Improving Sales and Operations Planning

Lora Cecere, CEO and Founder of Supply Chain Insights

Jim Prescott, Sonoco Products

Speakers

Lora Cecere CEO and Founder of Supply Chain Insights

Jim PrescottDirector- Industrial Supply Chain N.A. at Sonoco Products

Agenda

• Defining Supply Chain Excellence in S&OP• Delivering Excellence in S&OP• Wrap-up

S&OP ProcessExistence, Goals & Processes

The Need for Balance

Form Function

Raw Cycle Stock

Semi-finished Goods Safety Stock

Finished Goods In-transit Inventories

Seasonal Inventories

Promotional Inventories

Slow and obsolete

Form and Function of Inventory

S&OP Balance

Need for Agility

Agility Importance vs. Performance

Common Practice Market-driven Focus

S Ask salesFocus on market drivers:How do we best shape demand?

& Direct integration to supplyDesign of the value chain to optimize trade-offs, minimize risk, balance cycles, and orchestrate demand

OP Manufacturing planTrade-offs between make, source and deliver

Getting to Letter Perfect

13

S&OP Evolution

Manufacturing-Driven

Deliver a Feasible Plan for OperationsMatch Demand with

Supply

Sales Driven

Match Demandwith Supply

Business-planning Driven

Maximize Profitability

Demand Driven

Maximize Opportunity Sense

andShape

Demand

Market Driven

Maximize Opportunity and Mitigate Risk. Orchestrate

DemandMarket to Market

Greater Benefit• Growth• Resilience• Efficiency

Functions of Center of Excellence

Center of Excellence

Challenges

Talent

Talent Issues

CostVolumeGrowth

CEO

Chief Customer Officer

Chief Marketing Officer Sales

Account Teams

COO

VP of Supply Chain

Customer

Service

Procurement

Logistics

CFO

CIO

VP of Manufacturing

Quality

Typical Organization

S&OP Challenge

S&OP Barriers

S&OP ProcessPlan Execution

Benefits

Source: Supply Chain Insights, 2012What benefits have you received from your work with S&OP processes?

Increasing revenue

Improving forecast accuracy

Reduction of inventory

Improving asset utilization

Determining outsourced manufacturing

Determining procurement requirements

Improving new product launch

Transportation and warehouse management

Capital planning and asset management

Improvements in the perfect order

59%

57%

50%

42%

38%

36%

34%

32%

32%

30%

▲ 2%

▲ 5-7%

▲ 3-7%

▲ 3-6%

▲ 3-6%

▼ 10-15%

▼ 2-8%

Case Study

Inventory Turns vs.

Operating Margin (2000-2012)

Sonoco is a Global Packaging Company

• Founded in 1899, Sonoco is a $4.8 billion global provider of consumer packaging, industrial products, protective packaging and packaging supply chain services.

• With more than 19,600 employees working in more than 340 operations in 34 countries, we serve some of the world’s best-known brands in some 85 nations.

S&OP was a Part of a Larger Transformation Effort

Conflicts between disciplined planning and agile response• Traditional production to a forecast with set lead time

agreements with customers (and suppliers) • Demand driven pull, short lead time processes emphasized

in lean supply chains

Sonoco Products has blended the use of forecast based supply chain practices with demand pull processes to create agile supply chains • Collaborative demand management • Sales & Operations Planning (S&OP) • Lean transformation and cash/ cost optimization

DISCIPLINE Paper must have Forward, Demand Based planning for Operational Efficiency

AGILITY Conversion must build to order with short lead times and high service levels

Paper Manufacturing

ConvertingTubes & Cores

Composite Cans

Industrial Products - Supply Chain

Each Supply Chain Type has a set of Practices to Consider early in the Innovation Process

• Push/ Optimization Supply Chains– Link into the S&OP process– Demand, Inventory, Capacity loading all planned in advance

• Pull/ Agile Supply Chains – Late Stage Customization (at or near the customer)– Pre-staged Inventory (VMI/SMI)– Integrated Raw Material Planning

• Composite supply chains (Elements of Push/Pull)– Raw material Planning/ MRP– Collaborative Planning/ Inventory Risk pooling– Integrated information flows

30

Sonoco’s S&OP Timeline

• 2006: – Paper Division Leadership Chartered S&OP initiative

• 2007: – Engaged Oliver Wight – Leadership training– Process design / manual volume projections and supply planning

• 2009: – Implemented Logility Demand Planner

• 2011: – Implemented Logility Inventory Planner

• 2013: – Optimizing Supply across the manufacturing network for lowest cost of supply

• 2014: – Initiated regular forecast accuracy metrics and field sales review of forecasts

Leadership Sponsorship

• Aimed at Important Business Objectives - address the pain– Working Capital - addressed reduction in free cash flow -

every leader has WC Objectives– Productivity - diminishing returns from traditional cost

improvement so supply chain optimization was key improvement target

– Perfect Order - Customers do not see Sonoco service levels as differentiating, started measuring in 2007

• Paper was the initial division to implement S&OP– Progressive General Manager saw the value– Paper is traditional “push process” that would benefit– High impact division that serves 3 other Sonoco divisions as well

as external customers

Change Management Elements Required

• Active Leadership Sponsorship– S&OP must deliver important business results

• External Expertise – “Don’t know what you don’t know”

• Capable People– People working in silos; must now work cross functionally– Educate and address the WIIFM

