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Week 8 Sales and Operations Process For effective demand management -…
Week 8 Sales and Operations Process
For effective demand management
Re-cap from last lecture
Demand
Demand is the most important aspect for business for achieving its objectives. Many decisions of business depend on demand like production, sales, staff requirement, etc.
Demand Forecasting
It is a technique for estimation of probable demand for a product or services in the future. It is based on the analysis of past demand for that product or service in the present market condition.
Demand forecasting provides reasonable data for the
organization’s capital investment and expansion decision. It also provides a way for the formulation of suitable pricing and advertisement strategies.
Factors of Demand Elasticity
General Factors
Price of the product
Taste and Preference
Income
Prices of the related goods
Trends(fashion)
Seasonal activities
Competitor activities
Additional Factors: (Luxury Goods & Durables)
Consumer’s Expectation of future price.
Consumer’s Expectation of future income.
Supply elasticity
Prevailing market price
Production cost
Natural conditions
Availability of technology
Competition
Logistics capacity
Governmental policies
Tax conditions
Missing demand information causes
forecast cycles plan weekly or monthly demand at various aggregated levels
sales and operations planning processes don't address SKU by location accuracy
advanced: demand driven, demand sensing and shaping techniques occur outside daily operations
network and inventory optimization initiatives don't address on-going variability
Forecasting Methods...
Qualitative methods----Rely on subjective opinions from one or more experts
Quantitative methods------Rely on data and analytical techniques.
How should we pick our forecasting model?
Data availability
Time horizon for the forecast
Required accuracy
Required Resources
Impact Of Good Forecasting
integrated plan--prod/dist
operations: policy+inventory levels
demand
sales: level of demand
budget
finance: inventory, investment
promos/event
marketing: promos events
Impact Of Bad Forecasting
sales+operations, marketing, finance-----drivers
too much of wrong product
right product, wrong place
lost sales
over investment
Sales and Operations Planning (S&OP)
Definition
A process to develop tactical plans that provide management the ability to strategically direct its businesses to achieve competitive advantage on a continuous basis by integrating customer-focused marketing plans for new and existing products with the management of the supply chain. The process brings together all the plans for the business (sales, marketing, development, manufacturing, sourcing, and financial) into one integrated set of plans.
S&OP – A Balancing Act
demand
demand forecasts
actual orders
supply
inventory
supply orders
resources/capacity
Demand and Supply and Volume and Mix
demand----forecasting&demand management
supply---resource planning
business plan----volume S&OP----sales&marketing plan+operations plan---product mix master scheduling----MRP+ Plant and supplier scheduling
S&OP Processes
demand planning
demand forecast
demand management
product/brand plan
marketing plan
sales plan
supply planning
production
production plan
master scheduling
detailed planning and scheduling
resources
facilities planning
labor planning
machine planning
inventory
investment targets
channel distribution
shipment plan
distribution
transportation
warehousing
labor and equipment
Major Attributes of S&OP
Connects business planning to tactical planning
Balances supply and demand at the product family level
Plans at the volume level using aggregate time buckets, not the individual end-product mix level
Enables in a better understanding of the customer and market opportunities and company capabilities
Involves sales, marketing, manufacturing, logistics, finance, and other departments
Is a demand- and strategy-driven process
Objectives of S&OP
Supports and measures the business plan
Ensures that the strategic plans are realistic before being passed to tactical planning
Enables the organization to effectively manage changes to plans
Provides for the effective management of finished goods inventories and order backlog to support customer service
Enables performance measurement to identify when actual performance has deviated from the plan
Enables the organization to be focused, aligned, and engaged.
S&OP Maturity Level
overcome challenges and are seeing significant results----46%
have stalled or proceeding very slowly
had a smooth implementation of S&OP and follow best practices
plan to start again, learning from challenges from past efforts
have no plans to implement S&OP at this time
Common S&OP Implementation Challenges
lack of strategic coordination among departments
insufficient interaction and involvement among groups
lack of common vision or purpose
lack of commitment from top management
lack of technology and belief in existing business systems
inadequate communication and soft skills
insufficient training or skill in data analysis
Foundations of Successful S&OP
tiered planning horizon
strategic----long-range plans, aggregate financial data
tactical---medium-range plans, product family volume data
operational---short-range plans, detail product mix data for day-to-day planning
Key benefits
Linkage of strategic corporate goals to S&OP processes
Build coordination and alignment of demand and supply
management functions and corporate business objectives
Provide ease of consensus building between corporate goals, demand objectives, and supply objectives
Ability to step away from day-to-day management and see the big picture
integrated sub-process
corporate plan
demand plan
New products/services, new market segments, price/promotions, demand forecast, Internet sales, brands
Inventory/Brand Plan
Marketing Plan
sales Plan
supply plan
Production strategy, capacity planning, inventory targets, distribution channel design, logistics plan
Production Plan
Resource Plan
Logistics Plan
leadership accountability
deep analytics
The data and the application of analytics is at the heart of S&OP
Analytics-based reporting tells the S&OP planning teams
Where they are
What actions need to be taken and driven down into tactical and operations S&OP processes
What results and trends are emerging from their decisions
What corrective steps do the S&OP planning teams which to take
performance metrics
Performance metrics drive accountability and ownership for S&OP objectives
Performance metrics make the S&OP process rigorous, disciplined, and factual so executives gain confidence in the integrity of the S&OP process
Tiered approach: supply chain performance example
Tier 1----SC cost (%COGS)//Forecast variance
Tier 2----Logistics costs//Resource utilization+Inventory carrying costs// Production plan execution (%)
Tier 3-----Fill rates//Obsolescence cost+Days of inventory on hand//Material, labor, & overhead costs
grids and graphs
change management
continuous improvement
Demand and Supply S&OP Metrics
Demand and supply metrics will help you determine if your forecasts are accurate and the demand matches the supply.
Demand forecast versus actual
Production forecast versus actual
Inventory turnover
Capacity utilization
On-time delivery
Accuracy in order delivery
Cycle times
Financial S&OP Metrics
These metrics show you how the business is performing from a financial perspective.
Total sales in a period (e.g., month, quarter, year)
Total sales versus forecast
Gross margin
Working capital versus plan
Benefits of Sales and Operations Planning
Establishes operational plans consistent with the business plan
Continually updates the production, financial, and sales plan
Provides for cross-functional planning
Establishes regular meetings with senior executives to
resolve demand versus supply trade-offs
Checks availability of resources to validate the production plan
Increases teamwork and collaborative skills