S&OP & CPFR - A Winning Combination

1. S&OP & CPFR - A Winning Combination Mark K Williams, CFPIM, CSCP Supply Chain Solutions Center Demand Management

2. Do You Need To Collaborate? Have you ever received a “Surprise” customer order when they have a promotion? Have you ever been stuck with inventory when a customer drops a product? Have you ever noticed that there are as many as 3 plans floating around your company – one from Sales, one from Operations & one from Finance? Have you ever been informed that your largest customer is running a promotion – on an item you can’t get?

3. Tools for Collaboration External – CPFR Internal – S&OP Collaborate with internal departments Detailed sharing of information leads to better execution Break down barriers, promote responsibility • Collaborate with major customers • Detailed sharing of information leads to lower inventory and higher service levels • Can be applied to suppliers as well as customers Let’s Look At Each – Starting With CPFR

4. Collaborate ForecastSales ForecastOrders Replenish The Nine Stepsof ImplementingCPFR Plan Our Focus

5. Step 1: Arrange CollaborationExecutive Level Tasks Goals and Objectives Information Sharing Confidentiality Resources Expectations Problem resolution Output – Published agreement

6. Step 2: Create Joint Business PlanManagement Level Tasks Common Goals Drive Improved Results Corporate & Partnership Strategies Item Management Exception Criteria Metrics

7. Monthly CPFR Activities Forecast Sales, Identify and Resolve Exceptions

8. Step 3: Create Sales Forecast • Both parties create sales forecast for next 6 months • Sales forecasts based on • History • Category trends • Seasonality (if applicable) • Market feedback • Known promotional activity • Compare item forecasts

9. Step 4: Identify Exceptions Two sales forecasts reviewed against exception criteria Differences within exception criteria – no problem Differences exceeding exception criteria – demand planner & buyer must resolve

10. Step 4: Identifying Exceptions Agreed tolerance level: +/-15%

11. Step 5: Resolving Exceptions

12. Customer Develops Orders Based On Joint Forecast Now Comes The Hard Part Internal Collaboration!

13. The Monthly S&OP Process

14. Key Elements of S&OP Process Supports the business plan Monthly process Performed at aggregate (product family) level Reconcile all supply, demand, and new product plans Goal: ONE plan for executing business strategy

15. Step 1 – Run Sales Forecast Reports • Key players – Demand Planning & IT • Update sales, production, inventory information from the month just ended • Provide Sales & Marketing with statistical forecast information needed to revise forecasts • Provide Operations with actual production & inventory information Vs. last month’s goals

16. Step 2 – Demand Planning Process • Key players – Demand Planning, Sales, Marketing • Demand Planning analyzes statistical data to provide input to Marketing • Sales & Marketing review last month’s performance and explains significant misses

17. Document Causes & Corrective Actions

18. Sales & Marketing Provides Updated 6 – 24 month Forecast – 1st Pass Spreadsheet

19. Step 3 – Supply Planning Process • Key players – Demand Planning & Operations Groups • Review last month’s performance against goals • Examine reasons for variances against goals and determine actions to compensate • Revise product level operations plans

20. Document Causes & Corrective Actions

21. Operations Produces 2nd Pass Spreadsheet

22. Pre-S&OP Meeting

23. Step 4 – Pre—S&OP Meeting • Key Players – Department Heads (or designee) of Sales, Operations, Marketing, Demand Planning • Review 1st & 2nd pass spreadsheet differences • Resolve differences to present one set of recommendations to Executive Management • Determine areas where agreement cannot be met • Set final agenda for Executive S&OP Meeting

24. Step 5 – Executive S&OP Meeting

25. Step 5 – Executive S&OP Meeting • Key players – top company executives, department heads of Sales, Operations and Marketing, Demand Planning • Review of last month's sales & operations metrics against plan • Review status of new products • Review major problems/opportunities

26. Step 5 – Executive S&OP Meeting • Review/approve changes on each product family • Review/approve changes in Product/Procurement rates that have a major impact • Review/approve decisions made in Pre-S&OP meeting • Output – One Sales & Operations Plan

27. CPFR & S&OP – Monthly Timeline

28. Add CPFR to S&OP….

29. Mark K. Williams, CFPIM, CSCP QAD, Inc (561) 964-7549 mark.williams@qad.com