Steelwedge recently hosted a webinar with Nari Viswanathan, Vice President of Solutions Marketing on the topic ‘Seven Keys to Integrated Business Planning Success.’ The webinar held on October 13th witnessed a huge turnout. There were several questions asked during the session which we would like to summarize and make available for you here:
Q. If Sales is more focused on opportunity conversion, who should build sales forecast and revenue plan? Is that Finance?
A. Sales should definitely focus on building the sales forecast based on opportunity conversion. Finance should focus on building the revenue plan.
In the near-term, Sales should be able to leverage the opportunity pipeline as a somewhat rationalized basis for the sales forecast. Beyond the opportunity pipeline horizon another basis for sales forecast is needed. Depending on accuracy this can take the form of the marketing forecast, the demand plan or in some cases the stat forecast. This also applies to industries that are not opportunity driven. Whatever the basis, it’s important Sales participates in building the sales forecast and has an ownership interest in it. There is no better way to bake the ‘field’ perspective into the forecast.
To reiterate the point expressed in the webinar, S&OP/IBP should really start at the first stage of the order lifecycle. This will bring greater engagement from the sales team.
Q. You mentioned integrating the Third Party Logistics providers into the S&OP process, could you please share with us an example of this and the benefits achieved?
A. An example of this is industries such as apparel which involve a short life cycle in terms of fashion changes or season changes but also involve offshore manufacturing which results in long lead-times. In-transit inventory plays a critical role in these industries because if the demand for products in the short term is greater or less than expected, any action that has to be taken to balance supply and demand should include in-transit inventory. 3PLs are the entity that have access to the in-transit inventory.
Q. Some relatively new and growing buzz in the Financial (FP&A) crowd is the concept of using Rolling Forecasts versus using the traditional annual budgeting processes. This process seems more in line with what a traditional S&OP process suggests, rolling forward forecasts over a 18-36 month time fence. Thoughts? Are you seeing client companies modifying annual financial planning processes to a more fluid rolling forecast process for all functions to use (Demand, Supply, Finance, Leadership)?. (Note: Let it Roll, Why More Companies Are Abandoning Budgets in Favor of Rolling Forecasts, about organizations including Unilever modifying their current annual processes to a rolling forecast process, seems to suggest that the monthly S&OP output gains much more importance and forces integration.)
A. We agree with this statement – Integrated Business Planning involves taking the output of the process and feeding it to the FP&A process in a rolling fashion. Due to Sarbanes-Oxley regulations we see existing customers adopting some intermediate steps to cleanse the S&OP data and incorporate it into the FP&A process.
Q. If one doesn’t have a time phased price definition, do you still recommend monetizing S&OP using current price and cost? Or is it better to start with a non-monetized S&OP?
A. The answer depends on the industry – are the prices highly variable across time buckets (maybe greater than +- 10%)? If so, then adopting an average price and cost will result in incorrect results. It is better to adopt a non-monetized S&OP in this case. If the price fluctuations are not as high, then we can adopt a current price and cost.
Q. We have a heterogeneous supply side organization, with complex supply networks in some areas and independent supply structures in other areas. On what level should one fix its S&OP process in terms of local, regional or global?
A. S&OP process needs to be driven more by the customer facing situation than the supply side. If there is a need to maintain a single face to a customer across multiple divisions and geographies then it is better to adopt a global S&OP process. If each business division has a separate customer base which is completely different (for instance commercial versus defense) then a regional S&OP process is sufficient.
On the supply side, if there are critical components that are shared across multiple divisions then allocation of the supply should be done to ensure that the material constraints are met.
Q. I want to follow-up on your experience with IBP in non-manufacturing environments. Any cases in upstream oil & gas? If so, which companies?
A. IBP is an effective methodology for any industry. While the measures may be different, the need to align supply, demand and finance is the same. In addition to manufacturing companies we have seen IBP used successfully in process, agriculture and service organizations.
Q: Do we need to have a customer forecast for every customer?
A. No, Steelwedge provides a forecastability analysis wherein we identify the key customers, products and regions for which statistical forecasting has to be done and where collaborative processes could be adopted.
In general, only the high priority customers require a customer level forecast.
Q. How to convince sales force that statistical approach can help versus them dealing with sku level forecasting based on a same-as-last-year approach?
A. It is difficult to convince sales about statistical forecasting approaches. A better approach would be to perform demand policy optimization to identity the SKUs for which statistical forecasting should be done. For the other SKUs, a collaborative process can be adopted with sales involvement. This will ensure that the sales team will focus on the SKUs that require their input.
Q. Can you expand on decisions analyzed by Solver optimization models?
A. Steelwedge provides a solver based approach to perform Rough Cut Capacity Planning versus a heuristic based approach. The following are some of the capabilities and decisions taken:
- Allocation/Supply Balancing – user selectable rules for allocating global demand to multiple markets
- Basic Constraints – lead times, batches, minimums, increments
- Load Levelling – slotting the demand into the gaps in the capacity plan, load levelling forward or back
- Supply Calendars – setting up work calendars for each resource
Q: Much of S&OP is product related. Do you agree that services (which are product-like) too could be supported by the S&OP process?
A. Yes. Any situation that requires the ability to balance demand with supply can be supported by the S&OP process. For example, an engineer-to-order environment supply includes the engineer’s hours available to perform engineering tasks and demand includes custom projects which require the engineer’s expertise.