Sales and Operations Planning, Collaborative Demand Planning Depends on Bottom-up, Top-down and Statistical Forecasting
An effective S&OP program depends on solid, accurate demand forecasts. Best practice companies do three things well: statistical, top-down and bottom-up forecasting. Many companies are doing one or two of these, but few are doing all three well. Of course, some companies do none. Let’s just say these companies have a huge upside improvement potential.
A statistically generated forecast should use a “best fit” approach to select the mathematical algorithm that minimizes error (such as mean absolute percentage error (MAPE)). The statistical engine should select the best algorithm for each time-phased data series or set of regression data. The resulting forecast should serve as a starting point for bottom-up and top-down forecasts.
Bottom-up forecasts are accumulated from many contributors. A distributed sales force may have hundreds or thousands of contributors. Each contributor has a specific area of expertise such as a specific customer, product or geographic area. The contributor enters her forecasts for her specific area of responsibility. Forecasts from all contributors are summed to capture an overall bottom-up forecast.
Conversely, a top-down approach applies a more centralized view. A small number of forecasters will look at various inputs and generate forecasts. Influencing factors may include market data, economic indicators, and general product and customer trends. Here, too, the statistically generated forecast is a good number from which to start.
The beauty of top-down and bottom-up forecasts is their ability to look at the world from differing vantage points. The folks in the “ivory tower” know important information, but they don’t know everything. The folks in the field have keen insights into their unique areas, but they only see their small piece. The challenge is to capture the small pieces without tainting the field forecaster’s view. In other words, don’t tell the field forecasters the top-down targets. When field forecasters are told what their forecasts are expected to be, they tend to send back values right in line with the top-down values. Such tainted bottom-up forecasts miss the point of gathering field intelligence.
An effective marriage will capture top-down and bottom-up forecasts separately. A management by exception S&OP tool will make comparisons quickly to enable users to analyze critical differences and refine the ultimate consensus driven forecast.
Sphere: Related ContentSteelwedge Software, Inc. Named to Software Magazine’s 27th Annual Software 500
Steelwedge Software Inc., the leading provider of software-as-a-service Sales and Operations Planning (S&OP) solutions, today announced that it was named one of the top 500 software companies. This year’s inclusion in the Software 500 marks the third straight year Steelwedge Software, Inc. has been ranked.
“The 2009 Software 500 results show that revenue growth in the software and services industry was healthy, with total Software 500 revenue of $491.3 billion worldwide for 2008 representing 8.8 percent growth from the previous year,” said John P. Desmond, editor of Software Magazine and Softwaremag.com.
“The Software 500 helps CIOs, senior IT managers and IT staff research and create the short list of business partners,” Desmond says. “It is a quick reference of vendor viability. And the online version to be posted soon at www.Softwaremag.com is searchable by category, making it what we call the online catalog to enterprise software.”
“Our continued growth is further validation that our customers experience substantial business benefits from the Steelwedge S&OP solution,” said Glen Margolis, CEO and founder of Steelwedge Software, Inc. “We will continue to innovate and provide our customers with the Sales and Operations Planning (S&OP) solutions they need to increase their revenue and competitive advantage.”
The Software 500 is a revenue-based ranking of the world’s largest software and services suppliers targeting medium to large enterprises, their IT professionals, software developers and business managers involved in software and services purchasing.
The ranking is based on total worldwide software and services revenue. This includes revenue from software licenses, maintenance and support, training and software-related services and consulting. The financial information was gathered by a survey prepared by King Content Co. and posted at www.Softwaremag.com, as well as from public documents.
Sphere: Related ContentFormer SAP Executive Joins Leading S&OP Solutions Provider Steelwedge Software
Former SAP Executive Michael Kramer has joined Steelwedge Software, Inc. as SVP of Sales and Marketing. Kramer joins Steelwedge at a time of extremely rapid growth. He will be responsible for scaling the Steelwedge sales and marketing organizations and ensuring that Steelwedge maintains its leadership role as the “dominant best-of-breed Sales and Operations (S&OP) vendor.” (AMR Research).
In his role at SAP, Kramer was responsible for increasing revenue by over ten times within his region and closing major deals at companies such as Starbucks, McKesson, T-Mobile, Clorox, Coors, and Adidas. Kramer also served as Director of Sales at Yantra where he increased sales by four fold in four years and helped drive Yantra’s highly successful acquisition by AT&T Sterling Commerce. Kramer was also the VP of Sales at Accruent and Amitive where his teams doubled sales during his employment.
“Sales and Operations Planning is the most strategic process a company has.” said Michael Kramer, “At its core, SAP is a transactional and BI system and does not offer a practical S&OP solution. Steelwedge is the only vendor that offers a cloud-based S&OP solution that truly addresses the needs of SAP customers while offering seamless integration into SAP.”
“We are extremely pleased with the progress Steelwedge is making in rapidly growing revenues and attracting world-class talent” said “Glen Margolis, CEO of Steelwedge Software, Inc. “And, we are very confident that Michael’s leadership will enable us to further cement our position as the dominant S&OP solutions provider.”
Also joining the Steelwedge sales team as VP of Solutions is Ed Lewis. Ed brings over twenty years of experience in manufacturing and is a specialist in Sales and Operations Planning (S&OP). Prior to Steelwedge, Ed was the CEO of a supply chain technology services provider, President of an industrial manufacturing company, and Director of Materials at a high tech manufacturing organization.
Sphere: Related ContentSales and Operations Planning(S&OP) Pulls Together Opposing Objectives
Sales and Operations Planning (S&OP) presents many challenges to business enterprises to implement and sustain a world-class S&OP process. One common thread is the need for effective collaboration. What sounds simple, in general terms, is often difficult when the details come into play. Details may include different goals and incentives for disparate functional groups and individuals and inadequate tools to facilitate meaningful collaboration.
