msd medical stores department Operations and Sales Planning (O&SP) Process Document

msd medical stores department Operations and Sales Planning (O&SP) Process Document August 31, 2011

Table of Contents 1. Background... 3 1.1. Objectives... 3 1.2. Guiding Principles... 3 1.3. Leading Practice... 4 2. Scope... Error! Bookmark not defined. 3. Definitions and Acronyms... 5 4. Operation and Sales Planning (O&SP) Process Flow... 6 5. Operation and Sales Planning (O&SP) Process Description... 7 5.1. Pre O&SP Activities... 7 5.2. Bimonthly Stock Tracking Meeting... 7 5.3. Monthly O&SP Meeting... 8 5.4. Modify and Communicate O&SP... 8 5.5. Monthly EMT Meeting... 8 5.6. Sample Bimonthly Stock Tracking Meeting Scenarios and Actions... 9 5.7. Average Lead Time for Procurement, Clearing, and Receiving... 9 5.8. Next Stock Out Date Calculation... 10 6. Root Cause Analysis Process Description... 11 6.1. Summary... 11 6.2. Root Cause Analysis Checklist... 11 7. Roles and Responsibilities... 12 8. Key Performance Indicators (KPIs)... 14 9. Procurement Planning Tool... 15 10. Zonal Forecast Update... 15 11. Demand Trend Analysis... 15 12. Success Dependencies... 16 13. Related Documents and Templates... 16 2

1. Background 1.1. Objectives The Operations and Sales Planning (O&SP) is a set of cross functional processes which optimize demand, supply, revenue, cost, risk and opportunity. The objectives of these processes are to proactively manage stock outs, to improve inventory management, to ensure a realistic annual forecast, to effectively manage changes to the O&SP Plan, to measure performance, and to build collaboration throughout the organization. The initial scope of O&SP will be limited to just the ILS program and top 20 fast moving items. The process consists of two bimonthly stock tracking meetings, one monthly O&SP directors meeting, and one monthly EMT meeting. The main purpose of the bimonthly stock tracking meetings is to be a cross functional operational working session at the manager level focused on existing stock outs and near term potential stock outs. The monthly O&SP meeting is similar, except it is at the director level and focused on longer term potential stock outs and O&SP plan revisions required to meet changing demand trends. The O&SP process acts as the catalyst and sponsor for cross functional working between the demand and supply and should ensure that they are working effectively and have the right level of input. This will assure medicine availability, measured through the KPI s. In between the O&SP related meetings is a root cause analysis continuous improvement process. This process identifies the specific reasons for existing stock outs and allows management to understand the areas of repetitive issues. The main output of the bimonthly meeting is to ensure actions are being taken to meet the O&SP plan. Conversely, the main output of the monthly O&SP meeting is to ensure everyone agrees on a rolling O&SP plan that governs the entire organization from expected sales, required procurement needs, financial requirements, etc. 1.2. Guiding Principles The O&SP meetings require feedback and information from the participants that is extremely important to complete before the meeting (Further information about these activities is presented in the Operations and Sales Planning (O&SP) Process Description section). Meetings should focus on actions to be taken. All the analysis should had been done previously. Support material on the decisions to be made should be distributed before the meeting to enable input from a wide range of functions. Attendees who will not attend should brief one of the participants before the meeting. Additional attendees can be invited to the meetings, as necessary, to discuss specific topics. Attendees should be encouraged to raise issues early. The meeting schedule is defined in advance so participants can plan their schedule around these meetings with priority given to it. Meeting dates should not be changed. 3

