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CSCMP 2014: Using S&OP to Improve Enterprise Resiliency

The supply chain is an increasing complex system. Leaders use Sales and Operations Planning to drive data-driven business discussions while laggards catch orders and manage transactions. Learn successful S&OP strategies to improve enterprise resiliency and how this creates a tight and reliable pattern of delivering costs while managing inventory cycles.

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CSCMP 2014: Using S&OP to Improve Enterprise Resiliency

  1. 1. Using S&OP to Improve Enterprise Resiliency Lora Cecere, CEO and Founder of Supply Chain Insights Jim Prescott, Sonoco Products Director, Industrial Supply Chain, N.A.
  2. 2. Speakers Lora Cecere CEO and Founder of Supply Chain Insights Jim Prescott Director- Industrial Supply Chain N.A. at Sonoco Products
  3. 3. Agenda • Defining Resiliency • Defining Supply Chain Excellence and S&OP • Delivering Excellence in S&OP • Wrap-up
  4. 4. What is Enterprise Resiliency? Enterprise resiliency is the ability of a company to deliver reliable and predictable results at the intersection of operating margin and inventory turns.
  5. 5. Agenda • Defining Resiliency • Defining Supply Chain Excellence and S&OP • Delivering Excellence in S&OP • Wrap-up
  6. 6. S&OP Process Existence, Goals & Processes
  7. 7. The Need for Balance
  8. 8. Form and Function of Inventory Form Function Raw Cycle Stock Semi-finished Goods Safety Stock Finished Goods In-transit Inventories Seasonal Inventories Promotional Inventories Slow and obsolete
  9. 9. S&OP Balance
  10. 10. Need for Agility
  11. 11. Agility Importance vs. Performance
  12. 12. Getting to Letter Perfect Common Practice Market-driven Focus S Ask sales Focus on market drivers: How do we best shape demand? & Direct integration to supply Design of the value chain to optimize trade-offs, minimize risk, balance cycles, and orchestrate demand OP Manufacturing plan Trade-offs between make, source and deliver 14
  13. 13. S&OP Evolution Sales Driven Match Demand with Supply Manufacturing- Driven Deliver a Feasible Plan for Operations Match Demand with Supply Business-planning Driven Maximize Profitability Demand Driven Maximize Opportunity Sense and Shape Demand Greater Benefit • Growth • Resilience • Efficiency Market Driven Maximize Opportunity and Mitigate Risk. Orchestrate Demand Market to Market
  14. 14. Functions of Center of Excellence
  15. 15. Center of Excellence
  16. 16. CEO Chief Customer Officer Chief Marketing Officer Sales Account Teams Growth Volume Cost COO VP of Supply Chain Customer Service Procurement Logistics CFO CIO VP of Manufacturing Quality Typical Organization
  17. 17. S&OP Challenge
  18. 18. S&OP Barriers
  19. 19. S&OP Process Plan Execution
  20. 20. Benefits Source: Supply Chain Insights, 2012 What benefits have you received from your work with S&OP processes? 59% 57% 50% 42% 38% 36% 34% 32% 32% 30% Increasing revenue Improving forecast accuracy Reduction of inventory Improving asset utilization Determining outsourced manufacturing Determining procurement… Improving new product launch Transportation and warehouse… Capital planning and asset… Improvements in the perfect order ▲ 2% ▲ 5-7% ▼ 10-15% ▲ 3-7% ▲ 3-6% ▼ 2-8% ▲ 3-6%
  21. 21. Agenda • Defining Resiliency • Defining Supply Chain Excellence and S&OP • Delivering Excellence in S&OP • Wrap-up
  22. 22. Case Study
  23. 23. Inventory Turns vs. Operating Margin (2000-2012)
  24. 24. Sonoco is a Global Packaging Company • Founded in 1899, Sonoco is a $4.8 billion global provider of consumer packaging, industrial products, protective packaging and packaging supply chain services. • With more than 19,600 employees working in more than 340 operations in 34 countries, we serve some of the world’s best-known brands in some 85 nations.
