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I like to provide a video of a presentation I made back in June of 2013 at a conference on business forecasting in Chicago the subject matters Sales and Operations planning framework first a little bit about my company which I'm actually doing this for educational purposes at this point but my consulting companies see our supply chain consulting and what we look at is ing to the graphic here we use metrics lean and business processes to achieve sustainable improvements for our clients a warning a caveat emptor if you will buyer beware this presentation of course is based on my background I worked for a high-volume consumer packaged goods companies such as Colgate Palmolive and Newell Rubbermaid office products for many years so my background is based on that perspective I'm also a mathematician statistician industrial engineer when it comes to psychology and philosophy I'm more of an armchair devotee and I absolutely hate slob which actually stands for slowing obsolete inventory don't worry you're in good hands you know I've read the book so I can guide you in this short presentation here's the agenda of what we want to do we're going to present a framework for sales and operations planning and talk about the phases of Sales and Operations planning you're not an expert at it when you first started and the snop journey and then commitment required by the company if you're trying to do something like implement Sales and Operations planning so what's a framework it's a structural plan or basis of a project it's also a structure or frame supporting or containing something make a framework for a house you make a framework for many business activities that you're trying to do so what we're trying to do is what's the structural plan or basis for this project implementing sales and operations planning so what is Sales and Operations planning what is the goals of snop it's about the proactive balancing of demand and supply forecasting is trying to predict demand and obviously the supply function is to try to make the products that are you forecasted that you're going to sell and have them in the right place at the right time so trying to get that balance of the two we're trying to get to one number we want to have one business plan that we go after so this requires really being collaborative with the other people that are making plans of what they think the business is going to sell it includes sales marketing operations general management and certainly Finance and Accounting something that I say all the time and my students in operations management are used to hearing me say is the best plan and really the goal of operations is to have the right products in the right place in the right quantities in the right quality at the right time in order to maximize revenues which means meet your sales goals maximize service to therefore deliver everything that customers orders to them on time and to minimize the inventory necessary to do the above - oh yes and of course we want to do all that at a minimum cost and we want to have the most efficient effective and strategic management of capacity possible snop Sales and Operations planning it impacts the customer service supply chain this is a model that I've used it's not that different than other people's models for how the fulfillment chain works or supply chain management chain works there are two different aspects of it we take orders and we manufacture or have the goods manufactured for us again I'm reminding you that my background is CPG consumer package companies so my background is kind of biased towards that the trade think Walmart Target Carrefour wherever it may be places an order the order is processed to make sure that all the items ordered our legal and things that we actually sell with modern ERP systems they are going to be ok because your system probably won't allow people to order things that are not valid for the current month or time period and that they are authorized to order also you do a credit check if the company that's ordering owns you more money than you think is viable you're probably going to hold their order till they make a payment the order is then release the warehouse the warehouse goes and picks the order stages it loads it into a truck and distributes it to the directly to the stores or the distribution center of your trade customer now how to products get into the warehouse well you start with some manufacturing planning we're gonna make today what are we gonna make tomorrow what are gonna make this week this month maybe even the next three months depending on how long your supply chain water cycle is you release that plan to purchasing so they can tell their purchasing suppliers how much goods to prepare for and what they what to see coming in the horizon obviously for this week next week you're probably cutting orders if the product is from overseas and takes two three weeks to get you're probably ordering things ahead of time so purchasing releases orders purchase orders or actual orders to suppliers suppliers then ship raw and packaging materials partially finished goods finished goods into your manufacturing facility where any finishing or assembly or actually manufacturing has to be done to those Ron packed materials to create finished goods of higher value that's your finished good inventory you allocate the M to your various warehouses now notice these two major business processes or taking a fulfillment and manufacturing are tethered by something we're calling forecasting forecasting is nothing more than predicting the future we're trying to predict what we're going to sell next month usually if it's like right now the month of January we've already more predicting what we're going to solve for February March April some companies have a three month rolling forecast horizon of forecasting three months in the future others up to a year now obviously a the twelfth month of that forecast is not going to be as important or nearly as accurate as you want the first month of that forecast to be but you're still predicting the future and you're still trying to guess what it is you're going to sell and basically a base statistical forecast is based on what you've sold in the immediate past and follows the seasonal patterns of previous years so this whole thing is tethered by a forecast which is can be good which can be bad but it's an Achilles heel in most operations planning because you're trying to predict the future and of course we can't do that very well now the other thing to note is going from the trade placing an order orders process order was released a forecast a manufacturing plan which is we did transmit it to purchasing which is then turning into a purchasing plan which is submitted to suppliers both in terms of plan ends and hard orders that's all information information flow and it's all going in this direction in the other direction here you have actual physical goods suppliers providing raw pack assemblies partially finished goods that are finished goods to