Best Practices in Sales & Operations Planning

Jane Barrett Noha Tohamy

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2010 AMR Research, Inc. | Page 1

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Best Practices in Sales & Operations Planning

Jane Barrett Noha Tohamy

This presentation, including any supporting materials, is owned by Gartner, Inc. and/or its affiliates and is for the sole use of the intended Gartner audience or other authorized recipients. This presentation may contain information that is confidential, proprietary or otherwise legally protected, and it may not be further copied, distributed or publicly displayed without the express written permission of Gartner, Inc. or its affiliates. 2010 Gartner, Inc. and/or its affiliates. All rights reserved.

2010 AMR Research, Inc. | Page 4

Agenda
Sales & Operations Planning: Process Best Practices
Findings from 2009 study
S&OP maturity The seven deadly challenges of S&OP

Sales & Operations Planning : Technology Best practices What are the functional capabilities needed to support S&OP?
Findings from 2009 Study

S&OP Key Research Findings

- As the curtain closes on the recession, S&OP has gained steam - Performance gaps have grown - Metrics remain a stumbling block - Gap between strategy, S&OP and execution - Data accuracy and timeliness issues causing pain - Better use of technologies drives S&OP maturity - No clear definition of S&OP technology space
August 2009 Study of 182 Manufacturers and Retailers

S&OP Process Definition Changes 1990s

1. 2. 3. 4. Develop a demand forecast Balance demand with supply Consensus meeting Publish the plan 5. 1. 2. 3. 4.

Early 2000
Collect sales input Develop a forecast Shape demand consensus refinement Develop a constrained supply plan Review and gain agreement through a Consensus meeting Publish the plan 7. 8. 9. 1. 2. 3. 4. 5. 6.

Demand-driven Leaders
Collect sales and market input Develop a demand plan Demand consensus refinement including financial reconciliation Shape demand based on what-if analysis on demand for supply Develop a constrained plan by supply What-if analysis by supply to determine trade-offs on the measurements, financials, and identify demand-shaping opportunities Review and gain agreement through a consensus meeting Publish the constrained plan Measure and communicate the plan

6.

The benefits are recognized, but hard to attain

Q. Please rate how important each of the following business benefits are. Q. Please rate how well your company performs at achieving each of these benefits.

[TOP 3 Box Summary]

Increasing revenue

Performance Gap Score

65%
38%

27%

Improving forecast accuracy

55%
28%

27%

Improving new product launch

53%
36%

18%

Improving logistics planning

48%
37%

11%

Better supply planning/chedule adherence

48%
35%

14%

Improvements in the perfect order/customer service

47%
38%

9%

Capital planning and asset management `

46%
38%

8%

Improving asset utilization

46%
32%

14%

Improve translation of demand into procurement requirements/buy-side contract needs

42%
34%

9%

Developing and executing demand shaping programs

41%
32%

8%

Reduction of inventory

40%
36%

N = 182 Total Respondents

4%

Managing demand is still an issue for most..

Q. Please rate how important each of these S&OP capabilities are to the success of your companies 2009 business strategies. Q. Please rate how well your company performs on each of these capabilities.

[TOP 3 Box Summary]

Collect sales/market input

Performance Gap Score

70%
44%
26%

Develop a demand plan

68%
40%

28%

Communicate the plan/measure effectiveness

66%
44%

23%

Review /gain agreement of total demand, supply and financial plan

60%
40%

19%

Use S&OP for the annual planning process

55%
41%

14%

Evaluate implications of a constrained supply plan

51%
43%

9%

Use S&OP for demand plan execution

48%
36%

12%

What-if analysis by supply to determine trade-offs o

43%
25%

18%

Publish the constrained plan

41%
44%

-3%

Shape demand based on w hat-if analysis of demand

37%
29%

8%

Demand consensus refinement

29%
26%

Importance Performance
3%

N = 182 Total Respondents

S&OP Maturity Model

Stage I
Reacting

II
Anticipating

III
Collaborating

IV
Orchestrating

Balance: S&OP S Goal

27%
OP S

40%
OP S
Demand and supply matching

19%
OP
Profitability

14%
S OP

Development of an operational plan

% 67
S = Sales

of co es ni pa m

Demand sensing, and conscious tradeoffs for demand shaping to drive an optimized demand-response
S = Go to Market Strategies and Solutions OP = Translation of demand into plan, make, deliver, source and service strategies, with connection to execution Demand risk, customer service, cash flow, market share and profit

g ot nn ca

Ownership

OP = Factory capabilities

S = Sales and Marketing Plans

S = Go to Market Plans OP = Design of demand driven plan, make & deliver processes

