Sales & Operations Planning
Does your Business Need a General Petraeus? Five Tips for Implementing a Successful S&OP Process
When it comes to implementing an effective S&OP process, do we need a hard-driving commander or a consensus driven committee? After all, S&OP is about collaboration, right? Well, yes and no. An S&OP process must be collaborative. But the implementation need not be heavily committee-based.
The Tony award winning musical Memphis includes a song titled “Change Don’t Come Easy”. Oh how true that is. In social norms and in business, change can be slow and painful. So what’s a successful recipe for S&OP change? Although every enterprise has its own unique characteristics that will influence its approach, here are five observations we see when assisting clients to employ best practice S&OP processes and tools.
Top Management Support: Do your senior executives know what S&OP is? Do they understand the value of S&OP? How committed are they to making S&OP truly ingrained in the culture of your organization? When S&OP implementations fail, often the root cause can be traced back to a lack of senior leadership. At all levels of the organization, it must be clear that the whole organization is committed to making necessary changes.
Company Goals Above Individual or Department Goals: What’s the goal of S&OP? It should be to drive strategic business decisions that benefit the entire company NOT one employee or department. Too often personal goals conflict with the greater good. Strive to minimize such incentives that detract from the overall goals.
Make Decisions and Keep Moving Forward: Cross functional representation is required to get buy-in from all business disciplines. One person will not implement S&OP on her own. Assemble a group of knowledgeable doers who have the company’s interests at heart and know their functional area well. When this group reaches an impasse, a single S&OP sponsor/leader should step in and make key decisions. Keep moving forward. Don’t let anything stop progress. S&OP is an iterative process and changes you make today may need to change again later. Keep moving forward.
Clear Expectations: What is S&OP? Why do we need this? What’s wrong with what we’re doing today? If your employees are asking these questions, you better have the answers. Make sure all participants see the forest. What are the major benefits to collaborative planning? What is each person’s role in the process? How will S&OP make us better at our core responsibilities, drive demand, supply and financial plans and increase profitability? Employees should feel empowered by the process not burdened.
Training: Make sure that ample training is provided to solidify new processes and tools. What ‘sticks’ is often what has been practiced. Comfort with the new process and tool comes with experience. Create those initial experiences through training.
Tips to remember:
- Change don’t come easy
- Top management support is required
- One person will not do it alone
- Cross-functional participation is mandatory
- Make decisions and keep moving forward
- Paint clear expectations
- Solidify change through training
Supply Chain Author Paul Dittmann Responds to Your Questions
Note: On Tuesday, June 22, the University of Tennessee and Steelwedge were pleased to feature author and educator Dr. Paul Dittmann in a webinar entitled, “Transforming the Supply Chain Into a Competitive Advantage.” Dittmann is 30-year supply chain veteran and co-author of the recently published book The New Supply Chain Agenda.
Paul’s fascinating presentation is a must-watch for business people wanting to learn the finer points of supply chain strategy and sales & operations planning. Click here to view the session on-demand.
Following the live event, Paul was kind enough to respond to audience questions and you can find his answers below.
(To learn more about Paul Dittmann and the University of Tennessee Knoxville’s Demand and Supply Integration Forums, click here.)
What are the key metrics to measure supply chain performance?
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We currently we have an issue related to forecast accuracy. The sales team creates a forecast based on the budget, even when they know the number that they put in forecast is not achievable. Is there a way to solve or accommodate this issue?
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Is there a way to unleash a company’s potential when the budget for technology is limited?
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With supply chain being one of the heaviest users of technology within a company, how is it best to balance a single provider versus best of breed for information systems?
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Your survey indicated that in only 48% of companies sales is heavily involved in SIOP. This means that in 52% of companies, sales is not heavily involved. I would be interested to see how successful a “Sales” and Operations Planning Process can be without sales involvement?
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How do you suggest incorporating customers and suppliers into the supply chain strategy?
