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 (KPIs) 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?
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New Orleans, LA
Source: APICS Illustrated Dictionary
S&OP links
Strategic
Planning to
Operations
S&OP as part of ERP
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New Orleans, LA


Sales & Operations
Planning


Master
Scheduling
Detailed Planning
& Scheduling
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F
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Business
Planning
High Level Enterprise Resource Planning Model
Annually
Monthly
Weekly
Daily
Strategic
Planning
2-10 Years
Forecast
Only
Forecast
Only
Forecast
Only
Forecast &
Orders
Orders
Only
Rough-cut
Capacity
Planning
Capacity
Requirements
Planning
Resource
Planning
Region IV Meeting
New Orleans, LA
SKU by Customer by Location
SKU by Customer
Stock Keeping Unit (SKU)
Package Size
Model / Brand
Subfamily
Family
Business
Unit
Total
Company
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)
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New Orleans, LA
S&OP is a Five-Step Process:
Pre-S&OP and
Executive S&OP
may be combined
into one meeting
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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
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New Orleans, LA
Marketing &
Sales Product
Definition
Product
Demand
Capital
Master
Schedule
Business
Plan
Workforce
Availability
Finance
Materials Operations
Human
Resources
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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New Orleans, LA
Steps in the S&OP Process
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New Orleans, LA
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
E
R
R
O
R
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New Orleans, LA
Key input data (e.g. inventory, sales, production, KPIs,
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 (KPIs) 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
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New Orleans, LA
Step 2: Demand Planning Process Overview
Marketing & 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
Internal
Demand
Market
Intelligence
Customer
Orders
Sales
Forecast
Inputs
Outputs
Process
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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New Orleans, LA
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.
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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
SUM
20-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
SUM
20-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
SUM
20-Mth
Avg.
Std
Dev'
CoV
7 11 Packaged 2 - - - - 2 - - 1 2 - - - - 1 - 2 - - 2 12 1 1 147%
Step 2: Demand Planning Forecastability
The 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
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
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.
+10%
Oh, Hi Jim. Actually
we dont have a formal
Demand Planning
process. However, Im
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
by
Production
Family
Demand
Plan
Develop and Review
Production &
Purchasing Plans

Assess Manufacturing &
Supplier Capabilities

Integration of Supply Planning
Inputs
Outputs
Process
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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New Orleans, LA
Step 2: Supply Planning Sample Plan
Machine Hours
& No. of
Batches are Key
Resources
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New Orleans, LA
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
Ive 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/Supply

Balance 1
Load vs.

Capacity

Model /
Option
Against
Inventory
Policy
Customer
Service vs.
Inventory
Balance 2 Balance 3
Supply
Plan
Demand
Plan
Updated
Financial
View
Updated
Inventory
Targets
Resource
Recommend-
ations
S&OP
Meeting
Agenda
Exceptions
Inputs
Outputs
Process
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 firms 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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New Orleans, LA
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.
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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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New Orleans, LA
Step 5: Sample S&OP Business Scorecard
Period Ending: December, 2006
KPI ScoreCard
TREND
DEC STATUS
ROLLING
12 MONTH
Total 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 MONTH
OWNER
FINANCIAL
SBU A
PREVIOUS
MONTH
TARGET
UPPER
LIMIT
DEMAND
PRODUCTION
INVENTORY
LOGISTICS
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New Orleans, LA
Keys to Success
Region IV Meeting
New Orleans, LA
S&OP is Journey not a Destination
Get the basics
in order
Continuous
Improvement
Learn by
Doing /Align
Efforts
Focus the
S&OP
Process
Region IV Meeting
New Orleans, LA
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 Performance
etc., 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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New Orleans, LA
Sample S&OP Planning Calendar
SUNDAY 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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New Orleans, LA
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 (KPIs) 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 dont 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