Breakfast seminar. Sales & Operations Planning. Dan Schultz Håkan Espenkrona Peter Wahlgreen Tetra Pak

Transcription

1 Breakfast seminar Sales & Operations Planning Dan Schultz Håkan Espenkrona Peter Wahlgreen Tetra Pak

2 MYSIGMA welcomes customers and partners to this seminar

3 MYSIGMA BREAKFAST SEMINAR SERIES PROGRAM :30 07:40 Grab a sandwich & coffee and find a seat 07:40 08:00 Sales & Operations Planning - much more than just another meeting 08:00 08:30 Case presentation. Alfa Laval and Tetra Pak - establishing a joint S&OP process 08:30 Q&A

4 Sales & Operations Planning Much more than just another meeting Presented by Dan Schultz- MYSIGMA

5 Background and need for collaboration A study on German pork production 100 years ago shows issues with planning Supply Demand 2 years is the approximate time it takes to breed a new pig stock S&OP is about balancing demand and supply on a regular and formal basis

6 Monthly process S&OP in general terms Sales forecasting Gather data on sales & quotations Demand planning Validate forecasts and sales plan Forecasting software Commitment to purchase 100% of quantity Commitmentto purchase 70% of quantity (pcs) Commitment to purchase 60% of quantity (kg) 0,8 1,1 0,9 1,2 1,3 1,2 1,1 1 0,8 0,7 0,9 1 Supply planning Pre-S&OP Reviewing available material and capacity to meet demand Match supply and demand plans with financial considerations (impact, constraints) Delivery schedule Annual Weght in Lead Article No demand May June July Aug Sep Oct Nov Dec Jan Feb Mar Apr period 6-12 time (pcs) [kg] , Booked Capacity Material orders booking booking Freezing Point S&OP Meeting Agreed plan S&OP plan follow up

7 Supply Demand The conflict to solve The supply benefits from a leveled pace The market demand is volatile TAKT? Period Period Is it possible to meet the volatile demand and also have a levelled pace in the supply resources?

8 Three areas to focus on All supply chains can develop and implement a S&OP process. But to achieve real improvement three basic areas must be addressed: 1. Common targets in sales and supply organisations 2. Forecast quality Forecast quality 3. Supply flexibility S&OP Complexity Supply flexibility

9 Common targets

10 Profitability Profitability The S&OP environment needs to be balanced to avoid sub optimization Demand driven Supply driven Over sized production Lost sales Sales Operations - Inventory build - Excess capacity - Costs go up Low margins Sales Operations - Extra cost for overtime - Late shipments - Long lead time Lost sales S&OP needs to be driven from a holistic perspective where both supply and demand targets are considered

11 Example where supply driven S&OP creates a vicious cycle Risk for late orders and increased stock values Fictive demand allocate capacity Lack of information Annual forecast from Sales 1 Lack of flexibility Operations make a smooth forecast distribution over coming 12 months 2 3 Supply chain is then dimensioned according to an even demand Increased forecasts / Speculation orders 6 Reduced competitiveness 5 4 Supply are forced to pro long delivery lead time Real demand is stochastic a supply challenge. Both flexibility and market information needs to be addressed

12 Forecast quality

13 Volume Volume Volume Understanding market forecasting errors Delay Order Forecast Period Future demand is based on the current situation and the forecast is therefore be set at the current pace with a time shifting factor. The effect is that the future is not in focus, the current state is. + = Manual estimation Order Forecast Forecast Order Period A sales manager with a low forecast will easily get criticized for not trying hard enough Forecasting on item level means many difficult decisions, especially on low frequent items Period Reduce complexity minimize the number of forecasts, e.g. - Product group instead of per item - Region instead of local - Decrease forecast frequency

14 ORDER INTAKE (MSEK) Forecasting Always a dilemma CEO comments based on quarterly reports from a major Swedish manufacturing company. Turnover ~90 Billion SEK. The demand is expected to remain at a high level. The total demand is expected to remain at the current high level The aggregated demand is foreseen to remain at the current level. The combined demand of the groups products and services is expected to slightly increase Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 Source: Quarterly reports

15 Example, too detailed forecasting is likely to hold many errors -A sales force of 300 persons -50 materials to forecast -Local forecasts summed up 300 persons * 50 materials *12 months = decisions The above example is from a real case. Forecast accuracy for the 50 materials was +305%

16 Supply flexibility

17 Delivery quantity Production quantity How can flexibility be created with limited cost impact? Supply flexibility is needed to meet fluctuating demand, for example: Excess capacity Pro longed delivery lead time, see example below Reduced sourcing lead time Buffer stock Freezing point Max Capacity Delivery vs Production Lt = 5 w Delivery week Production week Fixed delivery plan Example: A make to order flow with prolonged lead time gives the opportunity to pre pone manufacturing to maximize resource utilization Each supply chain is unique and suitable flexibility solution has to be evaluated from case to case

