‘Sales ’ and ‘Operations · 2017-12-30 · ‘Sales’ and ‘Operations’ Setting The...

‘Sales’ and ‘Operations’ Setting The Foundation / 1

‘‘SalesSales’’ and and ‘‘OperationsOperations’’

Setting the Foundationfor Overcoming the Recession

Ian Henderson Partner, MLG Management Consultants


Sales & Operations Planning (S&OP)Sales & Operations Planning (S&OP)

� A set of management processes to:

� Establish medium-term projection of demand

� Macro level, product family rather than product

� Convert demand plan into resource requirements

� Create operations plan – perhaps with options

� Present plans to senior management for decision-making

� S&OP originated within Manufacturing / Supply Chain

� Manufacturing Resource Planning (MRPII)

� Equally applicable to service sector

� . . . and to areas where services are not ‘sold’

� . . . but provided by, for example, the state


Why Is Such Planning Needed?Why Is Such Planning Needed?

� All markets are subject to change

� Overall volume

� Product / service mix

� Demand on specific resources

� All organisations can react to change

� . . . given sufficient visibility

� . . . few can react to the degree of change to which they are exposed without medium-term planning

� If resources are set up for a medium-term plan put together with insufficient thought . . .


MediumMedium--Term PlanningTerm Planning

� What do we mean by ‘medium-term’?

� Varies from one business to another

� Must extend sufficiently to allow responsiveness to change in business levels or product / demand mix

� More than cover cumulative supply / service lead time

� May need visibility throughout the internal process and some window to suppliers of key raw materials / services

� Time for internal resource capacity to be amended

� Establishment of sales strategy to react to significant change in demand for particular products / services / resources

� Managing short-term change is limited to points of detail


Long, Medium And Short TermLong, Medium And Short Term

Years

StrategicPlanning

Sales & OperationsPlanning

(Every month as a

rolling process)

Annual Budget

Operational

Scheduling(Daily, Weekly

or Monthly)1 2 3 4

5 Year Outlook


Life Without MediumLife Without Medium--Term PlanningTerm Planning

� All changes in demand-supply balance pattern . . .

� . . . arrive in the present or the immediate future

� . . . require reaction-style management

� ‘Draining the swamp while fighting the alligators’

� Fire-fighting becomes the order of the day

� Crisis management = increased cost + poor service


““Our Demand CanOur Demand Can’’t Be Forecastt Be Forecast””

� A common theme

� A valid point in many markets

� So what should we do?

� Options:

1. Only react to demand when it appears

� Make resources available – invest in equipment and people

� Order materials / services (if required)

2. Set a plan based on best estimates

� Equipment installed, people recruited and trained

� Perhaps have stock on the shelf, maybe services committed

Customer service level?

Risk – costs, cash flow


Living Without Some Form Of PlanLiving Without Some Form Of Plan

Need we say more?


Most Organisations Need A PlanMost Organisations Need A Plan

� Without an Operations / Supply plan the service time for customer demand will be excessive

� Decisions are needed on:

� Capital equipment – investment in new / refurbishment of existing, setting up sub-contract relationships

� People – recruitment, training, maintenance of specialist capabilities

� Long lead time materials / services – only genuine ‘make to order’ operations can supply on full cumulative lead time

� Decisions must be based on an estimate of demand


Who Should Do The Estimating?Who Should Do The Estimating?

� Question with an obvious answer

� People exposed to / in contact with the market

� Those with ‘market intelligence’

� What happens if the people in contact with the market decline to prepare forecasts on the grounds that demand cannot be forecast?

� Operations people set up resources based on their perception of likely demand

� Supply chain people order materials / procurement team order services to meet plan driven by operations – or make their own assessment

� Revenue / profit forecasts, etc. set by Finance

Three, or more, distinct plans


Even Where Demand Is Hard To AssessEven Where Demand Is Hard To Assess

� One common vision, driven by the most appropriate function within the organisation, is better than each area working to disparate plans

� Need to recognise the key truths:

� “We need an operations plan extending beyond our visibility of customer commitments”

� “We either bury our heads in the sand and pretend we can all work without a common plan, or we set about putting such a plan together”


If The Forecast Is WrongIf The Forecast Is Wrong

� A key element of the order acceptance process has to be comparison with the operations plan

� Perhaps some mechanism for establishing product / service availability or lead time

� In Supply Chain system terms, ‘Available to Promise’ (ATP)

� Ongoing review of lead time and stock highlights performance against plan

� If making to order, lead time may be length of order book

� As it is if providing service (though ‘lead time’ may not the term adopted)

� If making to stock, stock levels indicate performance


Benefits Of S&OPBenefits Of S&OP

� Master plan, driving all subordinate plans, based on formal process for evaluating demand

� Senior management team directing and owning

� Driven from the front (the market)

� One hymn sheet

� When demand differs from the plan: alarm bells ring


Why Is S&OP So Important Why Is S&OP So Important

DuringDuring Recession?Recession?


