Download White Paper: Case Study: The Benefits Of Sales & Operations Planning (S&OP)
Case Study Company
Our case study company is a parts and equipment manufacturer for the mining industry. They struggled to meet customer expected lead times due to high SKU count, lack of visibility into demand, and a challenging supply chain with long lead times. This resulted in both lost sales due to unacceptable lead times and high inventory levels to support sales… the worst of both worlds. Our client wanted to better understand their upcoming demand and balance that with their operational ability to supply that demand.
An S&OP process is challenging to implement and more challenging to maintain. The high level of effort and diligence within an organization to maintain a strong S&OP process is only possible when it produces clear consistent benefits.
Our client was successful in implementing and maintaining their S&OP process because they used each meeting to drive decisions. The focus on action in each meeting is what led to consistent benefits achieved across the organization. The greatest benefit for this company was increased sales. Having the right inventory available at the right time allowed them to close business they lost in the past.
What is Sales & Operations Planning?
Sales & Operation Planning (S&OP) is a process to align an organization across all functions, so that operational capacity is optimized, balancing demand (sales) and capacity. When done well, S&OP allows business to capture efficiencies in their operations and sales from the market because they can proactively adjust their business as forecasts change.
Sales & Operations Planning is focused on the current state through about a year into the future. These are tactical planning decisions but linked to the higher-level strategic plan. S&OP is the planning that happens between the operational scheduling and sales activity, and the high-level strategic planning of an organization. It drives the adjustments that need to be made in the short to medium term to support the strategic plan.
At a tactical level S&OP is typically made up of four key monthly meetings:
- Demand Planning & Forecasting Meeting
- Supply Chain & Ops Planning Meeting
- Balancing Meeting (Supply / Demand Meeting)
- Executive Meeting
Setting up an S&OP process takes significant effort. Key decisions on how to structure S&OP relevant to the business are required: What are the product families? What is the correct unit of measure? How is capacity measured? What are the key time fences? How is forecasting completed?
These decisions should be made by a cross functional team. Our client leveraged a Kaizen event to tackle these questions in a focused blitz approach. The client team included members from supply chain, procurement, customer service, sales, plant operations, engineering and finance.
Once these decisions are made and the process is set up, significant rigor is required to maintain the process and extract the benefits.
Key Decisions:
- Product Families – groups of items that have similar design, manufacturing processes, or materials that they can be planned in aggregate.
It is important to note that S&OP is a planning process not a scheduling process. It does not work at the SKU level but is focused at the product family level. It is important to keep the number of product families to a manageable number. Each product family will require separate reporting and analysis during the monthly S&OP process.
Initially, our client team came up with several different ideas for grouping SKUs into effective product families for their organization. The sales team wanted the product families to focus on customer end use, the operations team recommended production methodology, and the procurement member suggested commodity. Ultimately, the group determined that customer end use was the appropriate product family for this organization.
- Unit of Measure – typically aligns with the marketplace perception of what is bought. The unit of measure is what is forecasted and planned. This can be pallets, pounds, feet, eaches, cases, hours, etcetera. This is unique to each business but must be determined prior to implementing the S&OP process.
- Capacity Measurement – often different than the unit of measure, this is how the organization measures its capacity to produce. The product family unit of measure is translated into these capacity units based on a multiplier averages across all sub-families of SKUs.
The team spent significant time determining the correct capacity measurement. One capacity measure we considered was labor hours, but this did not represent all the constraints that the organization was facing. Excess labor hours did not necessarily equate to excess capacity. The client struggled with capacity on a few, specific machines. If a machine was already fully booked, the organization could not produce more of certain products.
The client also faced constraints with their suppliers, especially suppliers of forged metals. If they didn’t order with significant lead times (6-12 weeks) they would not be able to obtain additional materials quickly.
The group determined their capacity measurement varied by product family. The capacity measure we decided was appropriate included labor hours, vendor capacity, and specific machine hours.
