Tom Wallace – Demand Planning, S&OP/ IBP, Supply Planning, Business Forecasting Blog

GOOD STUFF in Chicago, The Business Case for S&OP

Tom Wallace — Thu, 23 Jul 2009 20:23:24 +0000

Tom Wallace

No I’m not talking about the Chicago Cubs or deep dish pizza.

Rather, I’m talking about our third Best of the Best S&OP Conference, co-sponsored by APICS and IBF last month. It was quite a success with a very nice turnout, particularly when one considers the state of the economy. And the speakers – if you’ll pardon my language – did a damn fine job.

One of the pearls that I managed to pick up during the proceedings came from Adam Szczepanski, VP of Strategic Planning with Forum Oil Technologies in Houston and a former CFO in another oil patch company, talked about projecting cash flow 18 or more months into the future, as an integral part of their Executive S&OP process.

Why do this? Why bother? Well, it turns out there are some very good reasons, one being the stockholders. Adam gave the example of a company that made dividend payments on its stock once every six months. Well, four months ahead of time, the Executive S&OP cash flow projection showed that they’d be unable to meet that dividend payment. This was due to a large inventory build-up planned to cover a temporary plant shutdown for major maintenance and upgrades. The cash flow projection in Executive S&OP went negative.

This led them to modify their plans for the plant shutdown. They were able to meet the dividend payment by changing the plans for the plant shutdown and still accomplish what needed to be done. It was S&OP that gave them the “heads-up.”

Another first-rate speaker was Bob Hirschey, VP of Strategy for Weyerhauser’s Cellulose Fiber business. One of Bob’s statements just knocked my socks off: “S&OP has made our strategic planning process come alive.” He went on to say that they don’t rework their strategic plans each month, but rather they check during their monthly S&OP cycle to insure that the sales and operations plans and the strategic plans are in sync, and when they are not, take corrective action.

Last and certainly not least was Ross Bushman, who actually went first as he gave the opening Keynote talk. Ross, the COO at Cast-Fab Technologies, talked about how his company’ wind power business virtually evaporated in the last half of 2008; this was caused by the credit markets drying up and thus virtually no financing available to wind farm developers. Ross’s message was that Executive S&OP enabled them to cope far better than they could have without it.

Do you have a story to tell about how Sales & Operations Planning is helping you to manage during these turbulent times a la Cast-Fab? Or how you’re using it for advanced financial planning as they do at Forum Oil Technologies? Or how it’s helped to make your strategic planning processes more effective, as it has at Weyerhauser? If so, I’d love to hear from you. We welcome your comments.

Cheers,
Tom Wallace
tom @ tfwallace.com

News Flash! Long Lead Times, Safety Stock, Backorders Etc. All Cost Money

Tom Wallace — Wed, 17 Jun 2009 22:52:02 +0000

Tom Wallace

What goes around comes around. Many years ago, when I was young, people in the Northeast and Midwest were upset because they were losing jobs to the South. Let’s call that Phase 1.

Later, people all over the U.S. were upset because so many jobs were going to Mexico. That’s Phase 2, and it was followed by Phase 3: jobs going to Japan. After that, we saw Phase 4: people in Japan deeply concerned about their jobs going to China.

Now we’re in Phase 5, where the Chinese are worried about jobs going to Southeast Asia and, lo and behold, also to North America: Mexico, Canada, and the U.S. And Phase 6, when it comes, will be – anybody’s guess. What goes around comes around.

I am most definitely not making light of job loss, but rather the reverse. I feel the current unemployment situation keenly, as our brothers and sisters both biological and otherwise, our friends and neighbors, our former colleagues and co-workers are looking for work and just can’t find anything open. Brutal.

Here’s a tiny bit of good news. The June 15 issue of Business Week ran an article titled: “China’s Eroding Advantage.” The article cites increased costs in China as pushing up their prices and hence decreasing the once sizable advantage tied to the “China Price.” A 2005 study showed that Chinese-made parts were 22% cheaper f.o.b. port of entry. By 2008, this cost advantage decreased to about 5%. I think that qualifies as good news.

Further, as the article points out, North American purchasers today are putting greater emphasis on total purchase cost as opposed to merely the raw purchase price. These additional costs involve such things as:

longer and more variable lead times, requiring
more safety stock, and causing
more stock-outs, less flexibility, and more thus more unhappy customers
less assurance over quality
more cumbersome engineering changes
and on and on

Yes, there is a bit of good news here: manufacturing is starting to come back on shore. We surely need more than that to solve this crushing unemployment problem, but maybe it’s a start.

Winston Churchill said after the Battle of El Alamein in World War II: “This is not the end, nor is it the beginning of the end, but it is perhaps the end of the beginning.” I hope that fits our current situation.

The Institute of Business Forecasting & Planning – IBF and I look forward to your comments and thoughts.

Tom Wallace

The Scoop on S&OP: One Company's Recession Story

Tom Wallace — Sat, 30 May 2009 19:50:06 +0000

Tom Wallace

This is my first posting to the IBF’s new blog, and I’d like to express my thanks, first of all, to you, the readers and also to Anish Jain of the IBF who invited me in.

Okay, let’s get to work. Are you ready for a horror story? It ranks right up there with “Night of the Living Dead,” “Creature from the Black Lagoon,” and “Aliens II.” It’s about dealing with these horrible, horrifying economic times we’re in.

A few weeks ago, I was talking with Ross Bushman, the COO/President of Cast-Fab Technologies, a large and very successful foundry. Until recently their largest market was wind power – the equipment used to generate electrical power from wind – but as with so many other things the recession and financial meltdown got in the way.

Ross explained to me that 1) developing a wind farm is a very expensive proposition 2) the developers of wind farms rarely have enough internal capital to fund these projects themselves and 3) they therefore turn to external funders such as banks, investment firms, insurance companies and so forth.

Well, Ross said that things started to go south in the 3rd quarter of 2008. Their three largest wind farm customers were funded by Lehman Brothers (bankruptcy), Wachovia Bank (bought by Europeans), and AIG (and we all know what happened to them). Thus the funding went away. The wind farm developers told Cast-Fab to stop producing their orders.

The result: Cast-Fab’s wind power business went away overnight. The orders were cancelled. Ross told me how he and his team used their Executive S&OP process to manage the decline, using what some call the “Mini-S&OP Cycle” to quickly track demand shifts and their impact on workload. Here’s what Ross said:

“I am convinced that we kept more people employed for a longer time due to our S&OP process and our ability to instantly see how new forecasts affected the shop load. Being pro-active within our workforce reductions helped everyone – even though it was tough for people to see at the time. Too often companies wait until they see last month’s numbers before making decisions. S&OP enables us – and almost “forces” us – to be pro-active.”

Here’s another piece of good news: the business will come back. And when it starts to kick back in, you can be sure that Cast-Fab will use their S&OP process to help them proactively plan their production rate increases, the timing of their recalls and new hires, and thus be ready to meet the demand.

The moral of the story: S&OP can be a big help both in the downside part of a recession and also in the recovery.

LEARN HOW THEY DID IT

I did a webinar recently and covered the Cast-Fab story in more detail. To see it, go to here

Want to learn how they did it from the “horse’s mouth” and get the complete story? Ross Bushman, Cast-Fab’s COO, will be a keynote speaker at the S&OP Best of the Best Conference in Chicago on June 18-19, co-sponsored by IBF and APICS. He’ll be joined by over a dozen other experts in how to use Executive S&OP to manage a business more effectively. For details, you can check into
www.ibf.org/apicsibf.cfm

Thanks for listening,

Tom
www.tfwallace.com