White Paper November Smart-Edge: Next Generation Sales & Operations Planning State-of-the-Art Application

Transcription

1 White Paper November 2012 Smart-Edge: Next Generation Sales & Operations Planning State-of-the-Art Application White Paper

2 2 Smart-Edge: Next Generation Sales & Operations Planning (S&OP) Introduction: Manufacturers face significant uncertainty today as they strive to align their supply with worldwide projected demand. The imbalance between supply and demand costs companies billions of dollars in excess inventory, stock outs, expediting costs and excessive discounts. Companies need to gain visibility and agility to improve their planning process, minimize unnecessary inventory buildup and maximize their profit potential in order to be competitive. Unfortunately, global shifts in demand, excess inventory and extensively long lead times are common factors of the manufacturing industry. Furthermore, unique processes are often needed to manufacture different products. Bringing in numerous smaller-size suppliers and subcontractors that specialize in those processes is increasing the size of supply chains and making them more complex. A larger number of suppliers is making it harder for manufacturers to manage and plan production. All these drivers of complexity can help explain why manufacturing companies have been continuously challenged to find an answer to two questions: How do I respond to customer demand faster? How do I reduce inventory? Overview: The Smart-Edge: Next Generation S&OP application allows decision makers to predict demand and continually fine-tune production plans to balance it with supply, resulting in optimized financial performance and priceless customer satisfaction. Smart-Edge allows manufacturers to: Investigate multiple production plan scenarios, evaluate enterprise level profit and meet customer priorities Understand the capacity gaps and excesses for different production plan scenarios Evaluate the financial impacts of different mitigation strategies (i.e. demand shaping, surge capacity) Provide present tradeoff metrics to determine an optimum mitigation strategy Simulate and understand the financial risk if the actual demand is significantly different from the forecast demand Sales and Operations Planning (S&OP) is a set of decision-making processes aimed to balance demand and supply, to integrate financial planning and operational planning, and to link high-level strategic plans with day-to-day operations. See Figure 1.

3 3 Figure 1: Smart-Edge Next Generation S&OP Addresses the Monthly Planning Cycle Business Problems: For as long as manufacturing has existed, those involved have walked the wavering tightrope between customer demand and manufacturing capability. Demand that exceeds capability leads to customer frustration and lost business. But capability that far exceeds demand wastes resources and can overstretch company finances to the point of breaking. This imbalance occurs when financial plans and the operational plans are not aligned. The key solution is an integrated decision support system that links the financial and operational plan. Smart-Edge is a decision support solution that propels the S&OP into the next generation. It extends the traditional S&OP process into true collaboration with Suppliers, beyond just matching near-term supply and demand.

4 4 Smart-Edge Next Generation S&OP solution integrates industry-leading Business Intelligence (BI) from IBI and state-of-the art predictive & prescriptive analytical software R. World-class IBI s WebFOCUS enterprise BI provides a very user-friendly interface to provide forward-looking reports which are easy to understand for business users, powered by R. See Figure 2. Figure 2: Smart-Edge: Next Generation S&OP Solution Platform Architecture CGN Global is a Management Consulting company, with significant experience in supply chain related projects in manufacturing industries. Smart-Edge: Next Generation S&OP was designed in collaboration with industry leading manufacturing companies, along with the leading Business Intelligence (BI) vendor Information Builders. The data models, processes and business logic are based on manufacturing companies. However, it can be configured to support alternative S&OP planning processes in any environment. Once the input data templates are populated and integrated with the WebFOCUS environment, the implementation time of the application is dramatically reduced.

5 5 S&OP Process: Smart-Edge allows the user to investigate multiple production plan scenarios, evaluate enterprise level profit and meet customer priorities by using sophisticated mathematical analyses and optimization techniques. The financial impacts of different What-If mitigation strategies are evaluated using Demand Shaping and Surge Capacity and trade-off metrics are presented so that an optimum mitigation strategy can be determined. Smart-Edge allows the user to examine the Risk Profile associated with any potential plan so the uncertainty can be intelligently managed. The application provides answers to questions such as: What is the production gap with the existing capacity constraints & the demand forecast? How much would the profit impact be? Is there a way, to allocate the parts to products so that the (i) profit is maximized (ii) production gap is minimized? When faced with a shortage of supplier capacity, are you able to create one clear production plan that takes into consideration your customer and/or product priorities? Is it possible to use Demand Shaping technique to reduce the production gaps and increase profitability? How to use surge capacity effectively in order to increase the capacity temporarily to improve the gaps & profitability without incurring capital expenditures? Are you able to look ahead and plan for uncertain future demands, enabling you to assess and manage your risks? The traditional S&OP process has 9 steps. Smart-Edge Next Generation S&OP process extends this. See Figure 3 for Traditional process (light-blue center portion) and Smart-Edge S&OP process (extended margins).

