Sales and Operations Planning
Business Forecasting
Taruna Nagpal
Sean O’Donnell
Anthony Stramecki
Vivian Yu
Agenda
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Sales and Operations Planning Overview
Process
Certification
Applications in Semiconductor Industry
Standard Monthly Procedure
Sales and Operations Planning(S&OP)
Definition:
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A formal process, consisting of series of meetings,
where data from various areas of business is
discussed and decisions are made.
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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.
Normal Time Frame
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Takes a monthly look at product groups
at least 6- 12 months across the planning
horizon.
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Some companies go out as far as 18 months.
Sales and Operations Planning (S&OP)
Create a demand plan for the target time period
Corresponding supply plan is created for the time period
Plans are fed into a pre-S&OP process, where solutions to address this imbalance are formulated
S&OP meeting attended by senior leadership from sales, marketing, operations, finance and other operational areas.
Discuss the issues recommended solutions
Reviews alternatives
Makes decisions
Type of Data considered
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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
S&OP Software
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Dash Optimization Supply Chain Planning Software
DCRA Solutions
Demand Solutions - Demand Solutions Sales and
Operations Planning Software (DSOP)
Futurcast
IBM Stratum
S&OP Software
Steelwedge Software Interface
A typical model of the Sales and Operations
Planning process
Source: WP Salesoperationsplanning12.pdf
Demand Review Process
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The ultimate goal of the demand plan is to
gain consensus on what will be sold and
what revenue will be produced
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Participants discuss factors that influence
demand and agree on a single demand plan
that is then passed
Supply Review Process
Create a supply plan that includes roughcut capacity plan, procurement plan, and
accompanying costs.
Sales and Operations Planning
Meeting
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Discuss and resolve any imbalances
between supply and demand
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All decisions are published as a single
authorized plan which becomes the
operating plan for each function within the
company
Benefits:
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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
Tips for Successful Planning processes
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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
S&OP 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
S&OP Certification - CPIM
Benefits of Certified in Production and Inventory Management
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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.
S&OP Certification - CPIM
Candidates must pass all exams for the
following modules
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Basics of Supply Chain Management
Master Planning of Resources
Detailed Scheduling and Planning
Execution and Control of Operations
Strategic Management of Resources
S&OP 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
S&OP application in industry
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Semiconductor industry
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Surveyed 9 global semiconductor companies
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Only 10-15 so survey covered half; therefore, it’s a good
reflection of the overall industry
Purpose
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Investigate the extent of S&OP used and
determine its strengths and weaknesses.
Focuses on 2 parts:
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Forecasting: Driving force behind ops planning
Operations planning: Main focus
S&OP 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 S&OP
process
S&OP in the semiconductor industry
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Forecasting
 Relative importance of different factors in the demand forecast
generation
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Frequency of forecasts: 1 weekly, 1 quarterly, and the rest
monthly
Primary time horizon:
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3 companies = 24 months; 3 = 18 months; 1 = 15 months; 2 = 12
months
S&OP in the semiconductor industry
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Forecasting (cont.)
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Software used in forecasting
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Most popular method is spreadsheets then SAP America,
followed by software developed internally and I2
How frequently do you measure and review forecast
accuracy?
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5 companies measure and review on monthly basis, 1
bimonthly and 2 quarterly
S&OP in the semiconductor industry
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Operations Planning
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Planning horizon for S&OP
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Primary objectives of your S&OP process
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Except for three companies which use a planning horizon of
12 months, all use 18 months
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 S&OP process
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3 companies spend one month, 3 spend two weeks, 1 spends
three weeks, and 2 spend more than one month
S&OP in the semiconductor industry
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Operations Planning (cont.)
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Software used and satisfaction levels
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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
S&OP in the semiconductor industry
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Operations Planning (cont.)
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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.
S&OP in the semiconductor industry
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Operations Planning (cont.)
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Are there metrics in place to measure effectiveness (or
quality) of the production plans, commonly the output of the
S&OP process?
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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?
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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.
S&OP in the semiconductor industry
• Strengths
and weaknesses of the S&OP process
S&OP in the semiconductor industry
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Conclusions
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Many companies complain about the length of their SOP
cycle, its complexity, and input data validity/integrity.
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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 S&OP process
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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.
