Manufacturing Executive - March/April 2009 - (Page 50) mand means there is not one version of the truth shared by sales and operations, and there are many opportunities for miscalculation. The results can be extra inventory, which costs the company money or an unsatisfied customer because a salesperson promised to deliver products that manufacturing didn’t have the capacity to produce. Now, many manufacturers that have been basing sales and operations planning (S&OP) decisions on financial spreadsheets alone — and using hindsight to predict future demand — are tying together different types of applications to get a complete picture of demand, the financial implications of those trends, and ways their plants need to adjust. Corporate performance management software that includes budgeting tools and scorecarding can provide a clear, consolidated financial picture of how sales and other departments are operating. These tools provide information on spending in each area of the business as well as forecasts. They also integrate sales forecasts with data on how much manufacturing time is required to accommodate new sales, whether there is enough inventory — or too much — and production capacity. At Otis Spunkmeyer, Wegener turned to Host Analytics, a corporate performance management provider that delivers its revenue planning software as an on-demand service. Now, with that budgeting piece in place, Otis Spunkmeyer is in the early stages of implementing a demand planning portal from John Galt Solutions to tie in the operational planning view. The result, Wegener says, will be an integrated S&OP process and, ultimately, reduced spending on inventory. In fact, the company expects to save $3 million to $6 million per month on inventory spending, Wegener says. “The old system was based on what was done previously,” Wegener says. “Now there is a view of how demand for the different product lines is changing going forward. That gives our planners a lot more confidence to reduce the amount of safety stock.” While Otis Spunkmeyer is already reaping the benefits of a front-end financial planning tool that provides both a sales forecast and a way to track P&L on the balance sheet, the planned addition of a back-end demand management portal will provide a rough view of capacity constraints across the company’s four manufacturing facilities. The pending planning portal, from John Galt, will slice and dice the information based on how much product was sold in the past, show “ We have a much tighter integration of the manufacturing plan with the sales forecast. “ seasonal spikes, and provide a view of actual inventory and production capacity conditions. Together, these two systems close the S&OP Kent Wegener Otis Spunkmeyer Vice President loop by balancing supply and demand. Typically, S&OP processes are supported by a mixture of software applications rather than a single, stand-alone system, experts say. Indeed, S&OP is not a technology per se, but a process that combines budgets, financial forecasts, manufacturing, inventory, the supply chain, and, perhaps most important, people. Kent Wegener says Otis Spunkmeyer “The S&OP process is all expects to save $3 about deciding what is the million to $6 million most optimal way to run the on inventory spending once its integratbusiness from an operational ed S&OP process is perspective,” says Kai Trepte, in place. vice president of sales and services for John Galt. “But the real value-add is that S&OP helps to break down the silos. Without it, you have people selling and they are always unhappy with the people [producing] the product because there is no visibility into what the issues are. “The real game changer is to compare all of the points of view and to understand the gaps,” Trepte says. “Then you move the process from reacting to managing the gaps. You understand where you are on track or off track and can put the program and plans in place to close those gaps.” Also, the S&OP process benefits from better sales forecasting, which will reduce the amount of safety stock and other forecasting errors. At this point, Otis Spunkmeyer’s inventory savings target is only partly realised, Wegener says. But there has been a palpable improvement. “We have a much tighter integration of the manufacturing plan with the sales forecast, which we never had before. That is a big deal,” he says. The New Model n today’s economy, businesses can’t afford not to have an efficient S&OP process. In a recent survey of more than 800 companies, Aberdeen reported that S&OP is one of the top two focus areas for manufacturing companies — behind supply chain visibility (see chart, p. 51). High interest in S&OP can be pinned to rising supply chain costs, including transportation and inventory carrying costs; increased customer service expectations; and a volatile market resulting in high demand uncertainty. But the report, “The Supply Chain Executive’s Strategic Agenda 2008,” notes that very few companies use S&OP effectively. To be successful, companies need a way to collect I 50 Manufacturing Executive MAR/APR-09 Photo courtesy: Otis Spunkmeyer
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