  25. 25. S&OP was a Part of a Larger Transformation Effort Conflicts between disciplined planning and agile response • Traditional production to a forecast with set lead time agreements with customers (and suppliers) • Demand driven pull, short lead time processes emphasized in lean supply chains Sonoco Products has blended the use of forecast based supply chain practices with demand pull processes to create agile supply chains • Collaborative demand management • Sales & Operations Planning (S&OP) • Lean transformation and cash/ cost optimization
  26. 26. Industrial Products - Supply Chain Paper Manufacturing Converting Tubes & Cores Composite Cans AGILITY  Conversion must build to order with short lead times and high service levels DISCIPLINE  Paper must have Forward, Demand Based planning for Operational Efficiency
  27. 27. Sonoco’s S&OP Timeline • 2006: – Paper Division Leadership Chartered S&OP initiative • 2007: – Engaged Oliver Wight – Leadership training – Process design / manual volume projections and supply planning • 2009: – Implemented Logility Demand Planner • 2011: – Implemented Logility Inventory Planner • 2013: – Optimizing Supply across the manufacturing network for lowest cost of supply • 2014: – Initiated regular forecast accuracy metrics and field sales review of forecasts
  28. 28. Leadership Sponsorship • Aimed at Important Business Objectives - address the pain – Working Capital - addressed reduction in free cash flow - every leader has WC Objectives – Productivity - diminishing returns from traditional cost improvement so supply chain optimization was key improvement target – Perfect Order - Customers do not see Sonoco service levels as differentiating, started measuring in 2007 • Paper was the initial division to implement S&OP – Progressive General Manager saw the value – Paper is traditional “push process” that would benefit – High impact division that serves 3 other Sonoco divisions as well as external customers
  29. 29. Change Management Elements Required • Active Leadership Sponsorship – S&OP must deliver important business results • External Expertise – “Don’t know what you don’t know” • Capable People – People working in silos; must now work cross functionally – Educate and address the WIIFM • Good Data – It all starts with an unbiased demand picture – Data must be presented clearly – systems solution required – Product family structure design, solid inventory management, manufacturing capability/reliability are critical to success
  30. 30. S&OP is a data driven process • Sonoco started with the data available – As the process matured, we “outgrew” our spreadsheet demand forecast process • Spreadsheets could not properly disaggregate family level forecasts into the by plant, by customer, by SKU, by sales territories needed to support good decisions at all levels • Needed the better statistical analysis provided by the Logility application – Each S&OP step needed the ability to see data in a way that made sense • But one source of truth (the common data set) was critical to success
  31. 31. S&OP Ongoing Success Factors • Ongoing routine S&OP meetings… set calendar • Structured meeting agendas • Establishing TRUST in the numbers and people from various departments – Cross-functional participation, including Finance – Participants empowered to make decisions – Pre-work to support meeting inputs • An unbiased baseline forecast to start the process - Where Logility helped • Supply chain facilitates the process, but each function owns their step • A separate process to manage daily execution is a must
  32. 32. Forecast Analysis and Accuracy by Submarket 34 Evaluating statistical demand forecasts Accuracy measured for -1 and -3 month forecasts
  33. 33. Capacity Load Analysis 35
  34. 34. Supply Planning: Rough Cut Capacity By Paper Machine 36