The monthly sales and operations
planning process
STEP 5
Exec SOP
Meeting
Decisions
STEP 4
Pre-SOP
Meeting
Recommendations
For executive S&OP
STEP 3
Supply
Planning
STEP 2
Demand
Planning
Capacity constraints
2-nd pass spreadsheet
Management forecast
1-st pass spreadsheets
STEP 1
Data
Gathering
End of month
Statistical forecasts
Field sales worksheet
Wallace: 2nd edition Sales & Operations Planning
Step 1 – Data gathering
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Month end data
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Actual sales
Inventory
Production
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Sales and marketing
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All pertinent information
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
-15
-30
Cum. difference
Wallace: 2nd edition Sales & Operations Planning
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
-2
-1
Cum. difference
Wallace: 2nd edition Sales & Operations Planning
Inventory
Jan
Feb
Mar
Apr
May
June
Jul
Aug
Planned
inventory
100
100
100
142
142
142
142
142
Actual inventory
111*
116
132
11
16
32
Difference
*January Inventory = 103
Wallace: 2nd edition Sales & Operations Planning
Comparing actual to forecast
Forecast
Acutal sales
Difference
Cum. difference
Planned production
Actual production
Difference
Cum. difference
Planned inventory
Actual inventory
Difference
*January Inventory=103
Jan
100
90
-10
Feb
100
95
-5
-15
Mar
100
85
-15
-30
Apr
120
May
120
June
120
Jul
120
Aug
130
Jan
100
98
-2
Feb
100
100
0
-2
Mar
100
101
1
-1
Apr
110
May
120
June
120
Jul
120
Aug
130
Jan
100
111*
11
Feb
100
116
16
Mar
100
132
32
Apr
142
May
142
June
142
Jul
142
Aug
142
Wallace: 2nd edition Sales & Operations Planning
Step 2 – Demand planning
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Sales and marketing review information
received from Step 1
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Sales forecast
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By product
By family
Total
Demand planning team
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Demand manager
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Salesperson
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Product manager
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Customer service
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Forecast analyst
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Accounting manager
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Sales manager
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Supply chain manager
Forecasting: Inputs, Process, Outputs
OUTPUTS
INPUTS
Current Customers
New customers
Forecasts That:
Competition
•Are reasoned
Economy
New products
Pricing
Bids
Promotions
Management directive
History
Other
THE
PROCESS
•Are realistic
•Are reviewed
•Represent demand
Step 3 – Supply planning
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Bill of resources
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Rough-cut capacity
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Interaction of lean manufacturing
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Demand/Supply Strategies
Bill of resources - Family Level (per 000 units)
Key resources
Description
Mix (hrs)
Fil (hrs)
Test (hrs)
Labeler #6 (hrs)
Warehouse space (cube)
Supplier A (gallons)
1
2.7
1.2
1.6
3.3
6.7
8.7
2
5
3.1
2.4
3.3
3.3
6.7
Families
3
13.1
2.6
1.1
0
0
7.1
4
0
0
0.7
2
2.6
0
5
14
6
7
0
19
0
Wallace: 2nd edition Sales & Operations Planning
Rough-cut capacity plan
Key resources
Description
Mix (hrs)
Fil (hrs)
Test (hrs)
Labeler #6 (hrs)
Warehouse space (cube)
Supplier A (gallons)
1
20
54
24
32
66
134
174
Family Production Plan Quantity
2
3
4
20
20
20
100
262
0
62
52
0
48
22
14
66
262
40
66
0
52
134
142
0
Capacity
5
20
280
120
140
0
380
0
Req'd Demo
696
258
256
696
632
450
584
450
275
700
650
500
Max
Demo
621
482
290
800
675
640
Wallace: 2nd edition Sales & Operations Planning
Interaction with lean manufacturing
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Aligned resources
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Flow
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Takt time
Demand/Supply Strategies
Product Family: 1
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1.
2.
3.
Make-to-stock
Target customer service level 99%
Target finished goods inventory
1 month
Product Family: 2
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1.
2.
3.
Make-to-order
Target customer service level 98%
Target customer lead time
2 weeks
Step 4 – Pre-SOP meeting
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Make decisions to balance supply/demand
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Resolve differences where possible
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Identify areas of disagreement
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Develop scenarios
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Set agenda for Executive S&OP meeting
Step 5 – Executive S&OP meeting
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Make decisions
Authorize changes in S&OP plan
Relate dollarized version
Resolve issues
Review performance, product issues, special
projects, etc.
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
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
Sales forecast
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Pricing adjustments
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Customers forecasts
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Due by the 10th
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Prepared by sales/marketing
Sales and operations plan
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Prepared by plant manager and controller
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Capacity issues
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Productivity
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Produced by the 15th
Questions?