The sixth largest retailer in the US plans to tighten vendor lead times, in a bid to improve competitiveness. Discount retailer Target Corp. is cracking down on suppliers as part of a multi-billion dollar overhaul to speed up its supply chain and better compete with rivals including Wal-Mart Stores Inc. and Amazon.com Inc .
The move follows change in the company’s leadership, and include penalties for low performance, and reflects the importance of time to market (TTM) in an increasing competitive market. Quality, cost and time to market are the key determinants of success, hence the focus of today’s supply chain strategy. CISCOM training includes the techniques, including Service Level Agreement (SLA), for reducing lead times and vendor improving overall vendor performance.
Sales & Operations Planning
By Danish Mairaj, CISCOM
The Key Elements
What is Sales & Operations Planning Process?
Sales & Operations Planning process comprises monthly meetings between Sales, Production, Engineering/Product Development, Finance, Quality, and any other concerned function. Plans and decisions made in the S&OP meetings become binding to all concerned partied and constitute the authorized ‘build plan’ for the respective supply units.
Purpose of the S&OP:
S&OP is a senior management process that seeks to improve sales forecasts, optimize inventory, bolster the new product pipeline and improve customer relations. Often, companies have well thought out strategies and business plans, but lack the methodology for effectively executing them. S&OP's primary purpose is to convert a company's strategy into tactical plans that can be executed throughout the business. The S&OP process creates a robust organizational framework around the core processes of the business.
S&OP and the Key Performance Indicators:
S&OP is a five-step process that is executed on a monthly basis. Where traditional management reviews have focused on past performance, usually at quarterly business reviews, the S&OP process focuses on future projections-typically out to 18 or 24 months into the future. Because S&OP focuses on integrating all core areas of the business, new products, sales & marketing, supply chain, financials, strategy deployment and Key Performance Indicators (KPI's), business leaders can quickly see if the business is executing according to plan or needs a course correction, By reviewing core process regularly on a monthly basis, executives have ample time to adjust their strategies to take advantages of changing conditions in the market.
One of the first steps is the establishment of KPI's. These help set the expectations for the business and determine how success will be measured. Organizationally, it sends the message that business will be driven by data and facts - not opinions and guesswork. To make sure an organization is focused on the right performance criteria, it is imperative that the management team cascades the KPI's to the entire organization. Employees, from the top to the bottom must understand how they contribute to the success of the business, their specific role in obtaining these goals and how their performance will be measured,
The Five-Step Sales and Operations Planning Review process
A five-step review process is an integral part of the best S&OP because it structures the flow of collaboration and information sharing. It starts at the highest practical level of management business review, which is then reconciled with the lower-level product management, supply, and demand reviews. Brown-Forman, for example, implements both strategic and tactical supply chain planning processes because of the long time frames associated with wine and spirit production. The company’s S&OP process creates an 18-month consensus forecast (most companies now create a 24-month plan) for demand planning, near-term inventory planning, and production planning and scheduling. The following outlines in detail each of the steps in the process.
1. NEW PRODUCT REVIEW
In analyzing the feasibility of a new product, the company uses inputs from management and statistical analysis to align new product development and introduction with corporate financial and strategic goals. The analysis takes into account product life cycles, seasonal influences, promotions, and rebates and creates a multi-period business plan. The best new product review process rationalizes the information about customer needs with channel potential and ideas for new product offerings. But the process does not stop there. It analyzes the structure of supply chain costs and determines the need for facilities or capacity, facility consolidation or outsourcing, and the right set of key performance indicators.
2. DEMAND REVIEW
The purpose of each of the demand reviews is to lend an aspect of integration to a process that typically takes place in isolation. The demand review does not simply rely on quantitative forecasting, for example, but instead balances orders and demand through what-if analysis, achieving consensus among the various stakeholders all along the supply chain. The best demand reviews not only ensure that the statistical forecast is based on the best data and model, including marketing assumptions, but also compare and incorporate sales and customer forecasts and include input from operations. The demand review also incorporates the results of the new product review, proposed promotions, and their demand impact. It incorporates real-time demand signals to monitor the plan assumptions and planning cycle so that demand can be adjusted accordingly.
3. SUPPLY REVIEW
The supply review includes manufacturing capacity, inventory, procurement, and logistics planning. The supply review considers potential material shortages in the supply chain as well as the capacity for the company to develop excess inventory.