1.3. Leading Practice As MSD progresses through the evolution of using an O&SP framework, it can reference the below chart for future improvements to the process as it becomes more embedded in the organization. O&SP Elements Common Progressive Leading Practice Communication & Consensus Across Organization O&SP Process Design O&SP System Several different forecasts in various functional areas that are not tied together or agreed upon Forecasting involves different departments No formal O&SP process established Informal meetings between departments as needed No O&SP system Reports, spreadsheets, emails, and conversational data One rolling plan demand, supply, and financial forecast drives entire supply chain Most key departments participate in the monthly process Sometimes management and executive participation is sporadic or depends on what issues will be discussed in meetings Process design ensures focus on the key issues involving the extended supply chain Fire fighting activities are done outside of the O&SP process so to not address them at the expense of integrated planning Hierarchical O&SP meetings/processes ensure the decision making leaders are discussing the topics they have the most input and control over at all levels Pre meeting activities take place at all levels before meeting and the agenda is strictly adhered to Demand planning system functionality is leveraged to aid O&SP process O&SP reporting tools developed from integrated package or interfaced package All business activities are driven off the One rolling plan with no other plans developed or tracked Communication of performance gaps in metrics and actions required across organization are incorporated into the formal O&SP routine Management leads by example in actively participating in process and meetings with all key departments across the organization Integrated planning process is embedded into organizational operating processes to the extent that its business as usual Process is standardized Personal incentives are tied to executing the overall One rolling plan at each level in areas employees have control over Process is designed to facilitate senior management review of demand/supply imbalances and provide a forum to discuss business decisions that will balance supply and demand Implementation of customized O&SP system that fit company specific process and includes all data critical to make key O&SP decisions across the end to end supply chain Systems are built within or integrated with advanced planning systems Systems are implemented and standardized across all lines of business and regions 4

2. Definitions and Acronyms Abbreviation O&SP ILS EMT SKU KPI RCA PO Operations & Sales Planning Integrated Logistics System Executive Management Team Stock Keeping Unit Key Performance Indicator Root Cause Analysis Purchase Order Description 5

3. Operation and Sales Planning (O&SP) Process Flow 6

4. Operation and Sales Planning (O&SP) Process Description 4.1. Pre O&SP Activities The pre O&SP activities include the preparation of materials for the O&SP meetings. The activities are mainly completed by the O&SP analyst with inputs from Procurement, Clearing, Receiving, and Demand Planners. 5.1.1. Provide feedback and future delivery plans from Procurement, Clearing, and Receiving 5.1.1.1. O&SP spreadsheet is sent to the following stakeholders in the listed order: Procurement, Clearing, and Receiving 5.1.2. Obtain updated zonal demand forecast from Customer Service Manager 5.1.2.1. Zonal officers populate Zonal Demand Forecast Update spreadsheet template for the next three months or quarter based on recent and historical sales trend 5.1.2.2. Send to Customer Service Manager 5.1.2.3. Customer Service Manager consolidates updated demand forecast 5.1.3. Identify issues and items that require cross functional discussion 5.1.3.1. Exclude items that have on time shipments in clearing or receiving 5.1.3.2. Exclude items that have on time call offs with sufficient quantity to meet forecast 5.1.4. Create O&SP reports 5.1.5. Update performance KPI measures 5.1.6. Develop agenda 5.1.7. Distribute meeting materials 4.2. Bimonthly Stock Tracking Meeting Meets every other week on Mondays at 10:00AM The bimonthly stock tracking meeting is to review the short term performance (less than three months) of the O&SP Plan. It is an operational focused meeting that makes short term decisions to ensure the organization is aligned to the O&SP Plan. The participants of this session are demand planning/zonal area, procurement, clearing, receiving, sales, logistics, finance, and inventory analyst. 5.2.1. Review uncompleted action items from previous bimonthly meeting 5.2.2. Review performance KPI measures 5.2.3. Review current inventory stock levels with zero remaining stock 5.2.3.1. Discuss current stock outs at zonal warehouses and inventory reallocation options from other zones 5.2.3.2. Discuss root cause analysis and results 5.2.3.3. Assign Action Items for each issue 5.2.4. Review current inventory stock levels with stock outs to occur in the next three months 5.2.4.1. Discuss immediate actions that can be taken to prevent pending stock out 5.2.4.2. Assign Action Items for each potential issue 5.2.5. Review and verify each participant s assigned action items 7