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Forecast Accuracy Measurement
What’s your forecast accuracy telling you? Stop and ask a few questions
Forecast accuracy is an important performance metric in any effective S&OP process, but it can be measured in various ways. Comparing your company’s accuracy to an industry standard will be difficult to impossible if you don’t know the details behind the measurement. More importantly, the metric needs to resonate within your organization as a meaningful indicator of forecast relevance. So then…
What details should one consider for forecast accuracy measurement?
Here’s the Steelwedge Top Six:
1. Aggregation level: Are you measuring accuracy at a product SKU or family level? What about other hierarchy levels? Odds are your accuracy will appear to be better at an aggregated level such as family. This happens because variability of forecasts and actuals tend to cancel out one another as data is combined. The result is a smoothing of results and lowering of error calculations. Recommendation: Measure accuracy at the same level as the majority of forecasts are captured.
2. Error Calculation: In its most basic form, accuracy is a measure of the difference between a prediction and what actually happened. How far off were we? Error is equal to the difference between forecast and actual. Often, this is captured as a percentage value called percent error. Mean absolute percent error (MAPE) calculates the average of errors. Since we don’t want positives and negatives to cancel out each other, we use the absolute values of each error. There are other methods, but MAPE is fairly common. Weighted MAPE is a method used to give greater importance (weight) to items with greater activity. Amount of activity may be defined as the proportion a particular item is of the total. Recommendation: Keep it simple. Make sure people understand the measurement and how they can impact it.
3. Unit of Measure: “We forecast in both units and dollars. Which should we use for measuring accuracy?” Weighted accuracy measures, such as weighted MAPE, will give greater influence to items that constitute a greater portion of the sales volume. Higher dollar but low unit volume items will contribute much more to a measurement in dollars. Conversely, high unit volume, low dollar items will factor in more prominently using a unit based forecast. Which is preferable? It really depends on your business. Recommendation: Consider important business decisions made in the Executive S&OP meeting. Are they usually focused on $ or units?
4. Offset period: If we measure accuracy using the most recent forecast for a given period, it will likely be more accurate than a forecast made three months prior to a given period. That’s because we have better information as we get closer to the current period. But, how valuable is a forecast made in the very near term if the organization cannot act upon that forecast? It has virtually no value. The offset period defines the number of periods prior to an actual period for which a forecast will be measured against the given period’s actuals. For example, if our offset is 3 months, we can measure accuracy using actuals from August and the forecast for August that was captured in May. Recommendation: Set the offset period to most closely match the organization’s planning horizon.
5. Time buckets: Should we measure accuracy using weeks, months or quarters? Typically, you will want to measure accuracy in the same period buckets used to forecast. In some cases, where demand patterns follow a “hockey stick” high demand in the last month of a quarter, it may be more appropriate to use quarterly buckets. Recommendation: Measure accuracy using the same buckets you use to forecast unless there’s a compelling reason to move to a bigger bucket.
6. Which Forecast?: In a collaborative S&OP process, there may be several forecasts captured (Sales, Marketing, Demand Planning, Consensus, etc). Which should we use for accuracy measurement? If you’re only going to use one, then go with the forecast used by Operations to build or procure product. A typical example would be the Consensus Plan. Measuring accuracy against multiple forecasts will provide greater insights into potential areas for improvement. Recommendation: Measure accuracy using the forecast provided to Operations. Publish results throughout the organization. Also, measure accuracy across other forecasts to isolate areas for improvement.
Are there other aspects you’d add to this list? Please let us know.
Top Ten S&OP Critical Success Factors
Story
A man was walking with his four year old daughter. The girl was full of energy, her attention easily caught by many interesting street activities. The father instructed the girl to stay on the sidewalk. After the girl repeatedly roamed off the sidewalk, the father became quite stern, scolded the child and demanded that she follow his instruction. The girl, tears in her eyes, turned to her father and asked, “what’s a sidewalk?”
Clear Expectations
Do the members of your organization really understand what is Sales and Operations Planning? Do they have the tools needed to efficiently and effectively run S&OP?
