Month PreApprove Minutes, to Changes Plan and to CO for (Sales

Demand Unconstr Decision Constrai Unconst Update Complet Financial Backlog) ained Reviews s, and n Final rained Months ed Forecast Add New Forecast Forecast Action Forecast 1 and 2 Customer Items Items to R3 Review Refresh Preferr 3.0 Update Iteration loop

Run Identify Competitive/ Adjust & Inactiv Update ed Resourc Supply Network Planning Heurist Supply Market SNP Confir e Networ Source e Review ics for Imbalan Intelligence Supply m Version k s Upload Sales Plannin Capaciti Supply 24

ces / Availabl / Source Assigne History to g es & Metrics Month Review e Release Change d to APO Constra Assump Supply Supply Submit Publish Invento DP to s Deman ints Publish Summa Financi Conduc Finalize

Guidance on tions Plan Alerts Supply ry SNP d24 Minutes Provide rize al t PreSupply BU Priorities Options Conduc , Supply Month Supply Impact Supply Options Vetted Raw to BU t Supply Decisio Constra Option of Review

& Supply Material for Review ns, and ints to Proposa Supply w/Plant Assump Options Forecas Approva Action DP ls Options s tions t l Items Review Summari KPIs, Publish Review Review Lock & ze top Revenue,

Minutes, Review Supply Supply Deploy Finalize issues/ac Cost Major Options Options S&OP 3-month Decisions tions & 4.0 Business to Financial Plans for Sales Projectio , and Predecisions Issues Balance Implicati Executio Plan ns, & Action expected

Alignme Demand ons n Gaps to Items Summariz ESO Communi nt Review AOP Review e Key cate Review Financial Review Major Review Decisions Decisions Business Projection Demand Supply Capital & & Top & Actions Strategy s vs. AOP 5.0 & Supply

Chain Resource Issues Executiv to & & Gap Plans Risks and Requests Still e Organizat Objectives Closure Top Issues Outstandi Sign-off ion Measures ng As companies look to expand S&OP globally, standardized process templates can help efficiently establish a common understanding of desired process. However differences exist in data, skills, and market structure that can significantly impact planning capabilities regionally. So companies should review go-to-market strategies and align their global S&OP process with regional considerations to optimize business capabilities and performance. Globalization is core to most growth strategies Templates are a good start, but not enough Global vs. regional vs. local, regional considerations to increase alignment

and engagement Stephen Crane/APICS-SV/November 19, 2015 22 Software is Not a Silver Bullet 6 Companies continue to invest money, time, and resources into buying and implementing software, typically ignoring segmentation, analytics, and skill development critical to maximizing their return on these investments. To generate real improvements in S&OP, companies should refocus their efforts on building planning competencies and capabilities to ensure real and sustainable benefits on investments. Use segmentation to apply software automation appropriately (ABC Pareto) Remember, software does not solve business problems Focus on defining the questions that need to be answered first, then build the capabilities to provide those answers Competency development starts with teaching people how to think, followed by teaching them how to click not the other way around Stephen Crane/APICS-SV/November 19, 2015 23 Key Takeaways Stephen Crane/APICS-SV/November 19,

2015 24 Key Takeaways New dynamics are creating complexities that require enhanced integrated planning capabilities to drive efficiency and effectiveness people, process, technology A renewed focus on Planning For Growth provides a platform for collaboration, internally with Commercial Teams and externally with trading partners One size does not fit all leverage segmentation to apply appropriate focus and capability to specific situations Building an effective Planning organization requires development of portfolio and planning competencies Executives have to lead the changes Stephen Crane/APICS-SV/November 19, 2015 25 Thank you! Stephen P. Crane Stephen Crane Consulting, LLC Supply Chain Risk Consortium [email protected] Stephen Crane/APICS-SV/November 19, 2015 26

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