Functional groups have unique goals and performance indicators. Sales may be driven to achieve high revenue targets while the Operations group may focus on minimizing labor costs and inventory levels. Finance seeks to manage cash flow, minimize costs and maximize profit. Units of measure may differ from one functional group to the next. Some plan in units, others in dollars. Forecast horizons can vary from current quarter to planning horizon to fiscal multiple year projections.
The key point here is NOT that all groups and individuals should share the same focus and effort. To the contrary, best practice enterprises heavily leverage the unique talents of their employees. Sales sells and Operations drives the supply chain. That said, it is critical that the enterprise has a single, consensus plan that is feasible and all parties agree to execute against that plan. Companies that fail to achieve one agreed plan, are prone to falling well short of optimal inventory levels, customer service targets, availability of desired inventory and company financial goals. A less tangible, but very important by-product of a missing consensus plan is a culture that pits individuals and groups against one another rather than acting as a cohesive team.
From my work at Steelwedge with several clients, it’s been very pleasing to see how the Steelwedge tool promotes cross-functional interaction. Users exchange quantitative and qualitative inputs in an environment that pulls together information in a way that had not previously been available. Beyond data visibility, users are gathering field input, validating assumptions and driving an enterprise plan rather than multiple, isolated departmental plans.
At the end of the day, solutions depend on people, process and technology. If the process and the technology facilitate collaboration, the people become more productive…and happier, too!
Sphere: Related ContentH1N1, Sales and Operations Planning (S&OP) and your Doctor
What does the H1N1 epidemic have that most Sales and Operations Planning (S&OP) processes do not have? Is this a ridiculous question? Well, the question is not as ridiculous as it might seem and the answer is simple – H1N1 has the US Center for Disease Control (CDC). The state of the N1H1 epidemic is closely monitored by the CDC using real-time dashboards, sophisticated predictive metrics, external sensors, and tailored email alerts directed at the medical profession (see below). However, few global manufacturing companies have the tools to close monitor and manage their sales and operations processes. And even fewer have the tools necessary to make the right strategic decisions when confronted by a crisis.
What tools does your company have to proactively manage during these highly volatile times? Not unlike the Center for Disease Control, the mission of Steelwedge Software is to enable companies to proactively identify and manage risk while improving strategic decision making through adoption of a fact-based Executive Sales and Operations Planning process. In normal times, the outcome of an effective S&OP process is increased asset utilization and improved operational efficiency. In extraordinary times, S&OP is even more important as it provides a framework and toolset for crisis management.
What is the roadmap to improved S&OP? Start with a crawl-walk-run approach. Adopt the basics first– establish a fact-based monthly process. Automate the demand sensing process and drive collaboration. Then, establish a system-based rough cut capacity or supply planning process. And finally, drive an effective Executive S&OP process that enables executive decision-makers to understand strategic trade-offs and proactively respond to business challenges. Once this end-to-end process is in place and fully enabled. A comprehensive set of performance metrics, predictive analytics, dashboards, and exception-based alerts can be implemented to improve corporate agility (see below).
Step back for a moment - is S&OP with its associated metrics, dashboards, alerts and warning indicators that different than what the CDC has created to manage the H1N1 epidemic?
Top Criteria for SAP Customers to Use in Evaluating S&OP Solutions
A question in the minds of many executives in companies running SAP ERP and/or SAP APO is what type of organization would benefit from a Sales and Operations Planning solution (S&OP) solution by a best-of-breed vendor. Below are some guidelines that can help clients decide if they should also evaluate another vendor’s products before making a decision.
Before outlining the criteria, let’s define the scope of the S&OP solution to include demand planning, rough cut capacity planning, performance management, product life cycle planning and business-planning (revenue/margin). With that scope defined, a company with some the following attributes should also evaluate an S&OP solution from a best-of-breed vendor:
• Has the business need to go live with the solution within weeks rather than years.
• Needs the ability to analyze trade-offs and develop alternate planning scenarios to determine the best outcome
• Currently spends an inordinate amount of time compiling and massaging data into a usable format
• Uses a direct sales force and believes that the ability to transform high level, sales opportunities from their CRM system into detailed, unit-based forecasts will significantly improve the quality and relevance of the demand forecast.
• Has a complex product mix or configured products and needs attach rate forecasting capabilities.
• Wants to create a consensus demand plan by incorporating input from other organizational plans such as new product introduction plan, sales pipeline, finance forecast etc and some of that data exists in non SAP systems such as SFA systems, PLM systems and even ERP systems from other vendors in different divisions.
• Is looking for a secure, integrated solution for sales and operations planning across the enterprise.
• Operates in a changing environment and wants the ability to easily update and evolve their S&OP process (a straightforward mechanism for creating and updating business rules, time series, and attributes) as their business processes changes.
• Does most of their planning on Microsoft Excel today and expects adoption issues with planning systems that have web-based user interface rather than an Excel-based interface.
• Wants to extend the solution beyond the firewall to support collaboration with distributors and customers.
• Wants to simplify and streamline their planning process and is looking for a simple-to-use workflow based S&OP process that is driven by E-mail and leverages an Excel “front-end”
Steelwedge is uniquely positioned as the only dedicated Sales and Operations Planning (S&OP) provide in the SAP Ecohub partnership ecosystem. With standard connectors and process maps for SAP, Steelwedge meets the urgent need for improved strategic decision making driven by a scalable S&OP process faced by SAP customers large and small face.
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