Steve Riehm

I recently asked an open question to the 12 people on our monthly S&OP Demand Planning call, “So, does anyone have any inputs on events, promotions, new or lost business… anything my team should incorporate into the forecast?…”

Silence.

Again.

I had talked for the last 50 minutes, reviewing monthly reports on forecasted sales volume, actual sales in prior month, inventory, and planned production. We looked at current year compared to prior year, and current projections compared to the annual sales plan. All the data was in case quantities because I needed to use this forecast to drive distribution and production plans.

“Do we have a plan for closing the gap between Forecast and Plan in the next four months to hit the annual target?” the VP of Sales Finance chimed in to try to help draw something out of the people on the call. I appreciated the effort. He had been a strong advocate of the monthly Demand Meeting idea from the start, but his objective at the moment was the complete opposite of mine. He could see the gap in the forecast and plan we were reviewing and he wanted to know whether we were going to hit our annual revenue goals several months from now, while I was probing for details in case quantities of any efforts that were likely to impact our statistical forecast over the next few weeks. In 5 days I would be meeting with Manufacturing and Logistics for the Operations portion of our S&OP process, and they were concerned about the volumes, shifts and days they were going to asked to run for the rest of this month, so they could plan crews and overtime.

As the senior ranking member of the Channel Sales Team on the call, the VP probably felt compelled to speak. It didn’t really concern her that her team had declined to offer me any specific detail, probably because the only time they seemed to review case quantities was on my call. But the Channel VP knew when she was being called out by the Sales Finance VP on plans in dollars. “Well, I think the muffin forecast is probably 10% too low. We had some service issues two months ago, and we probably haven’t fully recovered yet. We sold more than you are forecasting last year, and we have several deals we’re getting ready to close.”

Another awkward silence.

Shortly after that the meeting ended in a stalemate. I explained that we couldn’t just add a 10% lift to the forecast across all muffin items, and build inventory for all items as a result, without a real plan for selling more of everything. The Channel VP was not ready to commit to the specific items and locations where she really expected more sales to materialize, but she was confident she would hit her goals. We exchanged pleasantries and parted ways. Next month’s meeting was already canceled as we were about to lose reporting for a month while we integrated a recently purchased company into SAP.

I didn’t know it at the time but in the coming years forecast accuracy would improve, inventory would be controlled more effectively, and the production schedule would become more stable. And it would be the last traditional monthly S&OP meeting we would have.

Steve Riehm
Senior Director, Sales & Operations Planning
ARYZTA

Hear Steve speak on saying goodbye to traditional S&OP at IBF’S  Business Planning & Forecasting: Best Practices Conference in Orlando Florida, November 4-6, 2013

1. YES…It is Really Possible to Create a One Number Forecast. Are you tired of everyone second guessing your forecast? No one believes the number…..and why should they? There are multiple variations of your forecast floating around the company. Finance has one, sales has one, marketing too! It is ok for people to have different perspectives on what the forecast should be and why, but how do you reach consensus? Which number drives supply planning, inventory planning and production? How do you develop a financial forecast to determine net sales, earnings projections and cash flow with so many “forecasts” in play?

Many companies struggle with this. They have the latest forecasting software, utilize statistical modeling techniques, gain retailer market intelligence and use syndicated data wherever possible to develop the best forecast with the ultimate goal of having the right inventory in house when the customer decides to order. Even with all this, they fail to gain alignment and consensus within the organization on the forecast.

Not too long ago, World Kitchen LLC was one of those companies. With leadership support we developed a process that utilizes cross-functional sales collaboration using an account/ channel forecasting approach that integrates retailer data and promotes joint business planning. We have a one number, bottoms-up global process across the company. Account/ channel unit forecasts are dollarized into one consensus sales forecast that is jointly owned by Sales and Demand Planning, thereby eliminating multiple forecasts being developed within each functional area. Through a monthly S&OP process we gain consensus on a bottoms-up, One Number forecast that drives both the supply chain operation and the financial commitments of the company.

SOME KEY POINTS OF THE PROCESS INCLUDE:

1. Global account/channel unit forecasts are dollarized into one consensus sales forecast.  The forecast is jointly owned by Sales and Demand Planning with input from marketing and finance, eliminating multiple forecasts being developed within each functional area.
2. Utilization of Retailer Data as a primary input in the forecasting process.  This includes Point of Sale (POS), Customer Inventory, Customer In-stock levels, Points of Distribution, etc.
3. Use of a formal Gap Closure process with sales to better understand unconfirmed opportunities.  This data supports closing the gap to budget as well as offering visibility of opportunities to supply planning.
4. Formal monthly consensus meetings with Brand Marketing, Finance, Category, Customer Marketing, Supply Planning, Sales and Demand Planning.  Meetings led by Demand Planning/Sales.  Interactive meetings to review year to date performance, gaps to last forecast cycle, gaps to budget, gap closures, forecast error/bias and fill rate (service levels).
5. Monthly S&OP meeting with Executive Team/Leadership to review Operations (both manufacturing and sourcing), Inventory and Sales forecast.  Review metrics for key areas.

So, YES, you can develop a One Number forecast. Of course, this forecast will change over time and it is the cross functional collaboration throughout the process that makes this work.

See us share more on this topic at IBF’s Supply Chain Planning & Forecasting: Best Practices Conference in Orlando on October 22-24, 2012. We’re speaking at the IBF event!

Donna Roe
Director, Demand Planning and Replenishment
World Kitchen

Josh Mlynarcik
Demand Planning Manager
World Kitchen