• Good Data– It all starts with an unbiased demand picture

– Data must be presented clearly – systems solution required– Product family structure design, solid inventory management,

manufacturing capability/reliability are critical to success

S&OP is a data driven process

• Sonoco started with the data available– As the process matured, we “outgrew” our spreadsheet demand forecast

process• Spreadsheets could not properly disaggregate family level forecasts into the by

plant, by customer, by SKU, by sales territories needed to support good decisions at all levels

• Needed the better statistical analysis provided by the Logility application

– Each S&OP step needed the ability to see data in a way that made sense• But one source of truth (the common data set) was critical to success

S&OP Ongoing Success Factors

• Ongoing routine S&OP meetings… set calendar• Structured meeting agendas• Establishing TRUST in the numbers and people from

various departments – Cross-functional participation, including Finance

– Participants empowered to make decisions

– Pre-work to support meeting inputs

• An unbiased baseline forecast to start the process - Where Logility helped

• Supply chain facilitates the process, but each function owns their step

• A separate process to manage daily execution is a must

Forecast Analysis and Accuracy by Submarket

36

Evaluating statistical demand forecasts

Accuracy measured for -1 and -3 month forecasts

Demand Review: By Sub-Market

37

Current Forecast/wkApproved Forecast/wkActual/wk

Capacity Load Analysis

38

Supply Planning: Rough Cut Capacity By Paper Machine

39

Demand and Supply reviewed weekly

Tracking production to planned supply and budget

Tracking demand and fulfillment to forecast and budget

Tracking inventory control performance

Integrating S&OP into Management Cycle

10,500

12,500

14,500

16,500

18,500

20,500

22,500

24,500

26,500

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53

Paper Division Total Tons Ordered 2012 to Present

2012 To ta l 2013 Forecast Est Ttl Pe riod End 2013 To ta l Nomina l Cap

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53

Trade and Corrflex Linerboard Order Trend2012 to Present

2012 Line rboa rd Est Ttl L inerboard Wkly Linerboard 2013 Fcst 2013 Line rboa rd

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53

Trade Total Order Trend 2012 to Present

2012 Ttl Trade Est Ttl Trade 2013 Trade Fcst Period End 2013 Ttl Trade

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Total Internal Orders 2012 to Present

2012 To ta l Internal Est Total Internal 2013 In te rnal Fcst Period End 2013 To ta l Internal

S&OP Impact in Push and Pull Supply Chains

• Conversion (Pull from End Customer)– Many customers, short 2-3 day order fulfillment lead time– Inventories concentrated on raw materials with primarily make to

order FG– Postponement strategy with many small facilities close to

customer– Forecast effort is on raw materials to prepare supplier– MAPE on raw material demand averages ~5-10%

• Paper (Push from Forecast)– Runs integration process through monthly S&OP cycle– Integrates input from 3 internal divisions and external sales– Operates a forecast based push process for asset optimization– Each mill tracked weekly on Perfect Order performance– ABC categorization for inventory strategy & lead time promise

Cash & Customer – so how are we doing?

Perfect Order = (On time %) * (in full %) * (Invoice Accuracy %)

As demand has filled plant capacity,

perfect order performance has suffered

and expedited freight has increased

Cash Gap improved 12 days (full year average) between Dec05 and Mar10 New challenge since 2010… CPG companies driving from net 30 to Net 45607590105120 days

Now ~92%

2005 2006 2007 2008 2009 2010 2011 20120

10

20

30

40

50

60

Cash Gap Days

-23%-12 days

12 Turns Inventory

Key Takeaways

Lean pull systems are most effective in combination with data driven, disciplined supply chain practices - Push Pull integration• S&OP provides the cross functional process to make

decisions based on the best demand information available• Demand Management is critical to prepare to meet

customer requirements– Customer information must be supported by statistical view

of Demand– There is too much data and the world moves too fast to

manage with spreadsheets

• Lean pull systems provide the response capability to deal with the remaining error

2013 Analysis of Sonoco vs Peers by REL (producer of the annual CFO Magazine benchmark survey)

In 2005, Sonoco was 3rd Quartile in Cash Performance among its Containers and Packaging Peers

Since beginning work on Cash Gap, it has moved to top Quartile in cash performance and Number One in Inventory Days performance

While reducing inventory, Perfect Order has continually improved

Delivering on the Promise

45

Business Pain

Metrics That Matter

• Lora Cecere’s 2nd book: Metrics That Matter

• To publish in Fall 2014

http://tinyurl.com/metricsthatmatter

Pre-orders available on Amazon:

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About Lora Cecere

• Founder of Supply Chain Insights

• Invited to be a “LinkedIn Influencer”

• Invited to write a guest blog for Forbes

• Author of 2 books: Bricks Matter (2012) and Metrics That Matter (to publish Fall of 2014)

• Partner at Altimeter Group (leader in open research)

• 7 years of Management Experience leading Analyst Teams at Gartner and AMR Research

• 8 years Experience in Marketing and Selling Supply Chain Software at Descartes Systems Group and Manugistics (now JDA)

• 15 Years Leading teams in Manufacturing and Distribution operations for Clorox, Kraft/General Foods, Nestle/Dreyers Grand Ice Cream and Procter & Gamble.

Contact Information: • Email: lora.cecere@supplychaininsights.com• Blog: www.supplychainshaman.com (6000 pageviews/month)• Forbes: http://www.forbes.com/search/?q=lora+cecere• Twitter: lcecere (4800 followers)• LinkedIn: linkedin.com/pub/lora-cecere/0/196/573 (7000 in the network)

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