S&OP Leadership Exchange: Profit Plan Gap Closers
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The document discusses the S&OP (Sales and Operations Planning) leadership exchange focused on identifying and closing operational gaps within organizations. It highlights the performance advantages of best-in-class companies, such as higher service levels and lower cash cycles, and emphasizes the importance of integrating risk management and opportunity analysis into the S&OP process. The document outlines the need for transparency in identifying gaps, developing action plans, and continually updating strategies to align with market conditions.
S&OP Leadership Exchange: Profit Plan Gap Closers
- 1. S&OP Leadership Exchange: Gap Closers The Web Event will begin momentarily with your host: Andrew McCall
- 2. Quick Introduction Defining a “Gap to Plan”: What is this in your organization? Risk & Opportunity: How do they fit into the Gap closing discussion? Different types of Gaps to consider Developing Solid Gap Closing Activities Discussion & Closing
- 3. • Five Compelling Facts from the Research o Best-in-Class companies have 15% -25% higher average Customer Service Levels than All Others. o Best-in-Class companies have three times lower Cash-to-Cash cycles than All Others. o Best-in-Class companies have 35% greater forecast accuracy at the product family level than All Others. o Thirty percent (30%) of Best-in-Class companies have increased their inventory turns in the last six months as compared to 10% of All Others. o Sixty percent (60%) of Best-in-Class companies have increased their perfect order percentage to customers versus 20% of All Others. Strategic Actions Taken by Best-in-Class Companies Create a profit optimized supply- 50% 24% demand balanced plan 28% Manage demand forecasts within the 39% 53% S&OP plan 51% Trying to reduce inventory to free up 39% 52% working capital 46% Integrate financial planning and 33% 35% budgeting with the S&OP process 43% Manage supply constraints within the 31% Best-in-Class 36% Average S&OP plan 29% Laggards Source: Aberdeen Group, July 2009 0% 10% 20% 30% 40% 50% 60% Percentage of Respondents, n = 214
- 4. Item Best in Class Your Current Potential Results* State Inventory Reduction 15% - 25% Service Level Improvement 3% - 5% Excess & Obsolete Reduction 25% Forecast Accuracy (product family level) 82% Soft Benefits: o Improvement of Accountability & Control o Detailed Assumptions Supporting Plan from Marketing and Sales, through the Planning and Operations organizations and ultimately integrated with finance. o Earlier visibility into issues o Embedded Communication & Complex Project Management Capability o Action Orientation o Exception and KPI focused * Aberdeen Group 7/2009 * Tom Wallace - S&OP Cost & Benefits 2009
- 6. Does some of this sound familiar? Your organization has moved towards an integrated S&OP Process You have made investments in the processes to support it, as well as technology to enable it in some way, shape or form You are evolving the process to be more sensitive to market conditions and fundamental drivers of your demand You have broad based involvement in S&OP, across many organizations and layers in the organization And you work hard on this operating plan, but in some way – our view of the future is not matching up with our expectations….
- 8. We have a Gap to plan…What does that mean: Projected Shortfall against expectations Market Share and Growth are not trending according to our plans/assumptions Volume commitments to our plants or suppliers may not be met Impact on compensation and incentive based pay – from executives to sales people to the resources on our plant floor – this has an impact Change Management Point – S&OP needs to exist in a culture that is transparent, expects to uncover trouble and gaps in time to do something about it – that can’t happen where we don’t deal with some hard truths. It’s a fact based, data driven environment.
- 9. Risks Potential drivers of a non-trivial, negative impact that are NOT "baked" into the S&OP one-set-of-numbers. These may be factors outside of your control, or they may be gaps to stated annual plan due to soft demand. Examples: Production Capacity not meeting planned ramp up Supplier Performance below standard Revenue is soft across the industry Opportunities Potential drivers with a non-trivial, positive impact that are NOT "baked" into the S&OP one-set-of-numbers. These may be factors outside of your control, or they may be positive deviation from stated annual plan. Examples: New Product Introduction ready to Launch Additional Capacity available to support promotional push of specific products Geographic Expansion
- 10. Critical Elements to using these effectively: Consistent, Continuously updated set of R&O that travel from meeting or process step to the next. A depth of horizon that allows us to develop these over the course of many cycles. Lots of cross functional work goes into flushing these out and making them realistic – the early the visibility, the better. Common Language, and principles for applying these. Can not have a version of these for Finance, that is stated differently in marketing, sales and production. They are dynamic – they will evolve month over month and get more realistic, as they evolve, the need to be tested and continually measured
- 11. • New Product Introductions • Cash Flow • Market Expansions • Margin/Mix • Pricing • Gross Profit • M&A • Market Share/Growth Assumptions • Forecasted Demand • Capacity • Product Mix • Schedule Attainment • Sales Goal Attainment • Suppler Performance • New Product Demand • Inventory Position Projections • Customer Fill Rates
- 12. • Outline Drivers • Understand Impact Identify Gap • Identify Timing • Root Cause Analysis • Quantify Impact Eliminate Risk • Develop Action Driving Gap? • Implement • Feasibility • Quantify & Agree on Upside • Detail Investment Requirements Capitalize on • Risk Management Opportunity to • Develop Action Close Gap • Implement
- 13. Executive Team Sets Direction in Motion Each team owns a component of the solve Cycle process works the problem through a cycle (or more) Once adopted, impact is now included into the Plan Assumptions are updated for tracking as plan is executed and moves forward Constant Monitoring outside of S&OP – Management “to do” list or action log Example: Walk through the Profit Gap
- 14. Every company will have to manage Gaps to the operating plan. Understanding your key drivers of these gaps is critical to a robust S&OP process. The process needs to constantly work on quantifying Risks & Opportunities, so that a consensus evolved around the impact of risk, and the feasibility of taking advantage of opportunities Gap closers, once put in place are part of the number – Assumptions, and “risk to plan” are used to monitor progress Sets the direction for the org from an execution standpoint (demonstrated performance becomes the link)
- 15. February 29th March 28th April 25th What does Harnessing Innovation - “Good” Getting to one number Planning Challenges look like to your organization?