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Region IV Meeting New Orleans, LA
Sales & Operations Planning – Two Decades of Learning at
BASF
Alan L. Milliken CFPIM CIRM CSCP
April 14, 2007
Advancing Productivity, Innovation, and Competitive Success
Region IV
Region IV Meeting New Orleans, LA
Alan L. Milliken CFPIM CIRM CSCP• 20+ years at major manufacturing sites working in Production, Logistics, Process & Quality Control, Industrial Engineering, Training, and Scheduling
• 11+ years as a Supply Chain Consultant and APICS Instructor including two years in Mexico City helping BASF Mexicana improve their supply chain
• Identified by an independent consulting firm as one of three APICS members who best answer the question, “What is a Supply Chain Manager?”
• Served as an SME (Subject Matter Expert) on the team that developed the new Certified Supply Chain Professional (CSCP) program.
• Served as an SME on the team that developed the new Certified Forecasting Professional (CFP) for the Institute of Business Forecasting (IBF)
• Engineering Degree from Auburn University and MBA from Clemson University
Region IV Meeting New Orleans, LA
Objectives of the Presentation
• Define formal Sales & Operations Planning (S&OP)
• Describe the primary steps in the formal S&OP Process and explain the purpose of each
• Relate the inputs and outputs of each step in the process
• Identify the participants in and responsibilities for each primary step
• Discuss Key Performance Indicators (KPI’s) for each step in the process
Region IV Meeting New Orleans, LA
S&OP Process Overview
Region IV Meeting New Orleans, LA
S&OP is the process with which we bring together all the plans for the business (customers, sales, marketing, development, manufacturing, sourcing, and financial) into one integrated set of plans.
The objective of Sales & Operations Planning is to arrive at a business “Game Plan” to help manage and allocate critical resources to meet the needs of the customer at the least cost to do so.
What is formal Sales & Operations Planning?
Region IV Meeting New Orleans, LA
Source: APICS Illustrated Dictionary
S&OP links Strategic
Planning to Operations
S&OP as part of ERP
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Sales & OperationsPlanning
Master Scheduling
Detailed Planning& Scheduling
CAPACITY
PLANNING
FORECASTING
&
DEMAND
BusinessPlanning
High Level Enterprise Resource Planning Model
Annually
Monthly
Weekly
Daily
StrategicPlanning
2-10 Years
Forecast Only
Forecast Only
Forecast Only
Forecast & Orders
Orders Only
Rough-cut Capacity Planning
Capacity Requirements Planning
Resource Planning
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SKU by Customer by Location
SKU by Customer
Stock Keeping Unit (SKU)
Package Size
Model / Brand
Subfamily
Family
BusinessUnit
TotalCompany
S&OP Levels
Too Aggregated
Too Detailed
Forecasts are more accurate higher in the
hierarchy
Actual Demand is collected at the detailed level.
S&OP in Product Hierarchy
S&OP is usually performed at an aggregated level (e.g. Product Family or Group)
Region IV Meeting New Orleans, LA
S&OP is a Five-Step Process:
Pre-S&OP and Executive S&OP may be combined into one meeting
Region IV Meeting New Orleans, LA
The Basic S&OP Grid:History is included to highlight past plan-to-
actual performance
Inventory Plan = Planned Opening Inventory + Planned Production - Planned Sales
Actual Inventory = Opening Inventory + Actual Production
- Actual Sales
Region IV Meeting New Orleans, LA
Marketing &SalesProduct
DefinitionProductDemand
Capital
MasterSchedule
BusinessPlan
WorkforceAvailability
Finance
MaterialsOperations
HumanResources
Engineering
Management
Capacity
S&OP Process
S&OP is a Cross-Functional Process
Must champion the process
Region IV Meeting New Orleans, LA
• improved customer service
• reduced inventory
• lower manufacturing & distribution costs
• better control of overall business performance
• increased team work within and across functions
Benefits of S&OP
If implemented and used effectively, S&OP will yield major benefits to the firm:
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Steps in the S&OP Process
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Step 1: Updating Input Data
Results:• High Inventory
• Low Service
• High Unit Cost
• Poor Decisions
Remember the GIGO Principle. It takes much effort to ensure accurate & timely data is driving the process.
S&OP Planning Process
Data
ER
RO
R
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Key input data (e.g. inventory, sales, production, KPI’s, etc..) should be updated as soon after month-end as feasible. Typically, 2-3 business days are allowed for this sub-process. Key Performance Indicators (KPI’s) for data gathering include:
Accuracy of the data
Timeliness of sharing the data
How well the data conforms to agreed upon formats
Step 1: Updating Input Data (Continued)
“Take care to get what you like or you will be forced to like what you get.” George Bernard Shaw
Region IV Meeting New Orleans, LA
Step 2: Demand Planning – Process OverviewMarketing & Sales are responsible for this step in the S&OP process. The output is used to drive supply planning.