OP = Planning and factory capabilities

et

nd yo be

st e ag 2

Metrics

Order fill rate, asset utilization, inventory levels

Order fill rate, forecast error, inventory turns, functional costs

Demand error, customer service, working capital, total costs

Increase in Organizational Balance

Demand maturity must be synchronized with S&OP maturity

Constraintbased S&OP Opportunitybased S&OP

Forecasts

Active Demand Translation

Demand Visibility Demand Shaping

MRP

VMI

Orders

Orders

Channel Sensing

Market Opportunity

I
Reacting

II
Anticipating

III
Collaborating

IV
Orchestrating

Balance is Required
7 Demand-Shaping Levers
Marketing programs New product introductions Promotions Trade deals Sales incentives Price management Supply shaping/runout strategies

7 Levers of Agility
Postponement/late-stage differentiation Drive transparency through VMI and SMI Design for supply and reuse Logistics policies Adaptive networks Flexible manufacturing strategies Tie agility strategies to demand shaping

Planning for new product introductions must improve

Q. Which of the following best describes your companys plans for new product introductions as it relates to S&OP?

We use attribute-based forecasting techniques along with market intelligence

30%

We wait until the new product is through rampup before we include it in the S&OP process

20%

We use a rough cut sales forecast from sales or marketing

18%

New product launch is a separate process

17%

New product introductions are fully integrated in the process across the full planning horizon

Only 14% have an integrated process, yet NPI is the top strategy S&OP is focused on

14%

N = 182 Total Respondents

Example: Chemical Company Change Impacts

Mindset
Process

Primarily, DDBO is a change in MINDSET, as the business moves from a Supply Driven to a Demand Driven mentality.

The mindset is formalized through the Demand Driven Business Operations PROCESS.

Tools

Once the mindset and work process are established, TOOLS enable individuals in executing specific tasks. Tools support work throughout the DDBO sub-tracks.

For Demand Driven Business Operations to be successful, people must change their MINDSET to accept and learn the PROCESS using TOOLS as needed.

Getting out of Neutral Why is it so hard?

The Seven Deadly Challenges of S&OP - Clarity of goal - Alignment to strategy - Reward systems - What is a good decision? - Governance 60% Change Management - Connection of planning to execution 30% Process 10% Technology - The Role of the Forecast

S&OP: Technology Key Capabilities Required:

Data management and quality Integration into operational planning Visibility into financial plans Multilevel and multidimensional hierarchies Assumption tracking and management Workflow and process management Performance management What-if, scenario management, simulation

Functional Requirements
9-Step S&OP Cycle
Enact and measure the plan Publish the Plan Integrated Scenario Analysis Supply whatif Base supply plan Demand consensus Demand shaping what-If Base demand plan Collect sales and market input

Next Generation S&OP

Enact and measure the plan Publish the Plan Integrated Scenario Analysis
Supply what-if Base supply plan Financial what-if Base financial plan

Demand consensus Demand shaping what-If Base demand plan Collect sales and market input

Pre S&OP Foundational Pieces

1.

S&OP Building the operational consensus plan

How closely integrated should each Pre S&OP function be? Depends on the vertical

Closing The Loop: Process Playbooks

Problem Root Cause
Competitor Competitor Promotion Promotion Sales Selling Wrong Sales Selling Wrong Product Mix Product Mix Pricing Issues Pricing Issues Actual Revenue Below Actual Revenue Below Target Target Critical Part Shortage Critical Part Shortage Supply Shortages Supply Shortages Lost Production Lost Production Capacity Capacity Lost Sales Due to Lack Lost Sales Due to Lack Of Supply Of Supply

Options
Change Product Mix Change Product Mix

Launch Promotion Launch Promotion Adjust Pricing Adjust Pricing Promote Alternate Promote Alternate Product Product Plan Overtime Plan Overtime Overflow Overflow Production Production Inventory Transfer Inventory Transfer

Outcome

Sales Below Target Sales Below Target

Hedge Supply Hedge Supply

S&OP Just a business process?

