APICS INSIGHTS AND INNOVATIONS 2012 SALES AND OPERATIONS PLANNING Exploring real-world S&OP practices in supply chain and operations management APICS and IBF Present 2012 Sales and Operations Planning Insights and Innovations Executive Summary In order to keep industry professionals informed of practices and innovations in sales and operations planning (S&OP), APICS and the Institute of Business Forecasting and Planning (IBF) conducted a survey exploring S&OP. Use this S&OP research to your advantage. Compare your organization’s data to the overall results of the survey. Where is your organization leading or lagging in reported practice? Look for causes or insights as to why difficulties exist. For example, if forming consensus is a challenge, the cause may be the different goals expected of the S&OP process among different participants. The 2012 results reveal a number of goals typical of S&OP practice beyond balancing supply and demand. The 2012 S&OP survey results reveal the following data: Planning horizons. S&OP sophistication tends to Customer service. Sixty-seven percent of respondents increase based on how far ahead S&OP planning selected customer service as a primary S&OP goal. Only horizons become. Comparing “up to 6 months” and 29 percent selected customer service as a secondary “more than 18 months” responses shows that S&OP goal. Successful S&OP is not solely internal: customers demand consensus review, product rationalization notice. The importance of customer service may further review, and supplier review become more advanced as reinforce the need for improving S&OP as a competitive planning timelines increase. S&OP planning horizons advantage, not just in terms of supply and demand, but in may also vary by industry practice and business customer relationships. management planning horizons such as budgeting or new product research and development. Where is your organization leading Budget process. Forty-five percent of respondents say they closely link the S&OP process to their financial or lagging in reported practice? budgets. Strong financial integration should ideally be a look for causes or insights as to part of the S&OP process. However, this can be difficult to achieve in practice. Financial departments may have why difficulties exist. different forecasting and analysis processes. The survey showed this a priority, not necessarily a practice. Importance of S&OP. Respondents not currently Demand and supply. Demand consensus review as a practicing S&OP still rate the S&OP process as standard part of S&OP also varied by industry. Seventy- important to their organizations. On a scale of 1 to 10, three percent of respondents in the chemicals industry 20 percent of respondents rated S&OP an 8; 10 percent said they do demand consensus review versus 51 rated it a 9; and 18 percent rated S&OP as a 10. People percent of respondents in consumer packaged goods who realize the importance of S&OP may be good (CPG). One hundred percent of respondents in the resources to support the process, even if they are not chemicals industry said supply review was a standard formally involved in S&OP. S&OP process compared to 65 percent in the CPG industry. These differences highlight S&OP as an adaptive process, reflecting different industry practices, challenges, and goals, as well as varying maturity levels of S&OP practice. 2 APICS and IBF Present 2012 Sales and Operations Planning Insights and Innovations The goal of the S&OP survey conducted by APICS and the IBF was to gather follow-up information about S&OP practice that would add value to existing research from 2011. The 2011 survey focused on maturity, whereas, the 2012 survey focuses more on implementation. Overall, this research represents opinion and practice in areas related to improving S&OP performance and focuses on the opinions and perspectives of supply chain and operations management professionals. Respondent profile Current S&OP trends • Almost three-fourths of respondents indicated that The following trends were revealed by the 2012 survey results: production and manufacturing is the primary activity of their organizations. • Supply chain and operations management professionals, whether or not they are formally involved in the S&OP • Respondents are evenly represented in years of experience process, understand how important S&OP is. They may in operations management. not know actual practices, but they are in a position to add value to the process by providing supporting information and • A little more than half of the respondents are managers teamwork, even if they are not at formal S&OP meetings. involved with team or functional management. Twenty percent of respondents are directors and in charge of department- • The survey revealed an approximate 50-50 split between level or middle management. S&OP processes integrating or not integrating with the organization’s or business unit’s budget. Ideally, S&OP • Forty-six percent of respondents indicate the head of processes should take into account business unit or supply chain planning as the official “owner” of the S&OP