Perspectives on Sales & Operations Planning

Managing Future Demand in a Rapidly Changing Environment

Early in 2007, during the high tech industry downturn a major supplier of networking and bandwidth management solutions for telecom service providers, launched a global forecasting initiative to more accurately predict future demand for its equipment. The goal was to better align the operations plan with a more accurate picture of customer demand to improve service levels and reduce potential inventory write-offs.

Historically, company planners had cobbled together forecast data from multiple systems — a problem compounded by mergers and acquisitions— using unwieldy spreadsheets, manual processes spanning multiple departments, and only a minimal amount of analysis. The resulting forecasts were often inaccurate. In the post-boom economy, flexible and accurate planning would not only be critical to stabilizing current operations, but would play a center-stage role in strategic decision-making across the entire organization.

However, solving this problem was no easy task. Like many technology companies, the company begin outsourcing in late 2003. With this business model, forecasting and planning product sales became an even greater challenge– 11 major product lines, 50 product families and more than 10,000 SKUs to forecast for hundreds of customers across the globe. In addition, their products were highly configurable and customized, ever-changing with constant updates. And, many of these configurations had a very short lifecycle—additional creating forecasting complexity.

Further, the company had independent planning processes through various departments: Sales created revenue forecasts; finance created revenue targets; and operations did product forecasts–all different processes usually with different measurements that did not tie together. They were manual processes with no timelines, all managed through a combination of SAP r/3 and Excel spreadsheets. It was difficult to maintain any consistency and data integrity. With minimal feedback between the groups, there always were differences in the numbers.

The Global Demand and Order Management team had to manage day-to-day consensus planning for hundreds of products, while supporting senior management efforts to reorient the company’s entire business strategy.

• What would the demand ramp look like in each region and segment?
• What impact would new market entries have on product mix and profitability?
• What effect would canceling or delaying a new product have on revenue streams and customer satisfaction?

Company executives needed answers. In essence, they needed a way to seamlessly integrate and executive on their demand forecasts, enabling every group from marketing and sales to operations and the CFO’s office to drive their actions based on a common understanding of the demand.

The company quickly identified requirements for a completely new business system, one that pushes the proverbial envelope of traditional forecasting and planning system, by including:

• Effective process and change management to support flexible, strategic planning and drive shorter cycle times
• Support for complex product lines, including variable product mixes, hierarchies and life cycles
• Support for diverse business processes to accommodate new product development and acquisition, multiple currencies, and unique rules for material, revenue and sales forecasts
• Cross-functional visibility and participation across sales, marketing, finance and operations, with the ability to offset gaming, normalize disparate reports and support international users

The company evaluation team reviewed their current ERP capabilities as well as supply chain management (SCM) solutions. They found that current resources could not effectively support planning of highly configured products and were biased toward production forecasting, when they needed flexible cross-functional forecasting and planning.

Moreover, the company needed a solution that addressed consensus planning for complex manufacturing that would support both operational efficiency and plan performance management.  So after evaluating the demand planning modules by SAP and SCM vendors, the company chose Steelwedge Software (www.steelwedge.com).

Steelwedge offered the company a unique approach which leverages the Steelwedge Sales and Operations Planning (S&OP) platform, a combination of best practices gained in over a decade of forecasting and planning research and implementation with dozens of complex manufacturers, plus a next generation technology engineered by enterprise software and business planning veterans.

The company’s Global Demand and Order Management organization first created a standard forecasting and planning process with fixed time schedules and managed all the activities to keep all groups on schedule. There was a dramatic increase in collaboration between the sales, finance and operations departments on information and key assumptions.

Then, the departments began to engage each other in a more systematic fashion. As a result, the need for intensive reconciliation went away and allowed them to move to a monthly process. Every month after the forecast is done—first the sales input is made, then the revenue targets are set, and then the product forecast is done— the teams get together to review any discrepancies and ensure that the departmental plans all in sync and they are all on the same page. Hence, the solution has also allowed them to manage forecast by exception as opposed to each line item.

Today using Steelwedge Software, the company creates a consensus forecast that incorporates direct feeds from the corporate sales opportunity pipeline system and balances the bias of operational systems with quantitative and qualitative input from cross-functional teams. The new process has cut forecast cycle times and allowed staff to focus more time on analysis and planning. The Steelwedge implementation, including integration with the company’s CRM system used for sales pipeline management and with multiple SAP r/3 systems, took less than 16 weeks.

Steelwedge now serves as the central link between company’ CRM and SAP ERP systems. The company has also extended the Steelwedge solution through a web services interface to the company portal—giving users and executives access to current and historical pipeline numbers and forecasting analysis.

With Steelwedge, the company gained greater visibility and predictability in their business and a less costly, more effective way of planning. Not only do operations run more efficiently, during the first phase of the project, the company  achieved some significant strategic business results.

• Provide strategic insights that guided critical financial, product management and marketing decisions
• Smoothly managed the integration of major acquisitions including AFC and Vinci Systems driving new revenues and sustaining North American optical market leadership
• Accelerated development of international versions of product lines, leading to significant new accounts

The company’s ‘ initial investment in Steelwedge paid for itself in less than one year. Today, the company reports millions of dollars in annual cost savings in inventory and logistics. In addition to being the critical bridge across organizations and functions, the company expects that its current S&OP automation project with Steelwedge, will save them nearly a million dollars annually, provide an IRR of over 62%, and pay for itself in two years. In addition to improvements in supply chain management metrics arising from the project, the company expects to further facilitate strategic planning, improve Wall Street guidance, and free up key personnel to focus on value-add activities.

And with the assistance of business intelligence provided by Steelwedge Software, the company has revamped its business strategy, targeting high-yield markets, internationalizing key product lines and closing major acquisitions. The result: significant quarter-to-quarter revenue gains and strategic new accounts. As the industry digs out from the crash, the company  looks forward with confidence.  With strategic forecasting now a top priority, and Steelwedge driving consensus planning, the company is set to control its own destiny.

The company’s’ Global Demand and Order Management organization has developed a highly effective cross-functional forecasting and demand planning process, setting the stage for the company’s  to move toward a comprehensive Sales and Operations Planning (S&OP) process incorporating extensive supply, demand, and financial feedback from sales, marketing, finance, and operations. The goal of the global S&OP project is to improve executive visibility and drive efficiencies across the organization. In addition to selecting Steelwedge Software to support post-merger planning, the company has also chosen Steelwedge to support their its global S&OP process roll-out.

Forecasting and planning “guru” Dr. J. Tom Mentzer said “Now that the company has adopted best-in-class forecasting and demand management practices, increased its global footprint, and made several major acquisitions, it is natural for company to leverage the industry’s leading business planning software solution, to enable a best-in-class global S&OP process.”

Tags: executive S&OP, sales and operations planning, Sales Forecasting, Sales Forecasting Software