Sales and Operations Planning Business Forecasting Taruna Nagpal

Sales and Operations Planning Business Forecasting Taruna Nagpal Sean O’Donnell Anthony Stramecki Vivian Yu

Agenda n n n Sales and Operations Planning Overview Process Certification Applications in Semiconductor Industry Standard Monthly Procedure

Sales and Operations Planning(S&OP) Definition: n A formal process, consisting of series of meetings, where data from various areas of business is discussed and decisions are made. n The goal is agreement between various departments on the best course of action to achieve the optimal balance between supply and demand to meet profitability goals.

Normal Time Frame n Takes a monthly look at product groups at least 6 - 12 months across the planning horizon. n Some companies go out as far as 18 months.

Sales and Operations Planning (S&OP)

Type of Data considered n n n n n Current plan for each product group Current finished goods inventory Sales forecasts Purchase Orders received Materials available Manufacturing plans and capacity Distribution capacity Shipping capacity Performance measures Customer Service

S&OP Software n n n Dash Optimization Supply Chain Planning Software DCRA Solutions Demand Solutions - Demand Solutions Sales and Operations Planning Software (DSOP) Futurcast IBM Stratum

S&OP Software Steelwedge Software Interface

A typical model of the Sales and Operations Planning process Source: WP Salesoperationsplanning 12. pdf

Demand Review Process n The ultimate goal of the demand plan is to gain consensus on what will be sold and what revenue will be produced n Participants discuss factors that influence demand agree on a single demand plan that is then passed

Supply Review Process Create a supply plan that includes roughcut capacity plan, procurement plan, and accompanying costs.

Sales and Operations Planning Meeting n Discuss and resolve any imbalances between supply and demand n All decisions are published as a single authorized plan which becomes the operating plan for each function within the company

Benefits: n n n n n Increase plan accuracy Increase product margins Improve customer satisfaction Reduce costs through efficient use of resources Drive organizational flexibility Reduce inventory and obsolescence costs Better communication between groups Improved cash flow and Shorter lead times Reduced transportation costs

Tips for Successful Planning processes n n n Include specific schedules and participants. Identify Key Performance Indicators prior to beginning Have an attitude of continuous improvement Stabilize the Demand Planning process prior to the Supply Planning process. Hold regular meetings

S&OP Certification - CPIM Company Benefits n More Effective Personnel Selection n Improved Forecasting Practices and Processes for Your Business. Enhance knowledge of those already in the field. n Better Forecasts and Related Business Decisions Forecaster Benefits n Professional Development q Forecasting Knowledge Development and Expansion n Career Advancement n Validation of Forecasting & Planning Knowledge and Skills n Globally Recognized Credential

S&OP Certification - CPIM Benefits of Certified in Production and Inventory Management n n n n A CPIM education can help you to Increase your functional knowledge of production and inventory management Improve efficiency across the processes of your organization's supply chain Streamline operations through accurate forecasting Predict outcomes more accurately Maximize customer satisfaction by delivering products and services Just-in-Time Increase profitability by optimizing your organization's inventory investment Enhance your credibility among peers, employers, and customers.

S&OP Certification - CPIM Candidates must pass all exams for the following modules n n n Basics of Supply Chain Management Master Planning of Resources Detailed Scheduling and Planning Execution and Control of Operations Strategic Management of Resources

S&OP Certification - CPIM Who should earn the CPIM designation? A CPIM education is essential for professionals involved in * Production and inventory management * Operations * Supply chain management * Procurement * Materials management * Purchasing

S&OP application in industry n Semiconductor industry q Surveyed 9 global semiconductor companies n n Only 10 -15 so survey covered half; therefore, it’s a good reflection of the overall industry Purpose q q Investigate the extent of S&OP used and determine its strengths and weaknesses. Focuses on 2 parts: n n Forecasting: Driving force behind ops planning Operations planning: Main focus

S&OP in the semiconductor industry -Sales/marketing and manufac/ops are the main drivers of the S&OP process -All companies use it in at least their marketing, operations, and finance depts. Most also employ it in sales and service/logistics

S&OP in the semiconductor industry n Forecasting q Relative importance of different factors in the demand forecast generation q q Frequency of forecasts: 1 weekly, 1 quarterly, and the rest monthly Primary time horizon: n 3 companies = 24 months; 3 = 18 months; 1 = 15 months; 2 = 12 months

S&OP in the semiconductor industry n Forecasting (cont. ) q Software used in forecasting n q Most popular method is spreadsheets then SAP America, followed by software developed internally and I 2 How frequently do you measure and review forecast accuracy? n 5 companies measure and review on monthly basis, 1 bimonthly and 2 quarterly

S&OP in the semiconductor industry n Operations Planning q Planning horizon for S&OP n q Primary objectives of your S&OP process n q Except for three companies which use a planning horizon of 12 months, all use 18 months 3 companies primarily use it to align plans with demand/sales. The other 6 use it to align plans with both demand/sales and business strategy. Length of time to complete one cycle of the S&OP process n 3 companies spend one month, 3 spend two weeks, 1 spends three weeks, and 2 spend more than one month

S&OP in the semiconductor industry n Operations Planning (cont. ) q Software used and satisfaction levels n n As can be seen there is equal satisfaction between spreadsheets or software developed internally and customized software that was outsourced Overall satisfaction levels medium to low. No company has a high level of satisfaction

S&OP in the semiconductor industry n Operations Planning (cont. ) q Key items covered in the process - Sales, production issues, and demand/production gap closure plans are named to be the key item by most companies. New product schedules, customer service and inventory also key factors. Financial forecasts and capital planning are key items to only a few companies.