6 6 Figure 3: The Traditional 9-step S&OP Process is Expanded with Smart-Edge S&OP Source: CGN Evolved from Gartner page 17 ( Benefits: Significant business benefits can be realized by using the application. For details, see Figure 4. Improving Customer Satisfaction Determines Production Plans that most effectively utilize the assets of Suppliers and the OEM so that desired Customer Priorities are optimized. This enables greater customer satisfaction and ultimately higher revenue for the OEM. Optimizing the Profitability Sophisticated optimization techniques are used to identify the optimal production plan that maximizes the profitability of the OEM. Cost Effective Mitigation Plans Advanced mathematical techniques are used to identify the mitigation plans that reduce the inventory and other costs, and maximize profitability and customer satisfaction.

7 7 Risk Management Looking ahead and using What-If scenarios to plan for uncertain future Demand enabling minimal capital expenditures. Options will be identified fully taking into consideration the associated risks. Figure 4: Benefits of Smart-Edge: Next Generation S&OP

8 8 Application Details: Input Data: There are 6 input files that need to be loaded into the system on a monthly basis: (i) OEM Monthly Product Demand & capacity, (ii) Product Finance, (iii) Bill Of Material, (iv) Supplier Information, (v) Supplier Value Stream, (vi) Supplier Capacity. Several state-of-the-art mathematical models are built by integrating all these data elements and the reports are delivered in the 8 tabs. Tab 1: Data Integrity: This dashboard provides reports about data inconsistencies. If values are missing in the files OR if inconsistencies exist in the data between files, they are flagged in this report. If the errors are not critical, the system makes reasonable business assumptions and continues with the analysis.

9 9 Tab 2: Production Plan Comparison: This dashboard provides a summary of production gaps & profitability for multiple production plan options. The capacities of suppliers & OEMs are analyzed and compared to the forecasted demand to determine the best possible production options. If capacity gaps exist, several options can be used to allocate the available parts to products. Baseline uses proportional allocation, which means that parts are allocated to the products proportional to their forecasted demand. The Minimum Gap method uses optimization techniques to allocate the parts to the products so that the production gap is minimized. The Maximum Profit method uses optimization techniques to allocate the parts to the products so that the profit is maximized. The weights are the weighting factors that are used for the optimization. Equal weight means all products get equal weights. Demand based weight means products with higher forecasted demand gets higher weights. Custom weights are provided by the user any specific product can get higher weight, based on the customer priorities. Both Gap reports & profit reports are provided for all the 3 possible production plans (i) Baseline (proportional allocation), (ii) Minimum Gap method, (iii) Maximum Profit method.

10 10 Tab3: Detail Analysis: From Tab 2, the user can select a specific plan to do a detailed analysis. The user will be able to drill down to a specific site or a product group or a product and get a gap report and a profit report. Also, the user can drill down to a monthly level, and get the monthly report for any scenario. The user can export the complete production plan to an Excel spreadsheet for a detailed review.

11 11 Tab4: Production Gap Heat Map: For any of the production plan options, this tab provides a Production Gap Report. This report can be drilled down to any specific site or a product group or a product. This heat map is color coded in a way that the gaps are colored red and the non gaps are color coded green. Hence, very quickly, the user can visually see where the gaps are so that mitigation actions can be planned.

12 12 Tab5: Capacity Gap/Excess: Forecast demand and the capacity of OEM and suppliers are compared. The resulting gap or excess reports are provided both at the product level as well as the part level. The gaps are coded red in the Gap Report and the excesses are coded red in the Excess Report. The product level gap/excess reports provide information for mitigation plans for the OEM. Supplier level reports provide information for possible mitigation plans for suppliers.

13 13 Tab6: Demand Shaping: It is possible to have production gaps for some products for some months and have excess capacity for some products for other months. If there is excess capacity during some months for a specific product and then gaps during the following months, then it is possible to build products ahead of time and use them later when there is a gap. The tradeoff is between the cost of holding the inventory and the incremental profit of selling the additional products. This tradeoff analysis is automatically done and the new production plan is calculated with Demand Shaping for any of the 3 possible production option. The gap reports & the profit reports are provided for this scenario.

14 14 Tab7: Surge Cost Impact: If production gaps still exist, even after Demand Shaping, then the capacity of OEMs and/or the suppliers can be increased temporarily. The financial impact of this surge is provided in this tab. Based on this information, the user will be able to decide whether it is profitable to trigger the surge option for OEM and/or the suppliers.