The Strategic Se
rvices team at Steelwedge Software has experience with a wide range of companies. Some companies say they have an S&OP process but it may consist of a Sales forecast thrown over the wall to Operations. Others say they do not have an S&OP process yet they have many elements that make up the foundation of successful S&OP.
Top 10
Here are the top 10 most critical elements we see in building a productive S&OP process.
10. Cadence – Defined monthly process with consistent participation
9. Top Management Support – Executives mold, participate and highlight importance of process. Executives should refrain from dictating the process and expected outputs.
8. Product Lifecycle Management – New product and end of life modeling; timely visibility to new product launch dates and resource implications
7. Performance Measurement – feedback loop enabling continuous improvement
6. Analysis – Using resource time for analysis rather than data gathering and manipulation
5. Easy access to critical information – one repository with frequent updates and quick access
4. Units and Dollars – Aligned unit and revenue projections; agreement on unit of measure conversion method
3. Tool Enabled Collaboration – a forecasting and planning platform that allows individuals to see exactly what they need while contributing to the consensus driven process
2. Collaboration – a willingness to place organization goals ahead of personal goals
1. Clear Expectations – clearly defined objectives, roles and responsibilities
How does your organization stack up? Do S&OP participants know what’s expected? Do they really understand what is a sidewalk?
Constrained vs Unconstrained Demand and S&OP
Through the S&OP process, the organization sets a projected business level that balances expected sales and production capabilities with financial and inventory implications. The constrained demand plan reflects a demand plan aligned with the supply plan.
Do we need both?
Many companies find it useful to distinguish and track the gap between unconstrained and constrained demand plans. An increasing gap may indicate lost opportunity to realize sales that exceed current capacity. Companies should scrutinize unconstrained demand signals to verify demand is real versus “pie-in-the-sky”. Long term capital improvements aimed at increasing capacity need to be aligned with realistic projections of future demand.
Finally, the constrained demand plan feeds a consensus plan to which the organization agrees to execute. Our Sales and Operations VPs need to stop fighting and starting aligning. S&OP facilitates this necessary collaboration.
Reduce Surprises. Reduce Inventory. Improve Operational Efficiency. Increase Sales.
Steelwedge Successfully Completes SAS70 Audit
SAS70 has become the gold standard for the auditing of service organizations, especially for providers of Software as a Services (SaaS). Steelwedge, the leading provider of Cloud based Sales and Operations Planning (S&OP) Services, has successfully completed the SAS70 Type II audit.
The SAS70 Audit is performed in two steps, each resulting in a report that’s issued by an independent and certified auditor.
The Type I Report describes the control objectives and controls that have been put in pace by the SaaS provider. The auditor renders an opinion on whether these objectives and controls are suitable for the type of operation the SaaA provider is offering. As Steelwedge’s controls and objective have been based on relevant ISO and COBIT guidelines, a positive SAS70 Type I report was easily issued in August 2009.
The Type II Report investigates actual compliance with Type I controls. In the Type II Report, issued to Steelwedge in January 2010, the auditor confirms Steelwedge’s adherence to established and documented industry standard processes. The auditor’s opinion was formed over a five month period through on-site visits, investigations and reviews.
The SAS70 audit offers piece of mind for our customers, knowing that their data is secure with Steelwedge. Our data center, our applications and our processes conform to the highest level of industry standards, and will continue to do so as Steelwedge continues to undergo Type II Audits in regular six month intervals.
Steelwedge customers and prospects alike can rely on the opinion of a certified and independent auditor to ensure compliance with their internal data and security needs. This eliminates the need to conduct individual custom audits, saving both time and money.
Steelwedge’s regular SAS70 Audits do more than simply check the box on the currently popular topic. As the business world evolves and security requirements continue to increase, Steelwedge empowers its customers to stay ahead of the curve.
Also, Business Continuity Planning (BCP) and Disaster Recovery Process (DRP) have increasingly gained significance over the last six to twelve months in the SaaS world. Companies continue to trust Steelwedge with their S&OP needs due to our ability to provide a rapid fail-over solution in the unlikely event of disaster, enabling them to continue to run their business on Steelwedge.
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