  35. 35. Integrating S&OP into Management Cycle  Demand and Supply reviewed weekly  Tracking production to planned supply and budget  Tracking demand and fulfillment to forecast and budget  Tracking inventory control performance 26,500 24,500 22,500 20,500 18,500 16,500 14,500 12,500 10,500 Paper Division Total Tons Ordered 2012 to Present 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 2012 Total 2013 Forecast Est Ttl Period End 2013 Total Nominal Cap 1,800 1,600 1,400 1,200 1,000 800 600 400 200 - Trade and Corrflex Linerboard Order Trend 2012 to Present 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 2012 Linerboard Est Ttl Linerboard Wkly Linerboard 2013 Fcst 2013 Linerboard 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 Trade Total Order Trend 2012 to Present 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 2012 Ttl Trade Est Ttl Trade 2013 Trade Fcst Period End 2013 Ttl Trade 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 Total Internal Orders 2012 to Present 2012 Total Internal Est Total Internal 2013 Internal Fcst Period End 2013 Total Internal
  36. 36. S&OP Impact in Push and Pull Supply Chains • Conversion (Pull from End Customer) – Many customers, short 2-3 day order fulfillment lead time – Inventories concentrated on raw materials with primarily make to order FG – Postponement strategy with many small facilities close to customer – Forecast effort is on raw materials to prepare supplier – MAPE on raw material demand averages ~5-10% • Paper (Push from Forecast) – Runs integration process through monthly S&OP cycle – Integrates input from 3 internal divisions and external sales – Operates a forecast based push process for asset optimization – Each mill tracked weekly on Perfect Order performance – ABC categorization for inventory strategy & lead time promise
  37. 37. Cash & Customer – so how are we doing? Perfect Order = (On time %) * (in full %) * (Invoice Accuracy %) As demand has filled plant capacity, perfect order performance has suffered and expedited freight has increased Cash Gap improved 12 days (full year average) between Dec05 and Mar10 New challenge since 2010… CPG companies driving from net 30 to Net 45607590105120 days Now ~92% 60 50 40 30 20 10 0 Cash Gap Days -23% -12 days 12 Turns Inventory 2005 2006 2007 2008 2009 2010 2011 2012
  38. 38. Key Takeaways Lean pull systems are most effective in combination with data driven, disciplined supply chain practices - Push Pull integration • S&OP provides the cross functional process to make decisions based on the best demand information available • Demand Management is critical to prepare to meet customer requirements – Customer information must be supported by statistical view of Demand – There is too much data and the world moves too fast to manage with spreadsheets • Lean pull systems provide the response capability to deal with the remaining error
  39. 39. 2013 Analysis of Sonoco vs Peers by REL (producer of the annual CFO Magazine benchmark survey) In 2005, Sonoco was 3rd Quartile in Cash Performance among its Containers and Packaging Peers Since beginning work on Cash Gap, it has moved to top Quartile in cash performance and Number One in Inventory Days performance While reducing inventory, Perfect Order has continually improved
  40. 40. Delivering on the Promise 4
  41. 41. Business Pain
  42. 42. Metrics That Matter • Lora Cecere’s 2nd book: Metrics That Matter • To publish in Fall 2014 Pre-orders available on Amazon: http://tinyurl.com/metricsthatmatter #sciwebinar
  43. 43. About Lora Cecere • Founder of Supply Chain Insights • Invited to be a “LinkedIn Influencer” • Invited to write a guest blog for Forbes • Author of 2 books: Bricks Matter (2012) and Metrics That Matter (to publish Fall of 2014) • Partner at Altimeter Group (leader in open research) • 7 years of Management Experience leading Analyst Teams at Gartner and AMR Research • 8 years Experience in Marketing and Selling Supply Chain Software at Descartes Systems Group and Manugistics (now JDA) • 15 Years Leading teams in Manufacturing and Distribution operations for Clorox, Kraft/General Foods, Nestle/Dreyers Grand Ice Cream and Procter & Gamble. Contact Information: • Email: lora.cecere@supplychaininsights.com • Blog: www.supplychainshaman.com (6000 pageviews/month) • Forbes: http://www.forbes.com/search/?q=lora+cecere • Twitter: lcecere (4800 followers) • LinkedIn: linkedin.com/pub/lora-cecere/0/196/573 (7000 in the network) #sciwebinar
  44. 44. Don’t Forget to Complete the Evaluation! Download the conference app and rate this session. Start by choosing: “Cornerstones and Tracks” on the main menu and follow the prompts to this session’s landing page.

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