4.3. Monthly O&SP Directors Meeting Meets every 15 th day of each month The monthly O&SP meeting is a director level meeting to validate and make adjustments to the O&SP Plan. It is structured into two halves: looking back and looking forward. Looking back, it reviews the activities from the bimonthly stock tracking meeting and previous month O&SP plan performance. Then looking forward, it makes any necessary updates to the O&SP Plan. The participants are Director of Logistics, Procurement, and Customer Service & Sales. 5.3.1. Looking Back: Review previous month activities from the bimonthly stock tracking meeting 5.3.1.1. Review performance KPI measures 5.3.1.2. Review issues and actions taken by the bimonthly stock tracking meeting 5.3.1.3. Review root cause analysis and results 5.3.2. Looking Forward: Review and sign off on updates required for next month and quarter s plan 5.3.2.1. Review variances in forecast with a focus on larger variances 5.3.2.2. Review forecast updates from the zonal level 5.3.2.3. Discuss assumptions that may have changed such as market conditions 5.3.2.4. Agree to only one updated plan that encompasses the activities of demand planning, procurement, distribution, inventory, finance, sales, etc. 5.3.2.5. Raise any issues that need to be discussed in the EMT meeting 5.3.2.6. Sign off on any changes to the O&SP plan 5.3.3. Periodically review O&SP process/procedures and discuss improvements 4.4. Modify and Communicate O&SP The post O&SP activities mainly consist of the distribution of communication to the impacted areas of the organization and the execution of the modified O&SP plan. 5.4.1. Create meeting minutes 5.4.2. Communicate decisions to all impacted areas of the organization 5.4.3. Update O&SP Plan and execute 4.5. Monthly EMT Meeting Meets as scheduled During the monthly EMT meeting, an agenda item is included for the discussion of O&SP activities. 5.5.1. Review previous month performance KPI measures 5.5.2. Review previous month completed activities and planned activities 5.5.3. Discuss critical team issues 5.5.4. Provide strategic guidance for longer term planned activities 8

4.6. Sample Bimonthly Stock Tracking Meeting Scenarios and Actions Situation Action To Take Action Owner No change Needed None None Insufficient Inventory Procurement to begin process of procuring Procurement additional items through call off orders or tenders Insufficient Inventory See if inventory can be redistributed from another warehouse with surplus Zonal Warehouse, Inventory Analyst Insufficient Inventory Reduce demand by suggesting alternative items Sales Excess Inventory Cancel or reduce orders planned or in progress Procurement Conflicting Data or Discuss with present stakeholders and follow up All Status post meeting if necessary Supplier Issues Procurement to work with supplier to address Procurement issue and raise it to the monthly O&SP meeting with Directors if necessary Pending Approval Relevant stakeholder to follow up with the person All or organization that is required to provide approval Pending Payment Finance to follow up on status of payment Finance Changes In Products Sales and Demand Planners to review upcoming changes such as new items and how it will impact forecasts Sales, Demand Planning 4.7. Average Lead Time for Procurement, Clearing, and Receiving Activity From Activity To Responsible Average Lead Time Issue PO or Call Off (nonframework) Shipment Sent Procurement Two (2) Months Issue PO or Call Off Shipment Sent Procurement Two (2) Months (framework) Shipment Sent (local supplier) Arrival to Dar Entry Procurement One (1) Month (skips clearing process) Shipment Sent Arrival to Dar Entry Procurement One (1) Month (international supplier) Arrival to Dar Entry (port) Shipment Cleared Clearing One (1) Month Arrival to Dar Entry (airport) Shipment Cleared Clearing One (1) Month Shipment Cleared (port) Received at Warehouse Receiving Three (3) Days Shipment Cleared (airport) Received at Warehouse Receiving Three (3) Days 9