The Master Production Scheduling (MPS) is part of the Demand and Supply review. It is the process that converts the demand into the net requirement for the finished goods (i.e., gross demand minus inventory on hand). Output of the Master Production Scheduling process is the Master Production Schedule, usually with a plan horizon covering the longest lead time of manufacturing or sourcing. The Master Production Schedule is an input to the following processes: Material Requirement Planning, Capacity Requirements Planning and Production Control (Input /Output Control).
Material Requirements Planning (MRP) process converts the net demand for the specific finished goods into its component parts, including chemicals, raw materials, packaging and any MRO’s (Maintenance, Repair and Operating supplies) that would be required to manufacture or source the required quantity of the finished goods.
Capacity Requirements Planning (CRP) process matches the work load from each product to the machine and staffing capacity, in order to determine the plan feasibility.
4. FINANCIAL RECONCILIATION REVIEW
At this point, the strategic S&OP process diverges from current business practice by creating a forward financial forecast of the previous three reviews. The supply and demand reviews are balanced by taking a close look at the product mix, conducting what-if analysis, filtering it through constraint management, and allocating supply to demand. Most important, all stakeholders in the process must reach consensus on the business and financial impact of the assumptions that have gone into the financial reconciliation.
The best financial reconciliation optimizes the supply chain to avoid problems down the line, and then compares the optimized supply chain plan to the demand plan. While the financial reconciliation makes certain that the S&OP plan hits targets for revenue and margin, it also considers whether the company’s budgets remain consistent with the assumptions. The process validates potential demand spikes and supply disruptions, adds in forecasts for future financial profit and loss statements, and identifies gaps between the current S&OP and the company’s future business plan.
5. MANAGEMENT EVALUATION AND ANALYSIS
At this point, management reviews the S&OP results and plans and compares assumptions, identifying any problems and their root causes. The best management evaluation processes use a number of leading practices such as waterfall analyses of forecasts and supply plans and the precise measurement of actual demand to the demand plan. The analyses include profitability by customer, channel, product, and supplier, as well as backlog and lead-time trends. The management review also addresses any high-impact exceptions to the plan, such as perfect order, cash-to-cash, and asset performance.
Introducing S&OP in your company
There are two distinct phases to S&OP:
The three prerequisites are: Decide on the S&OP format, Determine the data hierarchy and Measure performance.
- Decide to do it. Someone in top with management must decide to get involved in S&OP, and this person must have the authority to commit resources … money and people’s time.
- Form the design team. This is the group of people who will take care of all of the process workings: The top management leader, A person from IT, The demand manager, Operations manager, Accounts manager, Sales manager.
- Educate everyone. Normally a two-day workshop is sufficient to give all of the people a baseline understanding of S&OP and get them on the same page. More may be needed later, but this is good for now.
- Make a calendar. One of the major keys to successful S&OP is to SHOW UP.
- Design the process. There are eight basic process steps, and three prerequisites.
The eight basic S&OP process steps done each month are:
- Report month-end actuals
- Get sales forecast input
- Aggregate all of the sales input
- Conduct the corporate sales review meeting
- Do the S&OP analysis
- Conduct the pre-S&OP meeting
- Conduct the S&OP meeting
- Communicate the S&OP output
Conducting the S&OP Process:
- Hold the first S&OP meeting cycle. This is generally about six months after the design process kicks off.
- Refine the process. During the first six or so meetings, much of the time will be spent on meeting mechanics, formats, data accuracy, and basically just learning about what should be done in the S&OP process
- Document the process. Many companies like to put all of the agenda, process flows, data sources, the calendar, the S&OP document itself, and other items in ISO format.
- Train the users. All people who are affected by the S&OP process must be taught how to read the S&OP document, and know how their decision process is dependent on the data and decisions in the document.
- Link S&OP to ERP. This means that the output of S&OP must drive through the ERP system so that planners and schedulers who are making detailed day-to-day inventory, purchasing, and production decisions are in sync with what has been decided at the aggregate S&OP level.
CISCOM continues to gain popularity due to its leading concepts and applied tools and methodologies, aimed at improving customer service and reducing costs. The 4 C’s of supply chain management – Customer Service, Cash Flow, Cost and Capacity applied through established processes.
Following our growth strategy, BRASI is looking for affiliates in all parts of the world, to present the ANSI-accredited CISCOM certificate program, on 100% Affiliate-owned franchise basis. Supply chain practitioners, consultants, colleges and training institutes and are welcome to explore this great opportunity. Please e-mail queries to Sarah Khan at firstname.lastname@example.org
CISCOM Online Course is offered on a regular basis, please check the program calendar on our webs tie www.brasi.org. Book early, as positions get filled quickly.
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