- Time Fences – indicate different periods in the planning horizon. An organization has different options if they face excess demand across different time fences. For example, excess demand can be within the current frozen production schedule is a problem for execution versus excess demand beyond the longest supplier lead time which is a problem for planning. There are four key time fences for each product family:
- Frozen Production Schedule
- Order Processing Leadtime
- Longest Supplier Leadtime
- Time Required for tactical change in operations (adding or removing capacity)
- Forecasting – Demand is a key piece of S&OP and forecasting enables understanding your future demand. (Note that “understanding” does not mean a “perfect and accurate forecast.” We recommend leveraging an algorithmic forecast combined with insight from the sales team to come up with a product family forecast.
Often sales representatives do not have great visibility into their customers forecast. Getting valuable feedback from sales can be extremely challenging. It is important to understand what information the sales team does have and figure out how you can incorporate this back into the algorithmic forecast. When there isn’t great information available, a training process to enable the sales team to pull forecast information from their clients can be valuable.
Our client had a comprehensive quoting process which was a great indicator for upcoming orders. We developed a methodology to provide each sales representative with a summary of their customers open quotes. The sales team had to review the open quotes and provide feedback as to if they expected the business to convert, and if so during which month. This feedback was then integrated with the algorithmic forecast to create a forecast in which the business had more confidence.
Monthly Sales & Operations Planning Process
Once the key decisions above were made, our client was able to pilot two of their product families with the monthly Sales & Operations Planning process
The process follows a monthly cadence of four distinct meetings:
Demand Meeting
The demand meeting produces an unconstrained demand forecast leveraging the algorithmic forecast and input from the sales team. The team will identify potential risks and opportunities. Examples of risks and opportunities identified in a demand meeting are: Order 123 is delayed due to additional testing and certification required; the FDA could approve drug X as early as December 10 when approval occurs Customer Y will need Z volume.
Supply Meeting
The supply meeting takes the unconstrained demand forecast and creates a constrained demand plan by incorporating capacity and service level expectations. The supply meeting team will identify potential risks and opportunities: machine MMM will be down for maintenance, reschedule job 456. Vendor DEF will be late in its shipment, update production schedule for new date.
Balancing Meeting
The balancing meeting brings together the supply and demand team to discuss any gaps identified between the unconstrained and constrained demand forecast. The team develops options, recommendations and goals to bring to the executive meeting for a decision.
During our pilot month, our client identified a large order with a high likelihood of converting, but the conversion would have put the business beyond their supply capacity unless they acted immediately. The supply and demand team made the recommendation to start production so they could meet the customers lead time without hitting their capacity constraints expected in the next month. The executive team approved the early production, the order was received two weeks later and as a result of acting quickly they were able to meet customer demand at a faster-than-normal lead time.
Executive Meeting
The executive S&OP meeting is a discussion with leadership on the results of the balancing meeting. The team presents their recommended scenario and recommendations or decision for leadership. Leadership will make the decision on which scenario to move forward with and this will lock in the plan through the last time fence.
Benefits of S&OP
The typical benefits from S&OP are improved forecasting which can lead to reduced lead times, improved sales conversions, improved operational efficiencies, and others.
In addition to these benefits, our client benefited significantly from improved visibility and cohesiveness across the organization. Specifically:
- Visibility into potential lost sales and the opportunity to win them back
- When a large forecast is calculated by a forecast algorithm, but the sales representative has not heard from that customer it becomes a trigger to connect. Our client’s business is cyclical but over multiple years. It is hard for a sales representative to remember when a maintenance is coming due to a machine. Here the forecast can be a reminder, avoiding the customer going to market.
- Visibility into upcoming sales and the opportunity to influence the customer to purchase an alternative product
- When sales is talking to operations and there is visibility into a sales before the order is entered, there is an opportunity to influence the order. For our client, an alternative but viable product may be aging in their warehouse. If the sales representative understands they can provide the customer significantly shorter lead time and reduce aging inventory — a win win!
