Tag Archives: Collaborative Planning

“Scenario Modeling: What Don’t You Know About Your Business?”

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MetroPCS knows a lot about its 9.5 million customers. With churn of smart phones and handsets shrinking annually, this  leading provider of mobile service is all about predicting demand and understanding each of hundreds of features and functions that will sell the best across a portfolio of phones.  But it wasn’t until MetroPCS worked with Steelwedge that if found out that it’s business was not bound by seasonality.

Check out MetroPCS’ video story on scenario modeling to see how they tapped cloud-based planning solutions from Steelwedge to get a whole new perspective on their business.  Ask yourself:  “what don’t I know about my business?”

 

What questions AREN’T you answering with S&OP today?

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The good news: 87% of companies see S&OP as key to driving better agility and growth in a tumultuous business climate. And, the average enterprise has at least five S&OP initiatives in play to handle better balance of supply/demand/ finance. These initiatives cross multiple dimensions including: business units, product families and geographies.

The bad news: Without a connected, collaborative view of S&OP across the enterprise, companies are leaving some pivotal business questions unanswered.

Following are a few questions you should be answering today as well as some perspective on the risk– or cost– of not getting them on your company’s radar. Are you answering the right questions today?

1. What is the variance between my revenue forecast, budget and compensation target by service line?

Cost of not knowing: inability to understand how much of budget should be allocated for each service line; and understanding which service lines are truly improving company performance vs. which are impeding company performance

2. How much revenue does each business unit expect to earn in the coming quarter?

Cost of not knowing: ineffective trade promotion budget allocation. In CPG industries if the revenue projection of each business unit is available then the optimal allocation of trade promotion funds can be made. In high-tech manufacturing environments, allocation of inventory can be done based on expected business unit performance. For instance: either upselling in high performing units vs. storing inventory at component level (rather than finished goods) level for poor performing business units

3. Which Business Units’ forecasts are above corporate plan?

Cost of not knowing : limited availability and awareness of the financial impact associated with the business unit forecast. For example, those BUs that have consistently not met forecasts and if they have provided current forecasts that are above corporate plan implies a level of risk that the executive management team has to understand. The key challenge with existing solutions is that they are designed to be operational supply chain planning tools rather than providing an executive S&OP dashboard with operational and financial metrics.
4. What is the variance between my forecast product revenue and my compensation target?

Cost of now knowing: misaligned commissions structure. For sales organizations , compensation is mainly based on commissions and meeting forecasted sales. Having direct visibility of the variance between forecast product revenue and compensation target will provide positive motivation for the sales force to meet targets versus if the information is not readily available in operational supply chain planning tools This kind of data is usually resident in CRM systems like Siebel or SalesForce.com. It is important for the S&OP solution to provide integrated visibility to sales performance and how it ties to operational performance.

5. Do any business units predict significantly more or less revenue than last quarter? Why?

Cost of not knowing: the potential to miss budgetary and AOP targets. If there is a revenue reduction trend that exists then it is important to know this as soon as possible so that corrective measures can be taken. Revenue is a mix of price and volumes. It is important to know if one unit predicts significantly more or less revenue than previous quarter, why so? This question, in turn sparks more follow ups, such as: Is it because of poor sales or is it because of poor pricing? What is the current margin at the product family level for current quarter versus last quarter? Have there been seasonal factors resulting in reduced volumes? Are there quality issues forcing reduction in volumes?

While good S&OP practices answer supply and demand balancing at either a corporate or a departmental level, great S&OP can take a much tighter look at interdependencies, sort out root causes and impact across both departmental as well as corporate S&OP Processes.  What questions aren’t you answering with S&OP? Let us know.

8 S&OP How To’s with Lora Cecere

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Lora CecereEd. note: At Steelwedge’s May webinar, Lora Cecere, unveiled the results of a new study on supply chain agility and the role of S&OP in improving an organization’s response capabilities. Following the webinar, Lora took a few questions from the audience but we couldn’t get to all of them, so we threw out a short answer challenge. Answer 16 questions from the webinar as succinctly as possible. Here are the first eight in the series. -R

  1. What is the most surprising thing you discovered researching the importance of agility?
    That only 13% of companies effectively tie S&OP planning to agility.
  2. How do you achieve agility when faced with long lead times (1 yr+)?
     I believe that the longer the lead times the greater the impact that agility techniques can have on the supply chain.  This is accomplished by modeling demand and supply volatility and building playbooks to anticipate these impacts on supply chain reliability.  A mature S&OP process helps companies to align against variability. 
  3. How can you visualize the process of sales and operations for long-term future, if this is so volatile?
    Through role-based dashboards.
  4. What is your perspective of impact of “external changes” on stable industries such as mining, oil, gas etc?  Customers simply need coal, oil or gas they do not care how these products are e.g. innovated,packaged, delivered etc.
    I believe that this needs to be handled through market-to-market modeling in S&OP.  Buy modeling demand shifts (e.g. the changing price structures of fuel alternatives) and market supply variability (the levels of stockpiles), companies can do what if analysis to mitigate market risks.
  5. In your opinion has S&OP technology with process and change management finally become the recommended approach, and if so why?
    It depends.  There needs to be a system of record for companies that have multiple S&OP processes. 
  6. We have mixture of S&OP by Microsoft Excel and ERP. How do you rate the “flexibility” of specific supply chain software to cover specific needs?
    ERP is inflexible, and excel is not deep enough.  Neither are good alternatives.
  7. We use S&OP for supply / demand balancing of resources but find the complexity of the person’s skill set impacts our decisions. Any thoughts on how to balance the understanding of the detail against the need to make effective decisions?
    This happens through the selection of technology that aligns with the skill sets with the what-if modeling.  If there is still a gap, consider business process outsourcing.
  8. What are the critical success factors in implementing a S&OP/IBP in a large organization?
    The most critical element is the building of a supply chain strategy and educating the executive team on why this matters.

