Link to the second part of this series: Sales and Operations Planning – Where does Forecasting Fit in the S&OP process? Sales & Operations Planning is a management process that coordinates major pieces of the organization along the value chain and synchronizes all plans across organizational functions. Companies who have successfully established S&OP understand the probable impacts of their behavior, activities and decisions. In other words, managers can directly see impacts of their decisions (and we all know that the ability to see into the future would help us succeed in anything!). S&OP helps organizations link any supply chain system or strategy with operational execution. It does not however guarantee that the strategy is correct! S&OP would however show you rapidly that you were off-track. The process helps the organization to work in a way that allows people to rapidly respond to change, within the overall framework set by the leadership team. People are committed to work within the system in a way that makes sure they meet the given goals. To do so, the company has to set goals and sub-goals. The goals and the company’s performance review – and also the performance of the departments, people, partners etc. – requires the definitions of KPI’s. Which KPI’s do you need to make sure you have the visibility on your decisions that affect the goals? First part of the S&OP blog series To answer this and other questions about S&OP we provide a series that gives you a deeper insight and understanding of the process and related topics. Duncan Alexander from the S&OP consultants StrataBridge, a well known expert in S&OP will now give you an overview of the most important KPI’s used in a S&OP process. You do not know about the process at all? Then please read first the last chapter ‘what does a S&OP process look like?’. Marion: Which KPI’s are the most important for S&OP? Duncan: It depends! Firstly, there is a hierarchy of KPIs within any organization. Starting at the top in a classic balanced scorecard strategy map or dashboard, there are strategic objectives, against which delivery is assessed using KPIs. For example progress against a strategic objective of ‘Improved customer service’ might be measured by the KPI ‘On time in full’. Progressing down the hierarchy this KPI might sub-divide by sales channel or customer. At the most granular level, data is required on proof of delivery. The delivery driver’s activities are aligned to the highest level KPI and the organization’s strategic direction. Another set of KPIs commonly found are used to measure project benefits. Typical benefits from implementing S&OP processes are improved inventory turns and reduced obsolescence. At the start of the project, existing performance is established, and then the KPIs are tracked to see what impact the new S&OP process has had. Obviously it is not possible to exactly quantify the impact of S&OP alone, because there are normally several other projects underway, but tangible benefits can almost always be demonstrated. Often the KPIs used to measure project benefits are also found in the highest level strategic dashboard. Why? Because S&OP is used to integrate strategy with operations. The third set of KPIs used in the S&OP arena are process ones. Things like: forecast accuracy and bias; the number of action items from the previous cycle not completed; adherence to the calendar; and number of decisions taken/deferred. A list of common S&OP KPI’s (N.B. these should be tailored to your strategic direction – KPIs are not ‘one size fits all’ since improvements in one may lead to worsening in others – there are choices and trade-offs to be made here) Strategic - Spend by category on NPI (e.g. line extension / new to us / new to world) - Value of NPI pipeline - % of sales from NPI in last two years - Customer satisfaction (survey) - On Time In Full - Perfect orders - New account openings - Customer lifetime value - Distribution - Penetration - Market share - Forced choice preference for key brands - Brand investment as % of revenue - Price levels - % Margin - Overall Margin - Budget vs. projected sales forecast - Overhead costs as % of revenue - Supply chain costs as % of revenue - Training investment per head - Absence rate - Serious injury rate - EBITDA / EVA etc. - Net operating assets - Working capital utilization - Sales revenue Project Benefits - Slow moving / obsolete inventory as % of total inventory… - Obsolete packaging write-off - Order fill - Inventory turns / days stock cover Inventory oriented - Total inventory value ($) - Inventory Turns ($ and Units) - Days‘ Supply (DOI) Production/Receipts Oriented - Production to Schedule - Delivery to Schedule (procurement) - Delivery to Schedule (customer) - Capacity Utilization Process - % of NPI projects passing industrialization gate - % of NPI projects ‘late’ to gate - Forecast error (MAPE) - Forecast bias (PE) - Stat forecast vs consensus forecast tracking - Production schedule adherence (average weekly) - Production plan adherence (monthly volume) - Demonstrated capacity as % of planned capacity - Decisions in time - Decisions deferred - Calendar adherence - People availability - Efficiency of meetings - Availability of information - Action items from previous cycle not completed - Quality of information - External S&OP process assessment score What does a Sales and Operations Planning process look like? In companies without S&OP the disconnect between the Business Plan and Execution can cause many problems. Manufacturing may be pursuing an efficient strategy, while Sales are offering customers responsiveness. Different departments create their own demand plans e.g. each of Sales, Marketing and Demand Planning has different plans. Typically each does not know what the other is doing or planning, and then Finance override the whole process and say that the plan must equal the budget. S&OP requires one consensus demand plan and not two or three. How to synchronize these plans and how can different departments and people work together with great commitment? The same question needs to be answered for the supply side. What is the probable impact on Supply of new activities such as new product launches and other project plans? A key part of the S&OP process is where demand and supply are balanced. Can Supply fulfill the requirements of the demand plan with their current constraints? What can be done to remove constraints? Are there opportunities for more sales that Supply could fulfill which need to be flagged up to Sales? The penultimate step of the process is a reconciliation step, where the gaps against target are assessed, new plans are developed to closegaps, and decisions requiring senior management input are prepared. Finally, the leadership team needs to take some decisions on the options put before them, and then communicate these decisions back into the start of the next cycle as new planning assumptions. “StrataBridge are a boutique consulting firm focused on helping clients across the globe bridge the gap between strategy and operations. Dick Ling, co-founder of StrataBridge introduced the concept of Sales and Operations Planning in the late 1980sin his book ‘Orchestrating Success’, and StrataBridge people have focused on S&OP and supporting processes such as forecasting and new product development ever since. From high level planning through to detailed design, implementation and execution issues, StrataBridge will help educate guide and coach people to deliver sustainable change.” www.stratabridge.com
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