Sales and Operations Planning

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Sales and Operations Planning
Business Forecasting

• Taruna Nagpal
• Sean ODonnell
• Anthony Stramecki
• Vivian Yu

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Agenda

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

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Sales and Operations Planning(SOP)

• Definition
• A formal process, consisting of series of
  meetings, where data from various areas of
  business is discussed and decisions are made.
• The goal is agreement between various departments
  on the best course of action to achieve the
  optimal balance between supply and demand and to
  meet profitability goals.

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Normal Time Frame

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

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Sales and Operations Planning (SOP)
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Type of Data considered

• 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

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SOP Software

• Dash Optimization Supply Chain Planning Software
• DCRA Solutions
• Demand Solutions - Demand Solutions Sales and
  Operations Planning Software (DSOP)
• Futurcast
• IBM Stratum

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SOP Software
Steelwedge Software Interface
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A typical model of the Sales and Operations
Planning process

Source WP Salesoperationsplanning12.pdf
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Demand Review Process

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

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Supply Review Process

• Create a supply plan that includes rough-cut
  capacity plan, procurement plan, and accompanying
  costs.

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Sales and Operations Planning Meeting

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

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Benefits

• 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

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Tips for Successful Planning processes

• 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

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SOP Certification - CPIM

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

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SOP Certification - CPIM

• Benefits of Certified in Production and
  Inventory Management
• 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.

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SOP Certification - CPIM

• Candidates must pass all exams for the following
  modules
• Basics of Supply Chain Management
• Master Planning of Resources
• Detailed Scheduling and Planning
• Execution and Control of Operations
• Strategic Management of Resources

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SOP 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
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SOP application in industry

• Semiconductor industry
• Surveyed 9 global semiconductor companies
• Only 10-15 so survey covered half therefore,
  its a good reflection of the overall industry
• Purpose
• Investigate the extent of SOP used and determine
  its strengths and weaknesses.
• Focuses on 2 parts
• Forecasting Driving force behind ops planning
• Operations planning Main focus

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SOP in the semiconductor industry

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

• Forecasting
• Relative importance of different factors in the
  demand forecast generation
• Frequency of forecasts 1 weekly, 1 quarterly,
  and the rest monthly
• Primary time horizon
• 3 companies 24 months 3 18 months 1 15
  months 2 12 months

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SOP in the semiconductor industry

• Forecasting (cont.)
• Software used in forecasting
• Most popular method is spreadsheets then SAP
  America, followed by software developed
  internally and I2
• How frequently do you measure and review forecast
  accuracy?
• 5 companies measure and review on monthly basis,
  1 bimonthly and 2 quarterly

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SOP in the semiconductor industry

• Operations Planning
• Planning horizon for SOP
• Except for three companies which use a planning
  horizon of 12 months, all use 18 months
• Primary objectives of your SOP process
• 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 SOP
  process
• 3 companies spend one month, 3 spend two weeks, 1
  spends three weeks, and 2 spend more than one
  month

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SOP in the semiconductor industry

• Operations Planning (cont.)
• Software used and satisfaction levels
• 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

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SOP in the semiconductor industry

• Operations Planning (cont.)
• 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.
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SOP in the semiconductor industry

• Operations Planning (cont.)
• Are there metrics in place to measure
  effectiveness (or quality) of the production
  plans, commonly the output of the SOP process?
• 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?
• 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.

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SOP in the semiconductor industry

• Strengths and weaknesses of the SOP process

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SOP in the semiconductor industry

• Conclusions
• Many companies complain about the length of their
  SOP cycle, its complexity, and input data
  validity/integrity.
• 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 SOP process
• 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.

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

• Month end data
• Actual sales
• Inventory
• Production
• Sales and marketing
• All pertinent information

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Sales
  Jan Feb Mar Apr May June Jul Aug
Forecast 100 100 100 120 120 120 120 130
Actual sales 90 95 85          
Difference -10 -5 -15          
Cum. difference   -15 -30          
Wallace 2nd edition Sales Operations Planning
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Production
  Jan Feb Mar Apr May June Jul Aug
Planned production 100 100 100 110 120 120 120 130
Actual production 98 100 101          
Difference -2 0 1          
Cum. difference   -2 -1          
Wallace 2nd edition Sales Operations Planning
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Inventory
  Jan Feb Mar Apr May June Jul Aug
Planned inventory 100 100 100 142 142 142 142 142
Actual inventory 111 116 132          
Difference 11 16 32          
January Inventory 103
Wallace 2nd edition Sales Operations Planning
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Comparing actual to forecast
Wallace 2nd edition Sales Operations Planning
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Step 2 Demand planning

• Sales and marketing review information received
  from Step 1
• Sales forecast
• By product
• By family
• Total

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Demand planning team

• Demand manager
• Product manager
• Forecast analyst
• Sales manager

• Salesperson
• Customer service
• Accounting manager
• Supply chain manager

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Forecasting Inputs, Process, Outputs
OUTPUTS
INPUTS
Current Customers New customers Competition Econom
y New products Pricing Bids Promotions Management
directive History Other

• Forecasts That
• Are reasoned
• Are realistic
• Are reviewed
• Represent demand

THE PROCESS
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Step 3 Supply planning

• Bill of resources
• Rough-cut capacity
• Interaction of lean manufacturing
• Demand/Supply Strategies

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Wallace 2nd edition Sales Operations Planning
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Rough-cut capacity plan
Wallace 2nd edition Sales Operations Planning
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Interaction with lean manufacturing

• Aligned resources
• Flow
• Takt time

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Demand/Supply Strategies

• Product Family 1
• Make-to-stock
• Target customer service level 99
• Target finished goods inventory 1 month
• Product Family 2
• Make-to-order
• Target customer service level 98
• Target customer lead time 2 weeks

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Step 4 Pre-SOP meeting

• Make decisions to balance supply/demand
• Resolve differences where possible
• Identify areas of disagreement
• Develop scenarios
• Set agenda for Executive SOP meeting

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Step 5 Executive SOP meeting

• Make decisions
• Authorize changes in SOP plan
• Relate dollarized version
• Resolve issues
• Review performance, product issues, special
  projects, etc.

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Preliminary close meeting
Day of month Reports Attendance Key objectives
3rd 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
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Final close meeting
Day of month Reports Attendance Key objectives
7th 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
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Sales forecast

• Pricing adjustments
• Customers forecasts
• Due by the 10th
• Prepared by sales/marketing

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Sales and operations plan

• Prepared by plant manager and controller
• Capacity issues
• Productivity
• Produced by the 15th

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Questions?