The key performance measure for output is accuracy and for the process step is meeting timing commitments.
Review and update forecast
(Marketing & Sales)
Demand Plan
InternalDemand
MarketIntelligence
Customer Orders
Sales Forecast
Inputs OutputsProcess
Region IV Meeting New Orleans, LA
Step 2: Demand Planning – Activities
• Generate new forecast (IT if automated)
Marketing/Sales:
• Review new forecast, revise if needed, and approve for updating of S&OP grid
• Review previous months’ forecasting performance and identify root causes for data outside tolerance
• Provide status for new product introductions
• Document assumptions and risks associated with new forecast
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Management Overrides Go Here
Product Family or Group
History
Step 2: Demand Planning – Sample Plan
The final plan is used to update the S&OP Grid and drive supply planning.
Region IV Meeting New Orleans, LA
Example where only Bulk Product can be forecasted:Material
(Prod-Pkg)PRD (Bulk) Material_De
scr.Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug 20-Mth
SUM20-Mth
Avg.Std Dev'
CoV
1 10 Packaged - 4 - 2 2 2 - 2 - 2 2 - 2 - 2 2 - 2 2 - 26 1 1 90%
2 10 Packaged - - - - 1 - - - 5 - - - - - - - - - - - 6 0 1 376%
3 10 Packaged - - - 1 - - - - 1 - - - - - 2 4 - - - - 8 0 1 249%
4 10 Packaged - 3 2 - 4 1 2 - - - 1 - 2 3 - - - - - 2 20 1 1 130%
5 10 Packaged - - 1 - 1 - - - - - - 2 - - - - - 1 - - 5 0 1 220%
SUM 10 Bulk - 7 3 3 8 3 2 2 6 2 3 2 4 3 4 6 - 3 2 2 65 3 2 65%
Example where Product-Package can be forecasted:Material
(Prod-Pkg)PRD (Bulk) Material_De
scr.Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug 20-Mth
SUM20-Mth
Avg.Std Dev'
CoV
6 11 Packaged 5 5 2 2 2 2 2 4 2 2 6 2 5 6 2 5 2 2 2 5 68 3 1 40%
Example of a Material (Prod-Pkg) that should be Made-to-Order:Material
(Prod-Pkg)PRD (Bulk) Material_De
scr.Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug 20-Mth
SUM20-Mth
Avg.Std Dev'
CoV
7 11 Packaged 2 - - - - 2 - - 1 2 - - - - 1 - 2 - - 2 12 1 1 147%
Step 2: Demand Planning – ForecastabilityThe accuracy of the forecast depends heavily on whether or not the forecasting tool is applicable to the history data. One test to determine this is the Coefficient of Variation (COV). COV = Standard Deviation of Period-to-Period Sales/ Average Period Sales. If COV >0.8, conventional forecasting such as moving average should not be used.
Region IV Meeting New Orleans, LA
Step 2: Demand Planning –Symptoms You Need a Formal S&OP Process
Shareholder or Owner
Board of Directors
Profits
Revenue Forecast
Sales Manager
3-Year Plan
Sales Representative
Stuff Flows This Direction
Actual Sales
Top-Down Directives Conflict Significantly with Current Market Conditions:
A formal S&OP Process will ensure alignment across organization & planning levels.
Region IV Meeting New Orleans, LA
Marketing/Sales Suffer with the “Field of Dreams” Syndrome“If we make it, they will come!”
Well guess what, in many cases we made it and they did not come.
Output
Forecast
Manufacturing
Inventory
Step 2: Demand Planning –Symptoms You Need a Formal S&OP Process
A formal S&OP process will ensure cross-functional review of forecasting performance.
Region IV Meeting New Orleans, LA
Supply Chain Manager
Bill, this is Jim. I want to make an
appointment with you to discuss our Demand Planning
process?
Inventory
The Supply Chain Manager contacts the Marketing Manager.
Forecast
+10%
Oh, Hi Jim. Actually we don’t have a formal
Demand Planning process. However, I’m
updating the latest forecast at this very
moment.
The Marketing Manager responds.
The Scope of Marketing/Sales Participation is Limited
Step 2: Demand Planning –Symptoms You Need a Formal S&OP Process
Region IV Meeting New Orleans, LA
Step 2: Supply Planning – Process Overview
Supply Plan Supply Plan by by
Production Production FamilyFamily
Demand Plan
Develop and Review Develop and Review Production & Production &
Purchasing PlansPurchasing Plans
Assess Manufacturing &Assess Manufacturing &Supplier CapabilitiesSupplier Capabilities
Integration of Supply Planning
Inputs OutputsProcess
Inventories
Manufacturing operations and purchasing are responsible for the Supply Planning step of the S&OP process.
