Page 364 - Orlicky's Material Requirements Planning

CHAPTER 20 Sales and Operations Planning 343

Business Summary Brand X Inventory Euro Total Germany Italy Switzerland
Brand Y KPI’s 1–3 Austria Greece Norway UK
Brand Z KPI’s 4–6 Belgium Holland Portugal
France Ireland Spain
Volume Operating Profit
32 60
30 50
28 40
26 30
24 20
22 10
20 0
1 2 3 4 5 6 7 8 9 10 11 12 FOY FOX YTD FOW FOX
This Year Last Year Budget Actual Last Year Budget/Strat Plan Latest View
Latest View FOY Mkt Plan
Ongoing Planning Assumptions (In Latest View) Emerging Issues (Evident in Latest View) Risks and Opportunities (Not in Latest View)
1. Euro price rise Q3FOX 75% prob. 1. Supply at near full capacity. ■ Capacity constrained. If demand
2. Supply does not include newly Sales opportunities being rises by 12% stock-outs occur
acquired Italian plant turned away by sales in the UK Q4FOX and Q4FOY
3. Based on total market growth of 2. c€5M costs in FOX due to need ■ Low stocks may lead to drop in
8% FOX, 6% FOY to outsource production OTIF and customer service issues
■ Competitor AAA’s brand Q recall
gives 5% sales increase opportunity
Major Assumption Changes this Cycle Desicion Made in Previous Steps (not in L View) Decisions Required—Recommendations and Costs
(Reflected in Latest View) 1. Low service rates will be tolerated 1. Phase marketing spend in FOX to
1. Timing of Spanish price rise to reduce the trade loading usually bolster demand through price rise
brought forward by 2 months seen before a price rise 2. Pull forward £1.5m in media from
2. Feasibility study commissioned on Q4FOX to Q3FOX
new production capacity
FIGURE 20-8
Volumes and financials in one sheet.
better approach is to build knowledge and know-how by having a business discussion
around the following questions:
■ What major assumptions is this forecast based on?
■ What changes to assumptions have been built into this forecast since last cycle?
■ What are the issues and gaps I should know about?
■ What are the risks and opportunities around this latest view?
■ What decisions have already been taken but are not yet reflected in this view?
■ What decisions should we be taking now?
The statistical forecast is always a useful input to the S&OP process but is not as
valuable as understanding changes to assumptions. For example, the assumption on low-
volume growth in the budget to support increased margin now may have changed to a
big-volume push to hit a year-end target at the expense of margin. Making a high-level
adjustment on the roughly right principle will be easier to do and more accurate for the
medium to long term than changing the forecast at customer or SKU detail level.
If businesses pour enough resources (i.e., salespeople, demand managers, and sys-
tems) into planning at the detailed level over a medium- to long-term horizon, they can
get an answer, albeit an answer that will not be understandable to management because
of a lack of high-level assumptions. The main danger, apart from diverting the sales force
from selling, is in creating an illusion of accuracy. The huge effort and cost involved in
creating the forecast mean that people will tend to believe in it, whatever external
changes may be occurring.
A further problem with detailed planning over the medium to long term is that no
businesses have enough resources to do scenario planning and optimization at the