organization budgets. Specifically, S&OP practice should process. always roll up (combine data into fewer summary reports) to the business unit’s or organization’s financial projection. • Although 23 percent of respondents were supply chain This roll up is sometimes called the annual operating plan or or operations management professionals for more than 21 budget. years, only three-fourths have experience implementing or practicing S&OP in the past 10 years. • Beyond balancing supply and demand, other primary objectives of S&OP practice cover a broad area: they include • Twenty-five percent of respondents work at organizations maximizing revenue, minimizing risk, improving customer that employ between 100–499 employees. Thirteen percent service, responding quickly to market changes, and reducing of respondents work at organizations with 25,000 or more inventory. This range of primary objectives suggests that employees. an S&OP team should have an expansive mix of skills and experience. • The most common key performance indicator (KPI) used to measure S&OP performance is forecast bias or error. Forecasting performance also appears in the 2011 APICS S&OP research, which revealed that low confidence in forecasting or forecast ability is a common S&OP difficulty. Efforts to improve forecasting advance S&OP performance. • Despite S&OP having existed as concept and practice for many years, it is not used globally. Survey results show more use of S&OP in North America and Western Europe than in other geographies. 33 Benefit from APICS research S&OP best practices This survey information can benefit supply chain and Follow these S&OP best practices to advance S&OP operations management professionals in a number of ways: performance at your organization: • The survey results help isolate areas to prioritize for • Encourage and involve senior management in the S&OP improvement within organizations. process no matter who has ownership. • The results may suggest new S&OP supporting players or • Improve forecasting capabilities. roles. • Increase support or involvement with supply chain and • Survey results show that professionals who are not operations management professionals who have useful practicing S&OP still recognize its importance and may have insights for the S&OP process; these professionals are likely helpful information, insights, or other value to add. to understand the importance of S&OP. • The results reinforce the importance of supply chain planning management and senior management remaining in harmony with each other. • In organizations where the supply chain is not understood or seen as strategic, S&OP ownership and practice may suffer. The survey results provide evidence for improvements SIZE OF ORGANIZATIONS in all these areas. Size of organizations Respondents were asked how many employees work at their organizations. Fewer than 25 5% 25–99 8% 12% 12% 100–249 13% 13% 250–499 500–999 10% 1,000–2,499 13% 13% 2,500–4,999 8% 9% 5,000–9,999 10,000–24,999 8% More than 25,000 employees 12% 12% Don’t know 3% 444 EXPERIENCE IMPLEMENTING S&OP PRACTICES Experience implementing S&OP practices Respondents were asked if they have professional experience implementing S&OP practices at their current organizations. 23% Yes 57% GOALS OF S&OP PROCESS No 43% 6% Goals of S&OP processes Respondents were asked what best defines the goals of their S&OP processes. Develop a feasible plan. 22% Match supply with demand. 38% Determine the most profitable plan. 14% Maximize opportunity and mitigate risk. 26% Importance of S&OP processes Respondents were asked to rate the importance of the S&OP process to their companies on a scale of 1–10. 0–Not important 1 2 3 4 5 6 7 8 9 10–Very important 3% 3% 4% 3% 6% 9% 10% 15% 20% 10% 18% RESPONSIBILITY Who is responsible for S&OP Respondents were asked who takes responsibility for running the S&OP process. Primary responsibility Secondary responsibility N/A Sales 36% 47% 17% Marketing 22% 46% 33% Production and manufacturing operations 36% 40% 25% Supply chain planning 61% 25% 14% Corporate strategy 43% 27% 30% Procurement 16% 52% 32% Manufacturing outsourcing 3% 42% 55% Finance 18% 48% 34% Senior management 48% 33% 19% Channel partners in the buy side of your market 4% 23% 73% Channel partner in the sell side of your market 5% 21% 74% 55 Degree and impact of supply chain challenges Respondents were asked to rate the degree and impact of supply chain challenges to their organizations and S&OP processes for the 2011 calendar year on a scale of 1–5. 