manufacturing in which you maybe do a little bit more work or package into them or actual transformation of the raw unpacked materials into finished goods but you have at your manufacturing plant and then you allocate them to your various warehouses or distribution centers and then those Goods stay there until they're distributed picked for distribution to the trade so that's really what we're trying to impact the effective management of all this we want order taking it fulfillment to be on time complete for all orders that we get which means you have to have the right products in the right place at the right time that requires on as a good of forecast as you can possibly get we're trying to solve this big multi criteria supply chain problem now of course it's very complicated and the reason that we don't solve it just as a multi criteria optimization problem is because we're trying to optimize for things we're trying to keep costs down inventory down source and quality up and we're looking at manufacturing lead times transit times production rates production capacities warehouse utilization transportation equipment availability demand volatility and you're looking at this for every SKU make which are the eye subscripts at each plant or supplier and how many plants and suppliers you have at the J and that the subscript J stands for those and you have K distribution centers so if you have you know 2,000 sk use you have three four factories or suppliers that make finished goods for you and you have five distribution centers you can see how complicated all of this could get and the amount of data that you have to track this just gives you perspective of the kind of problem and the complexity of what we're trying to do so when we talk about sales and operations planning we have an organization we have standard operating procedures the process itself the support to make everyone play nice the data to drive it the phases which are the evolution and continuous improvement of that so that's kind of our framework that you want to have before you even start then you want some execution plan and the KPIs key performance indicators to know how are you do basically from the book by wallace Sales and Operations planning is a five-step process it works on a monthly drum beat so step one is gathering data you do actually a demand plan which is a base statistical forecast it's based on sales actuals and statistical forecast then you do some supply planning and and and to create the demand plan you also want to meet with your marketing and sales people to find out what numbers should go up and down based on new products being introduced products being discontinued knowledge that you have on your competitors launching new products or discontinuing existing products and/or your trade customers as Walmart opening up ten stores is another retailer closing stores those will all affect your next month's production requirements from there you move to supply planning well do we have the capacity to make it currently do we have the capacity if we're doing a 12-month rolling forecast are we running into any supply constraints and what do we want to do about you review the plan both from a demand and a supply standpoint you've set up a pre meeting to go over all this and make sure everyone's on the same page everyone is an agreement with the number and actions you're gonna propose you take if there's any supply constraints either shorter or longer term most of the time we're talking about mid term supply constraints with Sales and Operations planning and then you have a meeting with the executive team and that meeting is for information to convey the demand plan to them and have them help resolve any conflicts that may be there be it in the demand planning side or the supply planning side and then you go forward and execute that the following month and you repeat this every month so let's look at the faces of the snop journey implement these sales and operations planning is a major business process it's complicated it runs out of monthly cycles it's discussed and really a form week drumbeat an impulse function that are not known for cooperating and collaborating with each other we're talking about supply chain or operations we're talking about sales we're talking about finance we're talking about marketing and other activities so it's a process and the graphic here is the process it's a process it's process change takes time you have to know that going in if you design this thing ing to you know even get a consultant to help you or do it yourself and you read some stuff you'd benchmark other companies it's not going to operate at a high level when you flip the switch the first time so it's very important to notice both it's a process and it's complicated if we look at the perspective from different parts of the organization well finance what do they want to do they have a financial budget that's kind of their forecast for the whole year and they want you to hit the budget all the time c-level execs at - because that's what you've communicated to the street if you're a public corporation sales and marketing want to maximize revenue and market share and they really want guaranteed product availability if they've gone through the effort and made of sale and the supply chain can't deliver that product they're not happy campers they've already made the sell then they've got to go out and sell that same volume again either to the same customer or someone else the supply chain wants a feasible plan they want to bottom up focus they want to minimize risk and disruption in fact the supply chain would like to have like one SKU and just produce it all the time and have a predictable flat demand that's not possible either operations same thing as a supply chain really they're looking at wants to do things for minimum cost minimum change hours they want a forecast that's actually 100% accurate so they make the right things so they can have the right things in the right place at the right time etc so you can see that everybody has different ways of looking at things sales people marketing people are eternally optimistic they always think that we're at the beginning of dramatic increase in sales and we know that's not realistic they probably tend to overestimate if they make errors at all on how promotions are you know the numbers for promotions so here's three myths for sales and operations planning it's over and go live when you flip the switch it's a demand planning led effort and demand planning often reports are operations our supply chain and myth number three is software will solve everything the truth from myth one is it's just the beginning you have to constantly be aware and close the socio-technical talk more about what that is so go live is just the beginning it's it's a complex socio technical process it's replacing a process that needs improvement and everyone knows needs improvement but that everyone was very used to operating within it the current process for both companies if they don't have snop already is probably a siloed