4.8. Next Stock Out Date Calculation This section describes how to calculate the next stock out date based on current inventory, on ordered inventory, forecast, and delivery schedule. It assumes the Next Delivery Qty is accurate and Next Delivery Date will follow the delivery plan. The tool is part of the O&SP Spreadsheet and set up for the 2011 2012 fiscal year. Definitions: Current Inventory The inventory on hand in the central warehouse Monthly Forecast The forecasted consumption amount per a month Months In Stock The Current Inventory divided by the Monthly Forecast Next Delivery Qty The inventory on order and expected on the Next Delivery Date Next Delivery Date The next expected delivery date of an order Two Delivery Dates From Now The following delivery date after the Next Delivery Date Formula: Next Stock Out Date = IF: Current Inventory is zero THEN: Already Stocked Out ELSE: IF: (Months In Stock + Today s Date) < Next Delivery Date THEN: Next stock out date is (Months In Stock + Today s Date) ELSE: IF: (Months In Stock + Next Delivery Qty / Monthly Forecast + Today s Date) < Two Delivery Dates From Now THEN: Next stock out date is (Months In Stock + Next Delivery Qty / Monthly Forecast + Today s Date) ELSE: No Anticipated Stock Out The formula first checks if there is already an existing stock out. It then checks if the inventory on hand is enough to make it to the next delivery. Finally, it checks if the inventory on hand with the next delivery quantity is enough to make it to two deliveries from today. 10

6. Root Cause Analysis Process Description 5.1. Summary The root cause analysis is used as a continuous improvement tool to uncover the reasons for stock outs. The stock out reasons and the solutions are then documented for reference and historical reporting. While there may be several reasons that caused the stock out issue, the process is looking for the initial main reason. Process Lead: The root cause analysis task will be managed by the inventory analyst with considerable input from cross functional teams. Ideally a small team including inventory, procurement, clearing, and receiving can go through the root cause analysis process prior to the bimonthly stock tracking meeting. Alternatively the process can be run during the bimonthly meeting as each stock out is discussed. Trigger: When a SKU reaches zero inventory stock at the central warehouse and there is forecasted demand. Inputs: O&SP Spreadsheet, Feedback from cross functional teams such as demand planning, inventory analyst, procurement, clearing, receiving, finance, etc. Process: 1. Record and identify the stock out issue in the Root Cause Analysis Tracking template 2. Investigate the stock out issue using tools such as the Root Cause Analysis Checklist during the time in between bimonthly stock tracking meetings 3. Document the stock out reason and potential solution in the Root Cause Analysis Tracking template 4. Communicate the findings in the next bimonthly stock tracking meeting Output: A specific documented reason for the stock out and a potential solution to remedy the issue 5.2. Root Cause Analysis Checklist The checklist provides a starting point for cross functional discussions. The first step in the root cause checklist is to determine if the O&SP forecast was inaccurate. If not, then the process proceeds to understand why not enough inventory stock was ordered or received to meet the forecast. It is a tool to guide a user to find the most common reasons for stock outs and may not cover exception cases. A major input to this process is the cross functional team knowledge to uncover the main root cause issue, however, the team may decide to rely on an informal discussion rather than a formal checklist tool. Please refer to the separate word document appended to the Related Documents and Templates section below. 11

7. Roles and Responsibilities Below is a summary of the expectation from each functional area with their participation in the O&SP process. Role Name Frequency Responsibilities Bimonthly Stock Tracking Meeting Inventory Analyst TBD Bimonthly 1. Directs bimonthly O&SP meetings 2. To consolidate inventory stock tracking reports and distribute meeting agenda before the meeting 3. To ensure information from Procurement, Clearing, and Receiving are received in a timing matter 4. To distribute action item tracking status sheet prior to the meeting 5. Manages and updates performance KPI measures 6. To distribute meeting minutes after the meeting Procurement TBD Bimonthly 1. To provide procurement status and next expected order details at least two days prior to the bimonthly meeting 2. To verify on order quantities pulled from ERP reports 3. To attend bimonthly stock tracking meeting 4. To complete action items assigned before the next bimonthly meeting 5. To assist with Root Cause Analysis Clearing TBD Bimonthly 1. To provide clearing status notes at least two days prior to the bimonthly meeting 2. To verify QC clearing quantities pulled from ERP reports 3. To attend bimonthly stock tracking meeting 4. To complete action items assigned before the next bimonthly meeting 5. To assist with Root Cause Analysis Zonal Area Manager /Demand Planner TBD Monthly 1. To provide quarterly updated forecast for each SKU forecasted at least three months into the future 2. To provide information on changing market or customer trends 3. To assist with Root Cause Analysis Sales TBD Bimonthly 1. To collect updated forecast from Zonal Area Managers 2. To attend bimonthly stock tracking meeting 3. To complete action items assigned before the next bimonthly meeting 4. To provide information on discontinued or new products 5. To assist with Root Cause Analysis 12