The key KPI for the process output is the deviation between planned and actual supply. For the process itself, timely & accurate data to drive the next step is most important.
Region IV Meeting New Orleans, LA
Step 2: Supply Planning – Activities
• Develop the preliminary supply plan based on the demand plan
• Perform Resource Planning (Capacity Planning) for key resources
• Identify and resolve imbalances in demand & supply as feasible
• Identify imbalances to be reviewed by management
Key activities for the Supply Planning sub-process include:
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Step 2: Supply Planning – Sample Plan
Machine Hours & No. of
Batches are Key Resources
Region IV Meeting New Orleans, LA
Supply Chain Manager
Jim, what is going on in Production. Fred did not
make the rate decrease we had in the S&OP Plan and Inventory is out-of-control.
Production
Sales
Inventory
Step 3: Supply Planning –Symptoms You Need a Formal S&OP Process
Manufacturing & Business Goals are not Aligned
Congratulations Fred, your unit cost in
production was below plan last month and
I’ve been authorized to give you a bonus.
Plant Manager
JIM
Region IV Meeting New Orleans, LA
Step 4: Demand-Supply Balancing – Process Overview
The Master Scheduler will typically facilitate the balancing of demands with supply once the preliminary S&OP plans are developed.
The primary objective is to resolve any imbalances at the least cost to do so.
Demand Plan
Supply Plan
Balance Demand/SupplyBalance Demand/Supply
Balance 1Balance 1
Load vs. Load vs.
CapacityCapacityModel / Model / Option Option Against Against
Inventory Inventory PolicyPolicy
Customer Customer Service vs. Service vs. InventoryInventory
Balance 2Balance 2 Balance 3Balance 3
SupplyPlan
DemandPlan
UpdatedUpdatedFinancialFinancial
ViewView
UpdatedUpdatedInventoryInventoryTargetsTargets
ResourceResourceRecommend-Recommend-
ationsations
S&OPS&OPMeetingMeetingAgendaAgenda
ExceptionsExceptions
Inputs OutputsProcess
Region IV Meeting New Orleans, LA
Step 4: Demand-Supply Balancing – Activities
• Make decisions regarding demand-supply balancing
• Resolve issues and formulate recommendations
• Document the issues that could not be resolved and the alternatives for each
• Convert the plans to financial units for management review
• Develop the agenda for the executive S&OP
Note: Depending on the size and complexity of the business, this step may require a formal meeting or may be done leveraging communications technology (e.g. shared files).
Region IV Meeting New Orleans, LA
Step 5: Executive S&OP Meeting
The purpose of this meeting is to approve recommendations, make decisions, and issue the firm’s “game plan.”
Sample Agenda – Executive S&OP Meeting
• Review of Overall Business Performance
• Review & Discussion of Key Performance Indicators
• Discuss Status of New Product Introductions
• Family-by-Family Review and Decisions
• Approve Production/Supplier Rate Changes
• Collective Impact on the Business Plan
• Review of Decisions Made & Action Items Assigned
• Critique of the Meeting
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Step 5: Outputs & Objectives of Executive S&OP Meeting
The outputs of the meeting are the Meeting Minutes, modifications to the Business Plans, and the finalized S&OP Plan. Collectively, these are referred to as the “Game Plan.” Objectives for the meeting include:
• Make final decisions for issues raised during the S&OP process- accept or change proposals- choose from alternatives provided
• Compare the financial numbers from the S&OP Plan to the current Business Plan and reconcile the two. Finalize the S&OP Plan.
• Review current performance for Customer Service, Inventory, etc.. , and make any necessary changes to plans or targets.
• Review New Product Issues, Special Projects, and Business Level Issues and make the necessary decisions.
