Extended Sales and Operation Planning (ES&OP) - customer and supplier Operated by Valcon & Implement

What is S&OP ? Sales and Operation Planning can be described as: ”A set of decision-making processes to balance demand and supply, to integrate financial planning and operational planning and to link high level strategic plan with day-to-day operations.” APICS (American Production and Inventory Control Society Supply Demand

Purpose of the S&OP process Improve delivery service Focus on opportunities also outside the forecast Capacities and resources are in place when needed To enable growth Balancing demand and supply also from a cost effective perspective Differentiated planning strategies, planning and performance level To reduce cost and working capital One aligned and committed plan at management level Transparent and fast decision making and communication of action plans Clear rules and prioritisation guidelines for tactical and operational level To reduce iterations and workload

S&OP in the planning hierarchy Planning buckets Process cycles Focus level Opportunities/actions Actual planning data and capabilities Strategic planning up to 5 years Commercial strategy (markets, customers, products) Requirements for new production facilities Yearly Yearly Product group, capacity group New customers/development of existing customers/campaigns Increase/decrease in production capacity (shifts) or subcontracting Build up/reduce inventory Sales & Operations Planning 2-18 months Monthly Product group, capacity group Monthly Levelling demand/prioritisation between orders Overtime/time off in production/ temporary employees Build up/reduce inventory Tactical planning 1-3 months Hvorfor vil vi ændre processen Weekly/daily Weekly SKU level, capacity level Operational planning 0-6 weeks Weekly/daily Weekly/daily SKU level, individual capacity Prioritisation between orders Overtime/time off in production Build up/reduce inventory Polices, rules and parameters

Extended S&OP process Customer Supplier Internal S&OP process Customer demand planning S&OP balancing Plans and actions Internal S&OP process Implement plan and actions Signed off purchasing forecast or takt Supplier capacity planning Review critical capacities and resources Identify issues and make scenarios Decision (S&OP) meeting Capacity and resource gaps and scenarios Supplier Scenairer: F.eks. øge skift, flytte ordre, op/ned prioritere andre kunder, øge cost f.eks. overarbejde og hast leverancer Implement plan and actions Supplier inventory planning Review raw material and semi-finished stock vs. target Identify issues and make scenarios Inventory gaps and scenarios Common demand and supply plan and agreed actions

Framework for ES&OP meeting Practicalities Frequency: TBD Horizon & aggregation level: TBD Time and place: TBD Participants Decision makers customer e.g.: Purchasing director/manager Planning director/manager Decision makers supplier e.g.: Sales director/manager Production director/manager Purpose The purpose of the ES&OP meeting is to: sign off on the forecast for month 2 to x decide actions for imbalance between demand and supply decide actions for deviation on KPI’s Ground rules e.g. The S&OP presentation and recommendations are sent to participants min. 2 days before the meeting Questions regarding data validation not to be discussed at the meeting Mandate to be handed over if not able to participate Decisions are made in the meeting (not before or after) Agenda Follow up on actions from last meeting Update on market trends, market share and market requirement Last month sales, forecast and development incl. large orders Capacity and inventory issues and scenarios New Product Introductions Decisions and actions KPI update, deviations and actions Input Customer purchasing forecast Supplier capacity and inventory issues and scenarios KPI measures and gaps Output Balanced demand and supply plan and list of agreed actions Agreed action to close performance gaps

Implementation of ES&OP process Policies and rules How can supplier use forecast (e.g. buy raw material, produce to forecast) Which planning strategies to be used (make-to-stock, make-to-order, JIT, Takt, min./max. on selected products) Who holds inventory on semi-finished products? Rules for prioritisation of production/orders Horizon and focus/aggregation level Horizon long enough to cover reaction time on ramp-up and down on capacities, resources and inventory Focus level detailed enough to uncover issues KPI measures and targets Should cover QDC (quality, delivery and cost) What to measure, how to measure it and who to collect data Differentiation on product groups and/or A, B and C Process and meeting Who prepares and leads S&OP meetings? Who owns and adjusts service level agreement? Who owns the process and continues improvement on the process? Tips It will take some iterations to get a good process up and running. Don’t spend too much time on getting the data side right. Support the ES&OP process with a tactical planning meeting at manager level Get started and get some learning!