S&OP in the semiconductor industry n Operations Planning (cont. ) q Are there metrics in place to measure effectiveness (or quality) of the production plans, commonly the output of the S&OP process? n q All but one said yes. Most fall within the responsiveness category (fulfillment of production plan, flexibility, on-time delivery) followed by inventory (availability, shortage, excess) Are financial estimates integrated within the SOP process? n One company has them fully integrated, two companies keep financial estimates and SOP totally seperate, and the remaining 6 adjust financial numbers according to SOP output.

S&OP in the semiconductor industry • Strengths and weaknesses of the S&OP process

S&OP in the semiconductor industry n Conclusions q Many companies complain about the length of their SOP cycle, its complexity, and input data validity/integrity. n q q Solution: Building integrated databases and automating the process (expediting communication and streamlining decision making) Need for better forecasting since it is the driving force behind the process. Integration of finance into S&OP process n All companies agree that its strength lies in the integration of decision making by bringing several depts. together; however, tendency is to keep it at operations level. In order to fully benefit from process financial planning should be integrated into it.

The monthly sales and operations planning process STEP 5 Exec SOP Meeting Decisions STEP 4 Pre-SOP Meeting STEP 3 Supply Planning STEP 2 Demand Planning STEP 1 Data Gathering End of month Recommendations For executive S&OP Capacity constraints 2 -nd pass spreadsheet Management forecast 1 -st pass spreadsheets Statistical forecasts Field sales worksheet Wallace: 2 nd edition Sales & Operations Planning

Step 1 – Data gathering n Month end data q q q Actual sales Inventory Production n Sales and marketing n All pertinent information

Sales Jan Feb Mar Apr May June Jul Aug Forecast 100 100 120 120 130 Actual sales 90 95 85 Difference -10 -5 -15 -15 -30 Cum. difference Wallace: 2 nd edition Sales & Operations Planning

Production Jan Feb Mar Apr May June Jul Aug Planned production 100 100 110 120 120 130 Actual production 98 100 101 Difference -2 0 1 Cum. difference -2 -1 Wallace: 2 nd edition Sales & Operations Planning

Inventory Jan Feb Mar Apr May June Jul Aug Planned inventory 100 100 142 142 142 Actual inventory 111* 116 132 11 16 32 Difference *January Inventory = 103 Wallace: 2 nd edition Sales & Operations Planning

Comparing actual to forecast Wallace: 2 nd edition Sales & Operations Planning

Step 2 – Demand planning n Sales and marketing review information received from Step 1 n Sales forecast q q q By product By family Total

Demand planning team n Demand manager n Salesperson n Product manager n Customer service n Forecast analyst n Accounting manager n Sales manager n Supply chain manager

Forecasting: Inputs, Process, Outputs OUTPUTS INPUTS Current Customers New customers Forecasts That: Competition • Are reasoned Economy New products Pricing Bids Promotions Management directive History Other THE PROCESS • Are realistic • Are reviewed • Represent demand

Step 3 – Supply planning n Bill of resources n Rough-cut capacity n Interaction of lean manufacturing n Demand/Supply Strategies

Wallace: 2 nd edition Sales & Operations Planning

Rough-cut capacity plan Wallace: 2 nd edition Sales & Operations Planning

Interaction with lean manufacturing n Aligned resources n Flow n Takt time

Demand/Supply Strategies Product Family: 1 n 1. 2. 3. Make-to-stock Target customer service level 99% Target finished goods inventory 1 month Product Family: 2 n 1. 2. 3. Make-to-order Target customer service level 98% Target customer lead time 2 weeks

Step 4 – Pre-SOP meeting n Make decisions to balance supply/demand n Resolve differences where possible n Identify areas of disagreement n Develop scenarios n Set agenda for Executive S&OP meeting

Step 5 – Executive S&OP meeting n n n Make decisions Authorize changes in S&OP plan Relate dollarized version Resolve issues Review performance, product issues, special projects, etc.

Preliminary close meeting Day of month Reports Attendance Key objectives 3 rd business day after month end -Income Statement -Balance sheet -Control book -Plant manager -Plant controller -Financial/ operations Analyst -Results -Comparing forecast to actual -Inventory levels -A/R -A/P

Final close meeting Day of month Reports Attendance Key objectives 7 th business day -Income Statement -Balance sheet -Actual vs. forecast -Variance -CFO -Financial/ operations Analyst -Controller -Cost accountant -Results -Comparing forecast to actual -Inventory levels -A/R -A/P

Sales forecast n Pricing adjustments n Customers forecasts n Due by the 10 th n Prepared by sales/marketing

Sales and operations plan n Prepared by plant manager and controller n Capacity issues n Productivity n Produced by the 15 th

Questions?