Transcript Mission Statement - Logistics Quarterly

Sales and Operations Planning
at The Hershey Company
Jason Reiman
Director, Customer Service & Planning
April 20, 2006
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Why implement a Sales and Operations Planning Process?
 Product line complexity

In & Out items – only available 4-12 weeks during the year
– Seasons – Valentine’s Day, Easter, Halloween and Holiday
– Limited Editions – 25 LE programs in 2005
– Merchandising Units – shippers, counter units, modules

Everyday Items
– Turn items
– Promotions
– New product introductions – 35 products launched in 2005
 Plants – 17 sites
 Co-Manufacturers and Co-Packers – 35 sites
 Distribution Centers – 5
 50.3% of purchases are impulse driven
Source: Hershey sponsored Omnibus Study completed by Market Facts Telenation
(1,000 adult consumers); 6/12/00
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Ubiquitous Availability of Products
Confectionery Channel Mix (%)
Military
1%
Mass
Merchandisers
Small Retailers
18%
7%
Fundraising
1%
Drug Stores
16%
Supermarkets
35%
Vend &
Wholesale
Concession
Clubs
6%
3%
Data Source: Confectioner Magazine, Hershey estimates
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Convenience
Stores
13%
Setting the stage for Sales and Operations Planning (S&OP)
 A monthly process for balancing supply and demand by:

Ensuring cross--functional collaboration of the operating plan

Aligning expectations across the organization

Reconciling the operating plan with the financial plan

Planning at the aggregate product family levels

Creating ownership by measuring performance against the plan

Evolving process
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How will S&OP help Hershey’s evolve the supply chain?
External Integration
Effectiveness
• CPFR/VMI enablers
• Establish critical mass
• Joint business planning
• Customer centric
Internal Integration
• Internal collaboration via S&OP
• Clear accountabilities; action plans required
• Common goals & objectives
• Single financial & operating plan
• Measure quality
Functional Plans
• Functionally driven
• Weak accountability
• Multiple, disjointed plans
• Measure accuracy
Time
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Sales and Operations Planning
Strategic
Business and Financial Planning
12 + months
Sales and Operations Planning
Tactical
Operational
0-3 months
Execution
Collaboration
3-12 months
Demand Plan
Operations Plan
Operational
Forecast
Master Production Schedule
and Distribution
Requirements Planning
Deployment
Forecast
Finite Schedule and
Deployment Plan
0-3 weeks
Supply Planning
Demand Planning
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Why implement a S&OP Process?
It ensures alignment and commitment throughout the organization
Before S&OP
After S&OP
 Multiple, disjointed plans
 Single financial & operating plan
 Reactive executive
involvement based on issues
 Formal cycle for proactive executive
review and commitment
 Weak accountability
 Ownership and accountability in all
areas and levels of organization;
action plans required
 Limited collaboration in
planning
 Sales, inventory & production plans
reviewed by all areas
 Goals focused on functional
performance
 Goals focused on business
performance
 Performance review in
reaction to fires
 Formal proactive monthly review of
performance and future plans
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Sales and Operations Planning Process - Monthly Meetings
Gather
Information
Forecast
Consensus
Supply
Planning
Create
Partnership
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Executive
Review
Sales and Operations Planning Process - Monthly Meetings
Gather
Information
Forecast
Consensus
Supply
Planning
Create
Partnership
Executive
Review
Who:

Demand Planning, Supply Planning, Marketing and Sales
What:

Update S&OP tools and reports with month-end information
regarding sales, inventory and actual production

Gather additional information and distribute to appropriate teams

Explain variances, risks, opportunities and assumptions with plans
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Sales and Operations Planning Process - Monthly Meetings
Gather
Information
Forecast
Consensus
Supply
Planning
Create
Partnership
Executive
Review
Who:

Demand Planning, Sales, Marketing, Supply Planning and Customer Service &
Planning
What:

Review performance against the previous month’s forecast

Identify significant changes to forecast

Identify risks and assumptions associated with the forecasts

Establish forecast recommendations by family for the planning horizon
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Sales and Operations Planning Process - Monthly Meetings
Gather
Information
Forecast
Consensus
Supply
Planning
Create
Partnership
Executive
Review
Who:

Supply Planning, Manufacturing, Distribution and Demand Planning
What:

Review performance against previous production plan

Identify significant changes to production or inventory plans

Establish supply plan recommendations by family for the planning horizon
which optimizes the revenue/income potential
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Sales and Operations Planning Process - Monthly Meetings
Gather
Information
Forecast
Consensus
Supply
Planning
Create
Partnership
Executive
Review
Who:

Leadership positions from Marketing, Sales, Logistics, Finance and Manufacturing
What:

Review of S&OP process metrics and key drivers

Review areas where forecasts and supply plans are not balanced

Operating plan reconciled with financial plan

Review of key initiatives impacting the team

Identify issues requiring executive team attention
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Sales and Operations Planning Process - Monthly Meetings
Gather
Information
Forecast
Consensus
Supply
Planning
Create
Partnership
Who:

Senior leaders from Marketing, Sales, Operations and Finance
What:

Review status of action items from previous meeting

Discuss impact of the operations plan on the financial plan

Review significant product family issues

Conduct a process check
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Executive
Review
S&OP Results Achieved
Improvements have been achieved in each of the following key metrics
Forecast Performance (WMAPE)
Forecast Bias
Service Levels
Average Inventory
Material Losses
Obsolete Packaging
Donated, and Destroyed
Revenue Drains
Unsalables
Distressed
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Lessons Learned
 Executive involvement and sponsorship is critical to the success
 Align the forecast around the demand creation process (Marketing and Sales)

Establishment of a forecasting/demand planning process is a critical first step
 New items tend to dominate the process

Forecast variability and new manufacturing capability
 Create linkage to the financial plan

Rolling 12 months vs. fiscal year focus
 The process is more than numbers

Document risks, assumptions and decisions along the way
 Create a process that incorporates mid-cycle changes
 S&OP happens everyday … it’s not just a couple of meetings a month

Focus on decisions, not just reporting the news
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Next Steps
 Leverage customer level planning capabilities in the S&OP process

Vendor Managed Inventory and Collaborative Planning & Forecasting

Creates visibility into channel level inventory

Forecasts incorporate POS (Point of Sale) consumption data
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Customer insights will create a more productive S&OP process
Gather
Information
Forecast
Consensus
Monthly Business
Review
* Customer 1
* Customer 2
* Customer 3
Supply
Planning
Create
Partnership
Pack
Season
Brand
Executive
Review
Executive
Forecast Review
New Products
* C-Store COT
Club/Dollar COT
Drug COT
Key Food/Grocery
Sales Review
Marketing Review
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Executive Review
Next Steps
 Leverage customer level planning capabilities in the S&OP process

Vendor Managed Inventory and Collaborative Planning and Forecasting
 Implement “What if” capabilities throughout the process

Ability to analyze multiple demand and supply scenarios
 Reduce the overall cycle time of the S&OP process
 Create linkage to the company’s P&L statement

Full financial integration
 Extend S&OP practices to customers and suppliers
 Use benchmarking to incorporate new ideas
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