S&OP Is . . . S&OP Is . . .

� The basis of all planning activities

� The process by which the ‘master’ plan is established

� The forum in which senior management take hold of the controls and fly the business

� Resources

� Opportunities

� Plans


Managing Through RecessionManaging Through Recession

� Getting through to the light at the end of the tunnel

� What is different during recession?

� Less business in the market

� Simply maintaining current business level requires increasing market share

� Pressure on prices (and thus on margins and profits)

� Demand for excellent customer service

The world is less tolerant of errors

The distinction between ‘right’ and ‘wrong’ is more acute


Walking On The EdgeWalking On The Edge

� Failure comes more easily

� Every decision is potentially calamitous

� Formal processes to drive a common plan are even more critical

� Forecasting may be even more difficult during recession

� But operating without a plan is even more dangerous

� Operating with several different plans even more so

� Planning at the detail level without first agreeing the summary can never hope to deliver success – it can only minimise degree of failure

‘Sales’ and ‘Operations’ agreeing a plan under the direction of the senior management team is even more important


Implementation Of S&OPImplementation Of S&OP

The Key Points


Typically A 5Typically A 5--Step ProcessStep Process

Step 1Data

gathering

Step 2DemandPlanning

phase

Step 3Supply &ResourcePlanning

phase

Step 4Integration

ReconciliationFinance

Pre-S&OP

Step 5S&OP

meeting

New product updatenew forecastfield sales & otherstakeholder input

Sales plan1st pass spreadsheetsunconstrained

Operations planResource plan2nd pass spreadsheets

Recommendations,agenda for S&OP

meeting

Decisions, agreed plans, authorise execution

Valid data

Supply plan

One plan

Communicate

Communicate

Communicate

Demand plan


Some Rules Of Some Rules Of ‘‘Text BookText Book’’ ApproachApproach

� Monthly process

� Demand assessment at family level

� Senior management working at detail level lose sight of the ‘bigger picture’

� Detailed plans driven by invalid summary are meaningless

� Rubbish in, rubbish out

� Data gathered in manner appropriate to the business

� Field sales reports based on contact with customers

� Marketing information and analysis

� Statistical forecasts

(1)(1)



� ‘Demand Planners’ collate input from all sources

� ‘Plan’ set without consideration of resources

� So not a plan!

� Plan passed to ‘Operations Planners’

� Resource planning / ongoing review

� Financial impact assessed

� Comparison with budget, etc.

� ‘Pre-S&OP meeting’ prepares proposal for senior team

� Maybe several proposals – options / implications

(2)(2)



� Sales & Operations Planning meeting

� Relatively short

� Options and agenda issued 2-3 days in advance

� Meeting doesn’t require all details to be explained in full

� Concludes with decisions

� “We will build stock then”

� “We will buy new equipment then”

� “We will reduce services prices then”

� May be decisions to investigate further, if so:

� Actions and responsibilities are allocated

� Timescales are agreed

� The follow-up meeting to reach the final decisions is scheduled

(3)(3)


S&OP Is Not Widely AdoptedS&OP Is Not Widely Adopted

� Perhaps seen as jargon-heavy

� Maybe managers see it as demanding on resources

� Does the Sales function have ‘demand planners’?

� Who in Operations will do resource planning?

� Senior management may be too busy

� They have a business to run!


How To Adopt S&OPHow To Adopt S&OP

� Recognise / communicate fallacies concerning resource demands and senior management time

� If we don’t plan, we fight fires

� Nothing is more demanding of resources!

� What can be more important for senior management than to agree the common plan that drives everybody else?

� Adopted properly S&OP does not require an excessive amount of senior management time

� Review processes critically

� Define the needs of the particular business

� Design tools to meet the needs


Begin With Standard ModelBegin With Standard Model

� Proven methodology – Oliver Wight, Tom Wallace, etc., has worked many times

� Text book ideas may not be universally applicable

� e.g. Company designing and making to order on a project basis may not choose to plan by product family

� Discussions may be about business on a project basis –

perhaps oil refinery build or refurbishment programmes which require products from many families

� The fact that not all elements / ‘rules’ are suited to a business does not mean that none are

� Objective is ‘planning process for this business’

� Not ‘S&OP’ as per any standard definition

‘Sales ’ and ‘Operations · 2017-12-30 · ‘Sales’ and ‘Operations’ Setting The...

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