18 Push and pull in combination enables cost efficient flexibility Stock is used for high runners where demand is predictable. Periods where demand is lower than forecast, stock is used to ensure even pace in supply Periods where demand is higher than forecast stock is used to ensure deliveries 20% 80% Even pace in the production Flexibility offered with the finished goods stock Example of supply chain differentiation that supports both cost efficient supply and market demand

19 Three areas to focus on 1. Common targets in sales and supply organisations 2. Forecast quality 3. Supply flexibility

20 Case presentation - Alfa Laval and Tetra Pak establishing a joint S&OP process Peter Wahlgreen General Manager Tetra Pak Processing System Håkan Espenkrona MYSIGMA Mikael Tydén VP Operations Alfa Laval

21 The challenge was to enable short lead times without having a negative impact on product cost ALFA LAVAL HIGH SPEED SEPARATORS? Orders Deliveries? TETRA PAK PROCESSING COMPONENTS Background: Complex Bill-of-Material - Difficult to coordinate - Low inventory turnover rate In the ambition to be cost efficient all orders were make-to-order Low flexibility: Higher order intake means longer delivery lead time Low trust in Tetra Pak forecast Long delivery lead time (up to 36 w) High stock level to meet market demand Orders have been lost due to insufficient delivery performance Low trust in Alfa Laval delivery capability

22 12-Q4 13-Q1 13-Q2 13-Q3 13-Q4 14-Q1 14-Q2 14-Q3 14-Q4 Weeks Lead time reduction according to project plan Project start Rapid implementation plan during Target: 12 weeks delivery time 5 0 Actual BII (2398) Plan

23 Implemented solution

24 To reach the goal of 12 weeks lead time a robust solution required several changes Business Plan Agree on a range of standard products Standard components can be used as a base for a large part of the total sales volume Sales & Operations planning Sales & Operations planning Improved visibility in the information flow removing need of pre-orders/speculation orders Operational planning Buffer Stock Components in front of assembly creating an Assemble-to- Order (ATO) flow Processes & Tools Support the Operations planning. (Capacity planning, Buffer planning and Inventory Control)

25 Sales & Operations Planning

26 VOLUME INDEX (2003) Speculation creates a bullwhip-effect in the supply chain 140 Tetra Pak experiences prolonged lead times Speculation orders (pre-orders) (~ 20 % 2008) % -73% YEAR Finished goods at Tetra Pak stock No orders to Alfa Laval increasing volatility Deliveries from Tetra Pak Deliveries from Alfa Laval A deal with no winners Alfa Laval: Increased Production cost & lead time Tetra Pak: Increased Tied up capital

27 Monthly process The S&OP process Sales forecasting Gather data on sales & quotations Demand planning Validate forecasts and sales plan Supply planning Pre-S&OP S&OP Meeting Access the ability to meet demand by reviewing available material and capacity Match supply and demand plans with financial considerations (impact, constraints) Finalize the plan

28 Demand planning hot prospects Information removed due to confidentiality

29 Dash board order intake vs. budget Information removed due to confidentiality

30 Quotations follow up Information removed due to confidentiality

31 Volume index Order intake per quarter last 4 years Positive deviation vs average 120 Average Negative deviation vs average 20 0

32 Volume index Where are we headed based on current quotations, other forecast input and historical pattern? What demand should we plan for? 1. Growth 2. Equal to last quarter 3. Decline to average rate last years 0

33 The main purpose of the S&OP meeting is to finalize the agreed delivery plan Agenda Previous meeting minutes S&OP Planning - Delivery plan - Stock situation - Current delivery time KPI Market information - Potential projects (quotations) - Forecast changes Agreed delivery plan Decisions

34 Visibility Agreed delivery plan

35 months ago Over 30 orders allocating capacity with no real demand 6 5 First available production slot Phase 1 Fixed Period Phase 2 Flexible Period Phase Reserved capacity slots Flexible Period

36 12-Q4 13-Q1 13-Q2 13-Q3 13-Q4 14-Q1 14-Q2 14-Q3 14-Q4 Weeks Result vs plan - Lead time reduction plan Actual BII (2398) Actual Plan BII (2398) Plan

37 Hard facts Overall project result Customer orders won thanks to shorter lead time Lead time reduction to a third (from 36 to 12 weeks) supporting long term growth plan 100% Delivery on Time 12 months in a row! Reduced tied up capital Positive effect on cash conversion cycle Non-quantified benefits Improved communication and trust between Tetra Pak and Alfa Laval Rework almost disappeared Reduced administration (Re-planning of orders removed)

38 Turning Business Strategy into Supply Chain Excellence