0–No impact 1 2 3 4 5–Extreme impact N/A Demand volatility 1% 1% 3% 14% 34% 44% 4% Commodity prices 2% 14% 15% 22% 26% 13% 8% Supplier development and the building 2% 12% 19% 25% 19% 14% 9% of reliable supplier relationships Manufacturing intellectual property 29% 21% 11% 10% 10% 2% 16% protection and the control of counterfeiting Delivering a safe and 7% 11% 22% 22% 18% 14% 6% secure supply chain Geo and political risks 15% 22% 21% 18% 7% 8% 10% and shifts Control and scheduling of external manufacturing 4% 6% 8% 18% 35% 23% 7% operations Product quality 4% 4% 13% 16% 31% 22% 11% consistency in operations Product returns and 10% 26% 14% 17% 19% 3% 11% warranty Control and scheduling of external manufacturing 10% 11% 17% 17% 23% 9% 13% operations Corporate social 16% 23% 19% 16% 6% 8% 12% responsibility Governmental 11% 18% 13% 15% 20% 14% 9% compliance Tax efficient supply chain 20% 18% 19% 15% 8% 5% 15% goals 66 S&OP information sources Respondents were asked where they turn when thinking about improving S&OP processes. They were asked to rate their responses in accordance with the likeliness that their abilities would increase their personal skills or knowledge about S&OP. 0–Would 5–Most likely to not increase 1 2 3 4 increase personal N/A personal skill or skill or knowledge knowledge Internal education and 8% 13% 9% 20% 24% 22% 4% training courses Training offered by enterprise resource 8% 12% 17% 18% 22% 17% 5% planning (ERP) or technology providers Training offered by 4% 15% 19% 19% 22% 16% 5% consulting firms Online or self-study 2% 12% 10% 25% 27% 22% 2% materials or books S&OP conferences 4% 11% 24% 24% 20% 13% 4% PRIMARY COMPANY ACTIVITY Professional social media 11% 22% 16% 30% 12% 3% 6% serving S&OP None of the above 24% 3% 0% 3% 0% 3% 67% Primary company activity Respondents were asked which choice best describes the primary activity of their companies. Production and manufacturing 74% Distribution and logistics 7% Services 10% LENGTH OF PROFESSIONAL EMPLOYMENT Academia or education 3% Consulting 2% Other 5% 58% Length of professional employment Respondents were asked how long they have been a supply chain or operations management professional. 1-5 years 17% 6-10 years 17% 11-15 years 22% 16-20 years 18% More than 21 years 23% Not applicable 2% 77 EXPERIENCE IMPLEMENTING OR PRACTICING S&OP Experience implementing or practicing S&OP Respondents were asked how many years of experience they have implementing or practicing S&OP. 0-1 years 13% 44% 2-3 years 23% 4-5 years 17%39% 6-8 years 16%36% 9-11 years 13% 12-14 years 8% More than 15 11% Industry IRNeDsUpSoTnRdYents were asked what industry their organizations belong to. Aerospace and defense 9% Apparel 3% Automotive 6% Chemicals 11% Computer and technology 3% Construction 4% Consulting 5% Consumer packaged goods (CPG) 19% Education 3% Electronics 8% Entertainment 1% Financial services 1% Food and beverages 13% Gas and electric 1% Government 2% Healthcare 7% Industrial products 13% Insurance 1% Logistics and transportation 5% Oil and petroleum 2% Paper 2% Pharmaceutical 9% Publishing 1% Retail 6% Service 3% Software developer 1% Technology 5% Telecommunications 3% Textile 1% Travel and hospitality 1% 88 MANAGEMENT POSITION Management position Respondents were asked which type of management best represents their current positions. Manager: team or functional management 52% Director: department-level or middle management 20% Senior director: organizational-level 7% Vice president or senior management 11% Internal consultant or adviser 9% Academic 3% Not applicable 4% S&OP PLANNING PROCESS S&OP planning process Respondents were asked how far in advance they plan for their S&OP processes. Calendar year 13% 8% Less than or up to 6 months 19% 7-12 months 28% 13-18 months 22% 10% More than 18 months 18% Not sure 1% 8% S&OP CYCLE TIME S&OP cycle time 8% Respondents were asked what their cycle times (period one completes all steps of the S&OP process) were. Weekly 7% Monthly 78% Quarterly 11% Yearly 4% 99 CORPORATE CENTERS OF SUPPLY CHAIN EXCELLENCE Corporate centers of supply chain excellence Respondents were asked if their organizations have corporate centers of supply chain excellence. Yes. 16% Yes—The supply chain center of excellence 21% creates and runs the S&OP process. Yes—The supply chain center of excellence is responsible for 9% creating S&OP, but does not run or operate the process. Yes—The supply chain center of excellence is a GLOBAL AND REGIONAL S&OP PROCESSES 13% consulting agent to the S&OP process. No. 45% Global and regional S&OP processes Respondents were asked how their organizations operate regionally and globally in terms of S&OP processes. The organization is small and we operate locally or regionally as a single unit. 23% The organization is regional and autonomous. 11% Each region operates its own S&OP process. There is no global oversight. The organization is multinational. There is a suggested process and standards defined by the global company, 23% but the individual regions are responsible for running their own S&OP processes. The organization is global. We plan globally, but act regionally. 30% FORECAST PERFORMANCE The corporate organization plans and leads S&OP processes and we use regional input. The organization is global, but we ask for regional and trading partner input. We plan globally, to act 13% regionally, but we operate multiple S&OP processes with multiple trading partners. Forecast performance Respondents were asked which forecast performance methods they use. MAPE (mean average percentage error) 42% WMAPE (weighted MAPE) 19% Forecast bias (overcast and under forecast) 53% MPE (mean percent error) 8% Not sure (19%) 19% 1100