- Improved timeliness and reaction to issues
- A robust S&OP process requires multiple cross-functional meetings every month. This creates discussions on issues in the moment rather than after the fact. Prior to this process our client typically waited until the end of the month and then reviewed the health of their supply base, sales and inventory. With the S&OP cadence this changed to reviews, discussions, and actions taken in the moment not after the close of the month.
One of the big benefits of S&OP for any organization is cohesiveness across all functions of a business. This creates visibility, and visibility allows the organization to see opportunity. Once the opportunities are visible, they become achievable.
Stacy Sifleet
Supply Velocity, Inc.
stacy@supplyvelocity.com
(773) 367-6677
March 2020
"*" indicates required fields
“C&R was struggling with labor productivity. The construction crews were often missing materials that they needed to do their work. This caused significant idle time. Supply Velocity, Inc. and C&R used value stream mapping and visual management tools to make dramatic improvements in operations. Most importantly, two years later C&R is sustaining and improving on the implementation. C&R’s return on investment was 11:1. C&R had a record year last year in both sales and profits and would not have been able to pull it off without the changes Supply Velocity, Inc. helped us make.”
“Supply Velocity gave us the tools to analyze our business and processes based on the facts and numbers versus our perceptions. Our common quote was “Let the numbers lead us”. The key for our organization was how quickly we moved from classroom to actual project initiation. We were able to jump in, start using the tools and see a difference right away.
The get-into-action approach was good for our culture.”
“Your process encourages this group to work together, better communicate and have fun doing it.”
“We are pleased that Essex selected Supply Velocity, Inc. as our Lean Implementation Partner. At one facility, we have saved over $350,000 in work-in-process inventory, reduced throughput time from 2 weeks to minutes and increased inventory turns 3 to 8 times per year. All these results are in just 6 months. Our return of investment is very high.”
“Supply Velocity created visibility within our Assurance Services Group… visibility of performance, Client-service, employee satisfaction and processing time. Using the Supply Velocity System, Audit Report Cycle time is down over 50%. We are using his strategies to create greater Client loyalty.”
“Supply Velocity has provided the technical expertise and political capital to move our project forward. They have just the right amount of push and the right amount of support. Supply Velocity has helped us make real changes to improve efficiencies in logistics without jeopardizing our performance. We’re happy and our customers are happy.”
“We used Supply Velocity to rethink our sales process. By analyzing the entire process we found wasted time in our Sales, Admin and Operations departments. Streamlining this process created extra time for each Sales Rep, allowing them to spend more time with Customers and increase the value we add. Gross profit margins are up 40%!We are now using Supply Velocity to help us rethink our entire Strategic Plan.”
“In thirty years of hiring consultants, Supply Velocity, Inc. was the first to tell me what they were going to do, set a price they stuck to and substantially exceed my expectations. I have recommended them to friends and acquaintances. They were true partners in assisting with the turnaround of an acquisition we had been struggling with for two years.Their math-based technology, solid down-to-earth facilitation skills, and positive, patient and enthusiastic attitude combined to make our implementation of Lean a very rewarding experience.
We increased our production by 50% in the first month of implementation and continue to see improvements. Improvements have not only been realized in productivity, but also in quality and morale. We have increased profitability by $2M on flat sales of $10M.
Based on Supply Velocity, Inc.’s integrity and our results, I will continue to refer them to others and utilize them in the future as we expand our company through acquisitions.”
“The role of the Erie Insurance Marketing Department has been evolving over the past several years – from a support role to a more critical role of driving growth in our organization. Because of our increased workload and desire to prioritize the most critical projects, we hired Supply Velocity to teach us the skills of Lean Six Sigma.Participants included the Promotions, Market Research and Agency Licensing sections of the Marketing Department.
We learned valuable tools to help us to prioritize based on the voice of the customer.