15 15 Tab8: Risk Analysis: Demand forecast has uncertainty associated with it. The actual demand in the future can be higher or lower than the forecast demand. Every production plan is compared to a potential demand which is higher or lower than the forecast demand. The production gaps, profits and End of the Year (EOY) inventory are provided in this report. The user is able to evaluate these financial risks and is able to decide on the production plan that is aligned with the financial risk tolerable for the enterprise.

16 16 Business Intelligence Tools: WebFOCUS Intelligence Solutions empowers your organization to make smarter, confident decisions. Web Focus extends to your customers and partners, giving them access to analytic tools from any browser and mobile device. With WebFOCUS, the power of information is not reserved for just a few. Everyone is empowered to: Gain greater business insight from analytical applications Access real-time info and dashboards with mobile BI applications Act on real-time operational data Enable non-technical users to run self-service reports Support ERP BI environments, including SAP Modernize legacy systems to invigorate new business initiatives and preserve investments Complex reporting is our sweet spot. From financial and HR reporting to compliance reporting and dashboards, our business intelligence solutions make vital information valuable to everyone, at every level of the enterprise, on any Internet-connected device. And with the growing importance of digital channels, our customer-facing BI solutions help you to enrich relationships with your customers and partners. Cutting-edge business analytics, including predictive analytics, visualization, location intelligence and enterprise search allow even non-technical users to manipulate data in an almost unlimited number of ways to better understand customer behavior and focus on increasing profitability. Our out-of-the-box performance management solution empowers organizations to monitor, track and drive performance by communicating goals, measuring execution and assessing enterprise risk against performance strategies and objectives.

17 17 Conclusion: It is time for manufacturers to try something different than reacting to supply-chain symptoms solely with a short term strategy and without thoroughly understanding their own constraints. Creating a sustainable, structured supply chain may require more planning than the traditional reactive model, but it is the only way to manage and execute the complex task of matching supplier capacity with changing customer demand while minimizing the amount of inventory held. SMART-EDGE: Next Generation S&OP provides the needed structure allowing manufacturers to maximize efficiency, reduce costs and increase customer satisfaction. (See Figure 5, Overview of the Smart-Edge Process) Figure 5: Overview Smart-Edge Process

18 18 The success of any OEM depends strongly on its ability to monitor and maintain the health of its supply chain and to respond quickly to capacity issues that can arise from disruptions in the chain or surges in demand for the finished product. To do so effectively, the OEM must make use of a well-designed supplier capacity management system. The value of the SMART-Edge S&OP approach is summarized in Figure 6. Figure 6: The Value of Smart-Edge: Next Generation S&OP

19 19 About CGN Global CGN Global is a global consulting firm that provides Business Performance & Business Transformation services - with presence in the United States, China, India, Brazil and Europe. CGN Global works with senior executives and enterprises to create adaptive business models that enable them to respond, innovate and lead in the primary areas of transformational strategy, supply chain and lean operations, material cost management, logistics, humancapital management and business-technology integration. Founded in 1995 CGN Global is certified minority-owned business. Since the firm's inception CGN Global has been performance partners with Fortune 500 companies and government agencies. CGN Global serves several major industry sectors including automotive, financial services, healthcare, heavy equipment, manufacturing and the public sector. In April of 2011 CGN Global acquired Blackwell Consulting Services and launched CGN Blackwell, as a wholly owned subsidiary. The acquisition has expanded CGN Global's relationships in financial services and public sector as well as providing strategic extensions to the consumer products and energy industries. About IBI Superior customer service and market-leading innovation are the two fundamental principles that drive Information Builders and its employees every day. Our only interest is making sure our customers can apply intelligence, integration, and integrity solutions to dramatically improve the performance of their entire organization. Founded in 1975, Information Builders continues to deliver state-of-the-art technology that is transforming business in all commercial industries, government, and education. We remain one the largest independent, privately held companies in the software industry. Our reputation for customer service has garnered us the highest honors from CRM magazine, the SSPA, and the American Business Awards. Our products and services have received top recognition from independent analyst research firms including Gartner, Forrester, Ventana Research, BARC, Butler, Bloor, and The Data Warehouse Institute (TDWI). Most importantly, our customers have received the most information technology and business awards for their accomplishments. More than 50 of our customers have had their information systems inducted into the Smithsonian Institute for superior information technology achievement through the Computerworld Honors Program. Let us help you build the next success story! Contact us. More information can be found at For more information on the Application, contact Bruce Kolodziej of IBI at Bruce_Kolodziej@ibi.com.