Region IV Meeting New Orleans, LA
Step 5: Sample S&OP Plan in SAP
DEMAND
SUPPLY
RESOURCE PLANNING
INVENTORY
Note: Most ERP Systems provide a platform to enable S&OP
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Step 5: Sample S&OP Plan in EXCEL
Historical Performance
Plan
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Step 5: Sample S&OP Business ScorecardPeriod Ending: December, 2006 KPI ScoreCard
TREND
DEC STATUSROLLING
12 MONTHTotal Sales ($M) J. Doe
Contribution Margin ($ OK J. Doe
Total Demand (M lbs) OK J. Smith
Demand vs. S&OP OK J. Smith
Forecast Accuracy OK J. Smith
Total Production (M OK B. Jones
Production vs. S&OP OK B. Jones
S&OP Capacity OK B. Jones
Total Finished Goods OK J. Green
Inventory vs. S&OP OK J. Green
DII (PIT) Raw Materials OK J. Green
DII (YTD) Raw OK J. Green
DII (PIT) Finished OK J. Green
DII (YTD) Finished OK J. Green
DII (PIT) OK J. Green
DII (YTD) OK J. Green
Non-Saleable OK J. Green
On-Time Shipping OK D. Easy
Actual Ship Qty. vs. OK D. Easy
Total Fixed OK D. Easy
LOWER LIMIT
REPORTING MONTHOWNER
FINANCIAL
SBU A PREVIOUS MONTH
TARGETUPPER LIMIT
DEMAND
PRODUCTION
INVENTORY
LOGISTICS
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Keys to Success
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S&OP is Journey not a Destination
Get the basics in order
Continuous Continuous ImprovementImprovement
Learn by Doing /Align Efforts
Focus the S&OP Process
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Task# Task Description
1 Conduct Initial Briefing/Education
2 Determine S&OP Team Members:- Demand Plan Owner- Supply Plan Owner-S&OP Spreadsheet Developer- Consultants (e.g. Finance)-Functional Leaders
3 Set dates for Next 12 S&OP Meetings
4 Planning Groups Identified
5 Planning Horizon Decided
6 S&OP Spreadsheets Designed
7 S&OP Spreadsheets Programmed
Task# Task Description
8 S&OP Performance Measures Selected- Actual vs. Planned Demands- Actual vs. Planned Supply- Actual vs. Planned Inventory- Customer Service Performance- Financial Performanceetc., etc.
9 S&OP Performance Measures Reported
10 S&OP Meeting Agenda Issued- Demand/Supply/Inventory Review- Performance (KPI) Review- Issues needing a decision- Special Projects
11 First S&OP Meeting Conducted
S&OP Basics – Early Implementation Tasks
Responsible Person and Due Date required for each task.
Get the Basics in Place:
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Sample S&OP Planning CalendarSUNDAY MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY SATURDAY
1 (1) 2 (2) 3
4 5 (3) 6 (4) 7 (5) 8 (6) 9 (7) 10
11 12 (8) 13 (9) 14 (10 15 (11) 16 (12) 17
18 19 (13) 20 (14) 21 (15) 22 (16) 23 (17) 24
25 26 (18) 27 (19) 28 (20) 29 (21) 30 (22) 31
The Journey Begins
Update Actuals into FCST Model
Mktg. Finalizes Demand FCST
Dmnd Plng Mtg.- Final Plan Due
Supply Plan Finalized (Mtg.?)
S&OP Mtg. - Exceptions Resolved
Sr. Mgmt. Approves S&OP Plan
Approved S&OP Plan to SAP
KPI Scorecard Available
All team members must meet sub-process due dates to ensure success.
Focus the Process:
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Includes planned and actual as well as volume and value.
Includes estimated profit margins.
Sample S&OP Grid with Financials
Only white rows require entry; other data is populated automatically or calculated automatically.
The S&OP Plan must be aligned with the Financial Business Plan
Learn by Doing/Align Financials:
Region IV Meeting New Orleans, LA
Sample Key Performance Indicators (KPI’s) for the S&OP Process
• Overall Process
- Customer Satisfaction (e.g. OTD)
- ROI/ROA/Cash Flow,etc..
- Market Share
- Inventory Performance
• New Product Planning
- Due Date (milestones)
- Velocity (time to market)
- Revenue/Cost
• Demand Planning
- Forecast Accuracy
- Sales Plan Performance
• Supply Planning - Plnd. vs. Actual Production
- On-time Supplier Delivery
- Prime Yield
- Cost to Acquire
Continuously Improve:
Focus on Performance-to-Target and Trends in Performance
Region IV Meeting New Orleans, LA
S&OP - Barriers to Success
• Process Ownership is with Planning not the Leadership Team
• Lack of understanding of the S&OP Process
• Insufficient resources for process implementation
• Inadequate performance measurement
• Resistance to giving up individual freedom to achieve best overall results
Region IV Meeting New Orleans, LA
S&OP is a Key Process at BASF
2006 Supply Chain Project
The Supply Chain Project of the Year 2006 Award goes to the “Implementation of a Global Sales & Operations Planning Process in the EVN Business.” The award pays tribute to innovative supply chain solutions and outstanding performance in the implementation of supply chain concepts. The award is sponsored by Dr. Kurt Bock, CFO for BASF Group.
Region IV Meeting New Orleans, LA
BASF Corporation – 5-Year Stock Performance
At BASF, “We don’t make a lot of the products you buy, we make a lot of the products you buy better.”
(PPS in USD)
Source: YAHOO.com
S&OP is one of many things BASF Corporation has done well to improve overall performance.
Region IV Meeting New Orleans, LA