I firmly believe these skills made a difference in how we work every day. We are moving new projects forward, eliminating or changing ineffective processes, and we are a much stronger department. We continue to use the tools to help us with our highly-complex and time-consuming projects. Supply Velocity helped us to accomplish our goals.”
“Closure Medical recently completed a major reorganization in order to enhance our ability to rapidly create innovative medical devices. We hired Supply Velocity to help us map out the process and service flows of the new organization that would maximize our product development process (PDP). In four weeks, Supply Velocity helped us envision a new PDP structure, develop measures and accountability for each step, and gain consensus within the organization. Supply Velocity’s focus on speed and accountability helped us complete a critical project in a timely fashion.”
“Supply Velocity is driving instrumental change in our inventory management processes. This is critical for us to be competitive in a supply chain environment with numerous disruptions. They are making change happen, which can be challenging in a 182 year old organization.”
“I am thrilled to provide this testimonial for Supply Velocity and their outstanding work in implementing Lean Warehouses and processes at Crescent Parts & Equipment through the COVID pandemic. With their data-first focus and Mitch’s exceptional coaching and experience, they transformed our business into a more supply chain-oriented organization, enabling us to grow while prioritizing employee safety and creating a better work environment. Supply Velocity’s expertise in Lean methodologies and their comprehensive evaluation of our customers have been instrumental in optimizing our operations and increasing customer satisfaction. We highly recommend Supply Velocity to any company seeking to implement Lean processes and enhance their supply chain efficiency.”
“Many thanks to all three Supply Velocity presenters. I think you guys took a very difficult time for learning and capitalized on everyone’s time and training needs. I truly hope this helps your business as this was a considerable undertaking on the part of Supply Velocity. Outstanding!!”
“Isolating a problem, finding short, and long term solutions with measurable results is what was promised and results is what was delivered by Supply Velocity. Upon launch of the Lean Six Sigma Selling System, we knew more about our customers, our products, and were able to create a solid plan to increase sales of our most profitable products. Within months of implementation, our booked sales jumped 60% and our most valued customers were getting direct, active, and calculable attention.”
“For several years we have worked with Supply Velocity to support us with their expertise on Lean Operations and Supply Chain Management. Supply Velocity has helped us implement Lean, improve our inventory systems, and educate our people. They are professionals who are always available to help us as needed.”
“Anheuser-Busch Precision Printing had been implementing Lean Operations on our own for the past two years. We needed to move faster and partnered with Supply Velocity, Inc. Through Supply Velocity, Inc.’s mathematical workflow balancing and visual management tools, dramatic improvements were achieved. The entire converting operation was rearranged based on Lean principles. The result is a 20.6% productivity improvement, enabling us to operate with 23 fewer people in production.”
“In 2015 we began working with Dr. Mitch Millstein to optimize our inventory locations supporting e-commerce and in-store inventory needs. From this work we developed a new omni-channel warehousing and inventory plan that entirely redefined our approach to warehousing, inventory management, store distribution and fulfillment. As a result of the analyses by Dr. Millstein we have begun the move to an improved omni-channel design by reassigning MSAs to new warehouses, greater leveraging of in-store inventories to satisfy e-commerce demands, and exploring acquisitions of new warehousing space in strategic locations. We have already seen an improvement of $300,000 from both more efficient shipping strategies due to better inventory management.”
“Supply Velocity has helped Clean succeed in a number of ways. First, they provided the education that kicked off our Lean Process Improvement journey. They also facilitated a number of large supply chain and process improvement projects including: 1) building quality into our direct-labor productivity incentive program, 2) designing the layout of our garment warehouse, and 3) streamlining our route service process.We have integrated the methods that Supply Velocity taught us into our management and strategic planning. In the process our quality measurement has improved 22% from 2013 to 2015, we have reduced required annual labor by 2200 hours from the garment facility layout project and we’ve seen 50% decrease in error rate. Obviously the numbers speak for themselves, but just as important, Supply Velocity has been fun to work and have become true partners. They have “taught us how to fish” so our internal teams are able to implement change on their own, with the skills we learned from Supply Velocity. This relationship has been invaluable.”