functional process where there's finger-pointing and bickering and the supply chain is responsible for the demand plan and the sales have a plan and maybe they work together maybe they doubt and if things don't work out it's your fault you've oversold it's your fault you didn't produce what we sold etc snop will not work as expected coming out of the gate it's a process that needs continuous improvement and refinement Sogo life is just the beginning you need a continuous improvement process built into it and unique key performance indicators that will help you track how you're doing so you need operational KPIs you need things such as you know that that define your results what's your demand plan accuracy and let's face it demand plans are less accurate than we like to believe a MAPE mean average percent error thirty five or forty percent is probably a good threshold if you can get fifty percent you're probably dancing in a street anything higher your you've got a really rational predictable product but most times the demand volatility for the number of eske's we sell is really high and you'll you'll not achieve that are you want to look at your inventory or your meeting your inventory objectives and keeping your inventory isn't that growing out of hand means that you're probably doing a good job and of course customer service on-time and complete deliveries line field Caseville over you want to look at that but secondly things that most people do not track and probably should is participation KPIs is everybody is supposed to be part of a meeting there are they prepared so you want to us almost an attendance type thing were you there were you prepared and then take some climate surveys occasionally especially in the first year or two on how they think snop is working and how it can be improved do you need this continuous improvement mindset and approach you're changing from a well entrenched silo-based legacy process to a monthly operating rhythm that requires cooperation of these functions that we talked about that don't necessarily always cooperate the phases of it is you reacting you're anticipating you're collaborating you're orchestrating so you want to balance Sales and Operations planning and stage one the goal goals might be develop of an operational plan stage two you might want to demand and supply matching and in increasing how that match works Stage three is going beyond that to profitability and then stage 4 which is demand sensing I'm not even sure what that is because I've never seen this stage for company conscious trade-offs for demand shaping to drive and optimize demand response cross-functional alignment obviously gets greater as you go across so supply chain driven with other people contributing stage to supply chain driven for the purpose of achieving optimum forecast and supply supply chain becomes SNMP Orchestrator in stage three and ownership and a functions take ownership for input output in the results and finally it's a business ownership which is the way that you do things process and technology stage one is probably an emerging process you might even do it in Excel Stage two is a more formalized structure process maybe it's a one size fits all and the differentiations in the various details tools are extended to include forecasting supply chain planning and inventory optimization stage three you're talking about a process tailored to business model and needs and again Stage four which is again stage three and four I'm not necessarily seen operating well our business becomes balanced dynamic and event strong connection or one team we're working together etc this is another may be a shorter summary of the same thing we in a previous slide last-minute addition for orchestration the following must be included SKU management how many you know you trim that tree you don't just keep adding sk use you look at the numbers you look at the disposition of the s can use you get rid of your dogs and cats keep the stronger ones and you're constantly managing that product offering slob which is slow and obsolete management if you don't do this well you glut your warehouse with product that are either slow not moving very well or obsolete that's cholesterol in your warehouse system it decreases the productive efficiency of your warehouse and it forces you to have to change the way you manufacture things because ernet places to put your active product because 30% of your slots are filled with products that's not selling so these things have to happen as well ing to this study which was done in 2013 and I'd like to see an update of it 12% of the companies surveyed were in stage one the larger percentage were fan stage to 45% 12% were deemed to be in stage 3 and 28% in stage 4 which was 40 percent so I would imagine this has changed to the point where we have the majority of the companies that are doing snop at a fortune 500 level are probably in the 40 percent range in the stage 3 & 4 range excuse me myth number 2 it's a demand planning led effort it is not a supply chain let effort either you can start that way but it has to be business led project to succeed and the executive team has to drive myth number 3 software will solve everything well software does not solve everything when you don't have a good business processes already in place and people that understand how the new improved business process will work and prop overly and properly execute it you have to have good data management then if you have good business processes all the people are aware and properly executing it with good data management so in other words you're not putting garbage in which means you get garbage out then software is a powerful enabler but to think that software will solve all your problems is a method it's a long-term project if you look at the graphic here here's the stages and from one of the previous charts and stage one is like crawling maybe stage two is like walking then we're talking about stage three is running Stage four and five are sprinting so you crawl walk run soar I guess you could skip the processes but really from a developmental standpoint you know you shouldn't go from like being a an immobile baby to just walking there's a school of thought that says crawling is developmental and it adds to your knowledge and solidifies behaviors in a certain way so I would think the same is true here it's it doesn't matter how much management mandates it you have to follow kind of this process you can shorten it but you can't go from right from zero to Soaring I don't think it works that well even if you have company where the silos currently get along well you might shorten amount of time to get here but it still takes that it can take up to five years easily maybe more to get to phase three example where it is where it is doing that highly automated using ERP or other software but there's examples where it's worked very well and the thing is done entirely in Excel it's not software driven software is it enabler let's talk about the commitment required be on stage to traditional sales and operations