1. Introduction to Global Supply Chain Management Module Two: Sales & Operations Planning In The Age of Globalization

2. Class Agenda Sales & Operations Planning (S&OP) defined
June 18
Class Agenda
Sales & Operations Planning (S&OP) defined
Components & activities
Buy-Side & Sell-Side elements of international trade
Material Requirements Planning
Distribution Requirements Planning
Introduction to Inventory Management

3. The Essence of Supply Chain Management: Buy-Side & Sell-Side Activities In An Outsourced World
MANUFACTURER
DISTRIBUTION
SYSTEM C T O M
MATERIALS
MANAGEMENT
Buy-Side
Sell-Side

4. Sales & Operations Planning
“Sales & Operations Planning is a multi-functional business discipline that helps companies to synchronize product supply with customer demand. Designed as an ongoing process, S&OP uses updated forecasts to translate high-level supply chain strategies into operational activities that include production planning, material requirements planning, purchasing, distribution requirements planning, inventory management, sales, order management, logistics, finance and accounting.
At its core, S&OP forces executives to constantly compare period-specific product forecasts with actual sales activities, and then make operational adjustments that reflect any variation between the two. Whereas the frequency and planning horizon for S&OP will vary by industry and company, S&OP is essential to making sure that an organization can achieve a balance between demand, inventories and profitability.”
-Dan Gardner, April 2015

5. The S&OP Challenge: Integrating & Synchronizing Functional Activities
Sales forecasting
Materials Requirements Planning
Supplier Relationship Management
Distribution Requirements Planning
Customer Relationship Management
Inventory Management
Demand Management
Available to Promise
Order Management

6. Sales & Operations Planning: Objectives & Outcomes
Link high-level strategy with tactical execution
Marketing
Production
Finance
Greater alignment between the Buy-Side & Sell-Side of the supply chain
Supplier Relationship Management
Customer Relationship Management

7. Sales & Operations Planning: Objectives & Outcomes
Improved sales
Existing products
New product launches
More accurate forecasts
End-to-end supply chain visibility
Control over landed costs & profit margins
Reliable lead times
Enhanced inventory management
No lost sales
Minimal obsolete inventory

8. The “Cascade Effect” of Forecasting on Sales & Operations Planning

9. Characteristics of The Forecasting Discipline
Virtually all supply chain (S&OP) activities begin with a forecast
Because forecasting involves predicting the future, they are almost always wrong
Predicting future sales
Budgeting for future costs
Planning for capital expenditure
Differences between forecasts and actual results should be calculated as soon as posible and made a part of future planning

10. Sales & Operations Planning: The Integration & Synchronization of Buy-Side Activities
MANUFACTURER
DISTRIBUTION
SYSTEM C T O M
MATERIALS
MANAGEMENT
Buy Side
Sell Side

11. Buy-Side Activities: Material Requirements Planning (MRP)
MRP is a time-phased approach to planning for the procurement of raw materials that will go into a production process
MRP activities are based on the Master Production Schedule
What products will be manufacturered
Quantities to be produced
During a specific “time bucket”

12. Materials Requirements Planning
Forecasts for finished goods (independent demand) are what drive the MPS and MRP
Independent demand for finished goods drives dependent demand for raw materials
The “Cascade Effect”
MRP for specific products is driven by the “Bill of Material”
A “recipe” for the raw materials that go into making a product
MRP software provides product-specific information on what to order, in what quantity and when to place a purchase order

13. Materials Requirements Planning
As part of the S&OP process, MPS & MRP quantities will change based on updated forecasts
Adjustments made to the MPS & MRP driven by actual demand
Two essential activities related to MRP are:
Gross to Net Exploding
Lead-time Offsetting
MRP has a direct impact on sales, landed costs, lead times and inventory levels

14. The Heart of the Tactical Matter: Material Requirements Planning (Buy Side)
Material Requirements Planning (MRP)-A set of techniques that use Bill of Material data,
inventory data and the master production schedule to calculate requirements for
materials. It makes recommendations to release replenishment orders for material. Further,
because it is time-phased, it make recommendations to reschedule open orders when due
dates and need dates are not in phase. Time-phased MRP begins with the items listed on
the MPS and determines (1) the quantity of all components and materials required to
fabricate those items and (2) the date that the components and material are required.
Time-phased MRP is accomplished by exploding the bill of material, adjusting for inventory
quantities on hand or on order, and offsetting the net requirements by the appropriate lead times.
Source: APICS Dictionary

15. Integrating S&OP: MPS, MRP, Inventory Management & Logistics
Gross–to-Net Exploding
An exercise whereby the original (gross) requirement for a product is reduced by:
Inventory on hand
Confirmed order receipts
Confirmed order releases
Planned order releases
Gross-to-Net Exploding must be integrated with the raw materials inventory management function
Integration is achieved through process design and supply chain software applications