“Our experience with Supply Velocity was one of the best values we have ever had from a consulting project. Cyril Narishkin brought a structured lean methodology, invaluable experience and engaging facilitation skills to help us streamline a very complex and disjointed sales order process. Just as importantly, our team now has the knowledge and process competencies to address other business improvement opportunities going forward.”
“In a time of volatile supply chain disruption, Supply Velocity is helping us develop Demand and Supply Planning processes to proactively tackle these new challenges. They are genuine partners, working with our team, facilitating and teaching.”
“We engaged with Supply Velocity to help us embed process improvement at all levels of the business. Our team learned from Mitch to let the data drive decisions, to use Lean tools to help us see our processes critically and objectively, and to create a control plan to manage all of the tasks that were the outcome of the data study.The project turned out to be very significant to the company and most importantly, our customers. We reduced our customer wait times by 40%, and cut in half the labor cost to fulfill customer orders.
Some results are not able to be measured. However, as a result of this project, we have started to build a Lean mindset and culture, which is part of our strategic mission to save our customers money. Supply Velocity has been a valued partner in this mission.”
“Mitch Millstein and his team helped guide our shop fabrication division in the re-layout of our custom pipe and steel fabrication facility when we moved into a new building. It is not only the results but how he helped. We were involved in every step. I personally did time studies and was able to see the non-value added steps required to manufacture in our old layout. When we created our new layout, everyone was involved, from the executive team to our direct labor force. With Mitch’s help we increased our throughput by a 3x multiple, while providing more competitive prices to our clients as a result of the efficiency improvements.This has enabled us to not only make more money but also to expand our commercial reach and serve more, and larger customers. I would recommend Supply Velocity to any company that wants to make improvement in supply chain and operations.”
“Supply Velocity’s Lean Six Sigma System has given us new tools to help improve our sales performance. We have learned new ways to analyze our business which makes problem solving more accurate and has made us better leaders.”
“Myerson engaged Supply Velocity, specifically Ray Davis to visit our plant in Trinidad to conduct a two day assessment of our production procedures and provide us feedback on areas for improvement and where applicable, areas for future analysis.Put simply, we got everything we paid for and in addition to more in depth analysis, we got specific tasks that were immediately actionable. Our local management team found Ray to be engaging, highly credible and insightful based on his wide experience. In other words the cultural differences and lack of specific industry knowledge weren’t impediments to things we could implement immediately and on our own. In a nutshell it was money well spent and will pay itself back many times over.”
“We are using Supply Velocity’s Lean Six Sigma methods to analyze a variety of processes including rationalizing SKUs (stock-keeping-units). By using math to evaluate SKUs we took some of the emotion out of our decisions. We expect significant increases in sales and productivity from reducing poor performing SKUs.”
“We used Supply Velocity on our Warehouse optimization project. One of the key characteristics of Supply Velocity is that they listened to our requirements and provided a clear path for our Warehouse processes using lean tools and our future sales growth as objectives.”
“In the spring of 2003, the St. Louis Area Chapter of the American Red Cross engaged Supply Velocity, Inc. to perform a study and make recommendations to streamline office processes, maximize cash flow in purchasing and warehousing and restructure and enhance our maintenance department. Supply Velocity, Inc.’s process was methodical, flexible, staff-oriented, inclusive and, above all, trackable.In the last six months, our Chapter has realized expense savings of over $380,000 annually, and significant improvement in intra-company service levels has been attained. Supply Velocity, Inc. will return to the Chapter periodically throughout the next 18 months to audit our newly implemented processes. We have been pleased with our results and Supply Velocity, Inc.’s professionalism.”