S&OP Beyond the Basics: Q&A Part 2

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As part of our commitment to drive engaging dialogue in the industry around the best and ‘next’ practices, Steelwedge recently teamed up with Sales & Operations Planning expert Tom Wallace to host a webinar. ‘Taking S&OP to the Next Level’ is based on the new book, Sales and Operations Planning: Beyond the Basics. You can watch a recording of the webinar here if you missed the live event. Given that S&OP is a top priority for companies to tackle volatility, the Steelwedge webinar drew a huge attendance and just as many questions! Due to time constraints, our experts couldn’t answer all of them.

In this blog post, Tom Wallace answers some key questions from his perspective.

Q. Is S&OP ideal for large organizations which have their own manufacturing, inventory & products? Is S&OP applicable to a service company?

Yes to both. Some of the most successful users of S&OP are large organizations with manufacturing, inventory and product: BASF, the largest chemical company in the world; Procter & Gamble, the largest consumer packaged goods company; and Staples, a very large on-line retailer. S&OP has been shown to work well in organizations that don’t make physical products as well: banks, central engineering staffs, IT departments and the like.

Q. Should the same forecast drive both manufacturing and profit and loss?

Absolutely. The forecast, once authorized, becomes the one and only one statement of future demand. Only with this can you achieve a “one-number process,” which means running the business internally with one set of numbers.

Q. How do you balance continuous improvement to the S&OP process against over-engineering the process?

Listen to the people actually using the process, including senior management. The best way I know to drive continuous improvement is, at the end of each executive meeting, ask each person present to rate the meeting on a scale of 10 and give 50 –or fewer– words why, finishing with the leader of the business. Those people will tell you where to improve and where not to.

Q. What is the best approach to organize promotional activities in the forecast process?

Within the 5-Step Process of S&OP, Step 2 is Demand Planning; this includes the addition of promotions and related activities by people from organizations like Marketing, Sales Promotion, and Merchandising. The promotions are added to the forecast early, well in advance of the consensus forecast going to Step 3, Supply Planning.

Q. What are the main pitfalls if you are in an S&OP process implementation?

The primary pitfall, much greater than all others, is to fail to educate the people in S&OP. Note the use of the word “educate” rather than “train.” That’s deliberate: training tells people how to run the software; education addresses how to run the business using this new tool.

Please write to us at info@steelwedge.com should you have any questions or need elucidation on any of the concepts mentioned in this blog.

Have a Happy New Year!

Seven Steps to Improved Sales and Operations Planning (S&OP)

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Sales and Operations Planning (S&OP) is a function that corporate executives often fail to recognize as a key contributor to success.   From a revenue perspective, an accurate S&OP plan allows for high levels of customer service.  When demand is predicted accurately, it can be shaped and met in a timely and efficient manner.  Of course, accurate forecasts help organizations avoid stock outs and lost sales.  The impact of an inaccurate S&OP plan on profit margins is also profound.  Raw materials and components are more cost-effectively acquired on the basis of advance planning instead of last minute, rush orders.

The impact of excellence in S&OP is profound.  In a number of cases, clients working in tandem with the Steelwedge team to develop, improve or automate their S&OP processes have seen increases in product margins of upwards of five percent and reductions in inventory levels of over fifteen percent.   In spite of such tangible benefits, many companies fail to prioritize this critical executive process.  Although no management function can be reduced to seven items or even seventeen items, there are certain basic S&OP improvement lessons learned that can be generalized across clients and industries.

Each of these steps is summarized below:

Step Symptoms Actions Results
#1: Understand the purpose of S&OP Blurring of the distinction between plans and forecasts Establish a structured S&OP process that incorporates discrete demand and supply planning steps The entire company agrees with the priority and goals for S&OP 

 
#2: Forecast Sales, Plan Supply Shipment history as the primary basis for forecast Create a standard process forecasting and then constraining demand. Adopt scenario planning approach. Improved working capital utilization and customer service levels.  Achieve demand-driven supply planning.
#3: Collaborate Duplication of forecasting effort, mistrust of “official forecast” Integrate financial planning, regional sales feedback and operations into decision process All relevant information is incorporated into the S&OP plan.  S&OP plan results are trusted by the entire organization.
#4: Eliminate silos of planning Each function has its own forecast. Each forecast involves a different unit of measure, time period, or level of aggregation Build a single, demand-supply planning infrastructure, conduct training and brainstorming sessions across functions More accurate forecasts, constrained demand optimizes production capacity, reduces inventory levels and matches demand achieving improved customer satisfaction
#5: Adopt an S&OP automation solution Tools are only used for statistical analysis, Spreadsheets are pervasive Integrate quantitative & qualitative methods, automate workflow Reduce latency in the planning cycle, more quickly react to unexpected events, develop what-if scenarios, engage executive in real—time decision making
#6: Prioritize S&OP No accountability for S&OP plan 

No cross-functional S&OP program

 Company understands implication of poor S&OP process.   S&OP process accountability created.  Top management supports process. Team collectively focused on improving S&OP metrics, substantial financial benefits to company
#7: Measure Performance Plan accuracy not measured, plan success measured at wrong level or period, no S&OP key metrics dashboard. Multi-dimensional metrics created and incorporated into planning process.  Accuracy is measured wherever and whenever appropriate. Adoption of S&OP process is improved through accountability.  Sources of error can be isolated and resolved.  Improvement in confidence in plan.

 

Each of these seven steps offers substantial opportunities for improvement.  In coming weeks we will discuss these steps in greater detail.  What barriers does your company face to adopting these steps?