16. Integrating S&OP: MPS, MRP, Inventory Management & Logistics
Lead time off-setting
Orders are placed for products on a date that “off-sets” cumulative lead times with the desired date of receipt
P.O. preparation/acceptance
Production time
Transportation lead time
Customs clearance
Domestics distribution
Lead time off-setting must be integrated with the logistics function
Integration is achieved through process design and supply chain software applications

17. Sales & Operations Planning: The Integration & Synchronization of Sell-Side ActivitiesU P L I E R
MANUFACTURER
DISTRIBUTION
SYSTEM C T O M
MATERIALS
MANAGEMENT
Buy-Side
Sell-Side

18. The Heart of the Tactical Matter: Distribution Requirements Planning (Sell-Side)
Distribution Requirements Planning (DRP)-Intended for use with finished goods, DRP
encompasses the activities associated with identifying the replenishment requirements of
(warehouse) locations throughout a company’s logistics network. DRP uses the same logic as
MRP in that it is a time-phased approach to determining inventory needs for each of an
an organization’s stocking locations (satellite warehouse, regional distribution center, et al).
Distribution Requirements Planning relies upon the principles of Gross-to-Net Exploding and
Lead Time Off-Setting to synchronize product quantities and delivery times with actual demand.
Because DRP is often used by companies with multi-level distribution networks (multiple
warehouses), the discipline uses a “Bill of Distribution” to implode time-phased requirements
from satellite warehouses up through the distribution channel to main distribution centers.
Ideally, companies and their supply chain partners employ cloud-based visibility tools to truly
integrate and synchronize all of their Sales & Operations Planning activities.
Dan Gardner, April 2015

19. Distribution Requirements Planning
Used for independent demand products (finished goods) within a company’s distribution network
Calculates time-phased requirements in specific quantities
Very similar to the logic behind MRP
Gross to Net Exploding
Lead-time Offsetting
Uses Bill of Distribution to implode needs up the distribution channel

20. Distribution Requirements Planning
Heavily influenced by customer orders
Backorders & current orders
Consumption of the forecast integral to the process
S&OP adjustments must be made based on variances between forecast & actual demand
Variances are cascaded back up the supply chain to Buy-Side activities

21. Introduction to Global
Inventory Management

22. Inventory Management Defined:
Inventory Management: All activities associated with the valuation, acquisition, shipment, location, storage, sale, distribution, disposition, recovery and disposal of merchandise related to the operation of a firm’s business
Goal is to meet the customer service requirements of the company
Product availability

23. Global Inventory Management: Integrating & Synchronizing the Supply Chain
Raw materials, components, sub-assemblies, work-in-process,
finished goods, accessories, service parts, MRO S U P L I E R
MANUFACTURER
DISTRIBUTION
SYSTEM C T O M
MATERIALS
MANAGEMENT
Buy Side
Sell Side

24. Different Industries & Business Models Determine How Supply Chains Are Designed
Retailer (brick & mortar)
E-Commerce
Wholesaler/Distributor
Manufacturer (OEM)
Tier I, II or III supplier
Agricultural importer/exporter
Marketer/Merchandiser

25. Different Types of Inventory & Operating Models Also Influence How Supply Chains Are Designed
Raw materials
Components/sub-assemblies
Work In Process
Finished goods
Distribution inventory
Accessories
Spare parts
MRO
Build to stock
Build to order
Assemble to Order
Engineer to Order
Just In Time
Vendor Managed Inventories

26. Global Inventory Management: Strategic & Tactical Considerations
Total dollar investment in global inventories
Number and type of Stock Keeping Units (SKU’s) or Part Numbers to carry
Locations of distribution centers, warehouses and/or satellite operations
By region and/or country
Risk Management policies & procedures

27. Global Inventory Management: Strategic & Tactical Considerations
In-house inventory management or with a Third Party Logistics (3PL) company
Systems integration
Inventory management system
Warehouse management system
Transportation management system

28. Global Inventory Management: Strategic & Tactical Considerations
Inventory accuracy Best Practices
ABC Analysis
Cycle Counting
Safety stock levels
Order points
Min/Max levels
Title transfer (Buy-Side & Sell-Side)

29. Regardless of the Model or Type of Inventory: I. M
Regardless of the Model or Type of Inventory: I.M.-Related Costs to Consider
Ordering costs
Clerical & Admin support
Carrying costs
Cost of capital
Opportunity cost
Lease
Payroll
Systems
Materials handling equipment
Maintenance
Supplies

30. Regardless of the Model or Type of Inventory: I. M
Regardless of the Model or Type of Inventory: I.M.-Related Costs to Consider
Transportation costs
Ocean, air, surface
Returns & reverse logistics
Risk management
Theft, pilferage & damage
Insurance
Security
Stock-out costs
Expedited transport
Back-order processing
Lost sales
Depletion of customer goodwill

31. End of Module Two Congratulations!!!