Finance TBD Bimonthly 1. To attend bimonthly stock tracking meeting 2. Provide input on budgetary constraints 3. To complete action items assigned before the next bimonthly meeting 4. To assist with Root Cause Analysis Warehouse Manager TBD As needed 1. To provide feedback and comments as needed for any action items Monthly O&SP Meeting Inventory Analyst TBD Monthly 1. To prepare materials and lead monthly O&SP meeting 2. To prepare materials for monthly EMT meeting 3. To distribute action item tracking status sheet prior to the meeting 4. To distribute meeting minutes after the meeting Procurement Director TBD Monthly 1. To lead monthly O&SP meeting 2. To complete action items assigned Logistics Director TBD Monthly 1. To attend monthly O&SP meeting 2. To complete action items assigned Customer Sales Director TBD Monthly 1. To attend monthly O&SP meeting 2. To complete action items assigned 13

8. Key Performance Indicators (KPIs) Key Performance Indicators (KPIs) are important reporting tools to track the impact of the O&SP process. In the short term, most of the KPIs will require manually tracking until it could possibly be integrated with the ERP system. KPIs should be reviewed at the beginning of each O&SP related meeting. The below lists several recommended KPIs to consider. Key Performance Calculation Formula Indicator Stock Availability # of Stock Outs / Total # of Items Near Stock Outs Excessive Inventory Root Cause Analysis Effectiveness # of items with less than 3 months of stock / Total # of Items # of items with more than 12 months of stock / Total # of Items # of Stock Out Reasons / Total # of Stock Outs Forecast Accuracy Forecast Demand Actual Demand / Forecast Demand Forecast Bias Forecasted Demand Actual Sales Means of Verification Stock on Hand Inventory Report Stock on Hand Inventory Report Stock on Hand Inventory Report Stock on Hand Inventory Report, Meeting Minutes Demand Plan, Historic Sales Demand Plan, Historic Sales Timeframe Bimonthly Bimonthly Bimonthly Monthly Monthly Monthly Activities To measure the number of stock outs MSD experiences each month. Stock outs will be considered when there is zero inventory and there is expected demand. To measure the number of stock outs or near stock outs that fall into MSD s buffer stock level. Stock outs will be considered when there is zero inventory and there is expected demand. To measure the number of items that have more than 12 months of stock. High inventory levels may signal an issue with effectiveness. To measure the effectiveness and how often root cause analysis is used To measure the accuracy and effectiveness of O&SP forecast. Forecasted quantity for the month produced 3 months before date To check if there is bias in our forecasting. If the bias is large and positive, then our forecast is higher than actual demand. Vice versa for negative. Length of Stock Outs O&SP Action Item Completion (Total Working Days Out of Stock Days) / Total Working Days # of late action items / Total # of action items TBD Monthly To measure the percentage of days there was not enough stock to meet shipments from the warehouse. Stock out is defined as insufficient inventory to meet customer's order. Only SKUs with sales forecast different from zero in the month are considered Meeting Minutes Quarterly To measure the timeliness of action items completed from O&SP meetings. 14