planning is no longer sufficient the process must be tailored to the specific needs of the organization this is the key findings from a study done in 2010 by Gartner I have to agree with that in most organizations there was a compelling business event that precipitated you know that that forced the company to implement snop usually it's a frustrated executive team that says I can't believe how inaccurate our forecasts are how bad our customer service is how poorly we managed inventory and they hear or read about another company maybe from a colleague of theirs or something they've read that says sales and operations planning is a solution they bring it back into the company and say we should probably do this once sales an operation planning process matures it should no longer be owned by the supply chain but by the business leaders and it now becomes the legacy way in which people do work but it's a huge change and it's like a monthly process if you follow just ongoing so it takes a long time to get it going it can build momentum as the leaders see the value of it certainly but it can also stumble early on because people don't want to play and if their leaders are not insisting that they play and insisting and understand that participation is required even when people don't want to participate in the beginning to make it develop and work it will stumble and fail and it has stumbled and failed in a lot of companies where it has failed they almost have to use another term if they launch it again because Sales and Operations planning term is tainted and so it has to be renamed or rebrand moving forward you probably want to do some assessment of of the maturity in order to build a roadmap to fall through these stages do you want to have a clear executive lead business motive and common business metrics that transcend functional areas to break down the silos and you want that to drive active participation and investment in the process so it has to be executive lead there has to be good business motives and clear metrics that will help make these functions operate in a way that they're probably not used to operating in the past you want to have coaches and provide tools to help sustain the process and make manage the change software again might be a tool it's not the end-all you want to make the process fit the nuances of the business even though the the basic framework of the process the steps from the stall and Wallis book that we looked at earlier are still there and that's what you'll be using you might want to consider a multi tier approach to cater to different planning horizons and business models if your products aren't homogeneous across your business units they may have different planning horizons and sometimes that planning horizon is defined by your customer I think Walmart looks for 18-month rolling forecasts from their suppliers so guess what you better have 18 months rolling forecast or prevent present to Walmart every month so if you have to do that for Walmart and therefore 30 percent of your business well you're probably gonna do an 18 month rolling forecast for everything even though you're not going to supply it to them to that extreme and you want the right balance between process improvement and enabling technology to remember this is a process that's both human and technology left ok so here's some of the single largest challenges from the from a supply chain insights survey that they did in April May of 2013 understanding and support from the executive team that was like the highest part and it didn't matter if it's a discrete business or suspicious discreet businesses we make I don't know what do we make we make things we make widgets individual widgets processes where you have a continuous flow like oil refinery or something of that nature technologies that support the process that was a single challenge execution of the snop plan is next the role of Finance and the budget is a smaller clarity of supply change strategy and supply chain excellence then availability of skilled resources follows that so clearly understanding support from the executive team is the number one thing we'll talk about that more later well right now actually as Kara chicawa one of my favorite quality control gurus said if there's no leadership from the top stop promoting tqc it's from as 1985 what is total quality control that was a single biggest impact of that book and there was lots of big impacts in that book in my life I'm a career but if there's no leadership from the top stop it if there's no leadership from the top that has an appetite to do snop you're not going to succeed same thing forget about it so most of cliche nothing that's complicated and nothing that involves significant organizational change cross-functional work and buy-in will work without executive team leadership not quality not new product development not implementing an ERP system like sa P or Oracle and of course snop management's role the executive team has to know their role and the importance of the role the critical importance of their role as soon as people see the executive team not having an executive meeting not following up on the actions or the KPIs and SOP in general not being upset if their people are not participating in a meetings or actually drawing you know taking them out of the meetings to do something they deem more important SOP will begin to die and Dyess very quickly and it will begin to die no matter what the practitioners do so you need an S internal peak quarterback in a middle linebacker both India Tom Brady and you need a tenacious linebacker you need a dynamic leader who can make it go as detailed oriented process driven oftentimes someone is good at this becomes a lifer in his role they can be skilled and deft at moving around the organization and being intricate but they can also be tenacious and busting down walls and or in this case busting down silos this is a unique person that you task with this at the very front and and if they're good at it like I said they probably become a lifer in this role so here's some references to sum up this presentation Sales and Operations planning maturity what does it take to get the stay there Sales and Operations planning the State of the Union which was a lure so Cerie supply-chain insight report and if you go to her website supply chain insights that she is kind of like the SNMP guru and I had another presentation that I gave closing the gap between people and processes I talked about the socio-economic aspects of making sure that people and the process get aligned and how to do that so there's more information you can find out if you for some reason other than have to write a paper in a class that I'm teaching need help on this I'm happy to do it here's my contact information and they will still still do consulting and if you have any questions please bring it up to me in class or send me an email or text to the phone number and email address here thanks a lot for your attention and I hope you gained some insight from this presentation thank you very much