Q. To what degree do you agree with the following statement: We believe that S&OP technology is essential to supporting S&OP process? Q. To what degree do you agree with the following statement: S&OP is a business process, not a technology area. We dont need any additional tools to support our S&OP process?
Strongly Agree Agree Neither Agree/Nor Disagree Disagree Strongly Disagree

S&OP technology is essential to supporting S&OP process

33%

53%

14% 0%

S&OP is a business process, not a technology area. No additional tools are necessary.

12%

35%

23%

25%

5%

N = 182 Total Respondents

Views on S&OP Technology

Q. Which of the following best describes your views on S&OP technology?

S&OP technology is a natural extension to ERP

29%

S&OP technology is an extension to sales forecasting and sales performance management tools

29%

S&OP technology is an extension to BI tools

21%

S&OP technology is an extension to SCM tools

16%

S&OP technology should be a standalone functional capability

5%

N = 182 Total Respondents

Views on S&OP Technology Among Extremely Effective Companies

Q. Which of the following best describes your views on S&OP technology?

Extremely Extremely Effective Effective Only Only

S&OP technology is an extension to SCM tools

41%

S&OP technology is an extension to sales forecasting and sales performance management tools

28%

S&OP technology is a natural extension to ERP

22%

S&OP technology is an extension to BI tools

9%

S&OP technology should be a standalone functional capability

5%

N = 32 Respondents who feel their current S&OP process is extremely effective

Top 3 decision making criteria for purchasing S&OP tools

Q. In order of importance, what three factors are most important when considering purchasing tools to support S&OP?

[TOP 3 COMBINED]
Ease of use 49%

Most Important

Flexibility

39%

Feature/function to support the S&OP process

37%

Integration with ERP systems

35%

Proof of capability in similar environments

29%

Existing Vendor relationship

24%

Integration with SCM tools

23%

Technical architecture

22%

Vendor services and expertise

22%

Collaborative capabilities

19%

N = 150 Respondents who invest or plan to invest in tools other than MS Excel, Access or PowerPoint

Penetration of formal S&OP

Q. Are you currently using an S&OP tool other than Microsoft Excel, Microsoft Access or PowerPoint? Q. Which of the following describes your plans to invest in S&OP tools other than Microsoft Excel, MS Access or PowerPoint over the next 2 years?

Using tools other than MS Excel, MS Access or PowerPoint for S&OP

Plans to invest in other S&OP Tools over next 2 years

No 51%

Plan to invest in other S&OP tools next 12 months

26%

Yes 49%

Plan to invest in other S&OP tools within the next 12 to 24 months We currently have no plans to invest in other S&OP tools

39%

35%

N =182 Total Respondents

2009 average spend on deployment of tools to support S&OP

Q. Which of the following best describes the total amount your company will spend on deployment of tools to support S&OP in 2009

Less than $100K

14%

2009 Breakdown of spend

$100K to less than $250K

20%

$250K to less than $500K

22%

$500K to less than $1M

20%

$1M to less than $2M

17%

$2M or greater

8%

Average Spend in 2009: $763K

N =162 Respondents who can confidently estimate spend

2010 Spend plans

Q. Is your planned spend on deployment of tools to support S&OP going to increase, stay the same or decrease in 2010?

2010 spending plans over 2009

Stay the same 53%

Increase 40%

Decrease 7%

Average change in spending in 2010 over 2009 +6.8%

N =162 Respondents who could confidently estimate spend

S&OP: Technology Best Practices:

Phase in technology support for S&OP after S&OP processes are defined Resolve major outstanding issues with the underlying operational planning systems before proceeding with S&OP technology Leverage SCP investments into S&OP lower level reviews Focus on support for technology-enabled collaboration in S&OP tools Get the financial plan integrated with the S&OP plan Support scenario-based planning, & timeliness of scenario-based planning at the right level of detail

Recommended Research

2008 Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a registered trademark of Gartner, Inc. or its affiliates.

Recommended Research Research conducted by the AMR Research Team: Conquering the Seven Deadly Challenges of Sales and Operations Planning Sales and Operations Planning: Transformation From Tradition Toolkit: How to Select Technology Tools to Power Your S&OP Process S&OP Technology Market Update: Picture Still Murky Embraco Transforms Its Value Chain Through Integration of S&OP and Order Fulfillment A Chemicals Formula for S&OP Success Just How Long Do We Have To Wait for True S&OP in Life Sciences?

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