9. Procurement Planning Tool An excel based tool was developed to help create and maintain a procurement plan based on monthly forecasts, current stock on hand, supplier lead time, and order frequency. The tool calculates the quantity required, the date of delivery, and the date to place the call off order. The delivery dates are fixed once the order frequency is decided in the beginning, however, the order quantity will automatically update. This is a temporary tool to bridge the gap with the ERP implementation. The delivery schedule will also help identify when call off order quantities can be updated based on changes in forecast. Please refer to the schedule appended to the Related Documents and Templates section below. 10. Zonal Forecast Update An average monthly forecast is typically completed annually in the April/May timeframe, however, now Zonal Area Managers provide more frequent forecast updates. A spreadsheet template consisting of the current forecast and historical sales specific to each zone is sent out to all Zonal Area Manager. Their input is then factored into the monthly O&SP directors meeting. These forecast updates may be collected on a quarterly or monthly basis. The intent of the forecast updates is to capture changes in customer demand and adjust the plan accordingly. Please refer to the schedule appended to the Related Documents and Templates section below. 11. Demand Trend Analysis The demand trend analysis assessment was to identify common demand trends using the sales data for the last three years. The timeframe of three years helps disregard one time exception cases that may have skewed the demand. This analysis should help more accurately forecast demand during the annual planning session and during the monthly O&SP meetings. The analysis first calculated the sales variability (excluding May and June due to stock counting) and then segmented the SKUs into four categories based on variability and volume. It helps prioritize SKUs and groups them in different ways to manage such as pushing SKUs that are high volume and low variability. Notable Observations: There are only 4 items that are high volume and high variability, requiring the most attention 15

There are 26 items that represent 64% of the overall sales volume that are high volume and low variability Majority of the items or 85% of items have lower variability that is more predictable Items such as medical supplies with high volume and low variability can be considered for a push system as it does not have expiration or storage space concerns either The detailed analysis spreadsheet and summary PowerPoint can be found appended to the Related Documents and Templates section below. 12. Success Dependencies The O&SP process may have dependencies on other areas that may impact the success, but are not directly in scope for this project. Below outlines the areas of potential impact. Financing Fund Availability if there are not enough funds to meet the actual demand of customers, it will be difficult to avoid stock out issues due to the imbalance between supply and demand Procurement Tender Schedule if the procurement tender process isn t completed in time, there may be a gap of order serviceability due to the expiration of supplier contracts to provide the items ERP System Capabilities if the ERP system can t handle processes such as forecast updates, stock tracking, etc, it will be difficult to conduct the O&SP activities as information collection will become a timely, manual activity ILS Unfilled Orders the lack of capturing information for unfilled items or lost sales from ILS order forms in an ERP system prevents forecasting from understanding the true customer demand 13. Related Documents and Templates Document Description Attachment O&SP Spreadsheet Template KPI s Scorecard Report used in the bimonthly stock tracking meeting and the monthly O&SP meeting. Contains inventory stock levels, sales, forecast, and comparison. KPI scorecard that tracks the relevant KPIs. It is a part of the O&SP spreadsheet. O&SP Spreadsheet Template See O&SP Spreadsheet Template Action Item Log Template To keep track of the action items assigned during the O&SP See O&SP 16

Root Cause Analysis Tracking Template Root Cause Analysis Checklist O&SP Meeting Agendas Procurement Planning Tool Zonal Demand Forecast Update Demand Trend Analysis Summary Demand Trend Analysis meetings. To keep track of the root cause reasons for stock out items. Tool to guide a user to find the most common reasons for a stock out. Explains the main agenda to discuss during the various O&SP related meetings (bimonthly managers, monthly directors, and monthly EMT meetings) Tool to help create and maintain procurement plan; updates with changes in forecast and inventory stock on hand A template used to gather the updated forecast data from zonal area managers. A summary of observations and recommendations from the analysis of historical demand trends. The analysis used to determine various demand trends based on historical sales data. Spreadsheet Template See O&SP Spreadsheet Template Customer Service Root Cause Analysis O&SP Meeting Agenda OSP - Zonal Area Forecast Update Tem OSP - Zonal Area Forecast Update Tem Planning Analysis Summary MSD Historical Sales Analysis 17