Case of Success: Expedited S&OP Implementation

When a business is undergoing critical problems with low customer service levels and inventory imbalances, it’s common that many initiatives are created throughout the areas, some of which may even be contradictory, generating an increased pressure for improvement; however, concentrating in a few initiatives to focus on what is relevant may be the best way.

This is the case with a dairy products company in Central America with significant problems in service levels, considerable shrinkage, limited distribution capacity and labor frictions with the unions, which focused on improving its tactical Sales & Operation Planning (S&OP) to improve in a short time, and then continue with other initiatives to grow in the market and to retain clients.

CONTEXT

A dairy products company in Central America with supply chains of dry products, refrigerated products and frozen products; annual sales of around $150 million dollars, highly recognized brands in the milk and ice cream markets; and a variety of categories in profitability, volume and inventory rotation. Depurated portfolio of around 200 SKUs in the three temperatures, and 7000 traditional and modern market clients.

They were losing market share due to main reasons: a very low level of market service, product availability and also due to the introduction of international competitors that were causing a significant decrease in prices, especially those considered as commodities, such as fresh milk. Additionally, they had a union that heavily obstructed changes and a labor market with high labor demand and, therefore, a high turnover of operational staff.

As a result of this, it had generated multiple initiatives to reduce portfolio, to change the way it served the market, to increase production, storage and distribution capacity, to make changes in high positions to bring in new talent, etc. However, they knew that if they didn’t improve short term availability levels, no initiative to regain market share would be capitalized.

CRITICAL COMBINATION OF PROBLEMS

A first improvement effort was to increase product availability by implementing a basic S&OP cycle to align the commercial force and the entire supply chain. S&OP is a monthly cycle to align and balance demand and supply capacities in time, it is comprised of several stages and sessions to reach unrestricted demand consensus, capacities and the best mixture of products and markets to achieve business goals in terms of margin and operational revenue.

The level of shortfall, i.e., products that should be at the distribution centers but were not available, was around 21%, that is to say 21 out of every 100 products had no inventory at the time of loading market routes, causing an impact on sales and on the trust of the commercial force and, ultimately, of the clients.

A detailed analysis of the processes, organization and its information technology showed the following problems:

They had no formal processes for an integral S&OP cycle.
Little involvement of sales and marketing to define the Demand Plan.
There were no management cycles in place, only some indicators and an eventual monitoring.
There was no role to guarantee the flow of processes and information.
Little use of the projection tool, it was not validated or improved constantly.
The decisions to limit demand were made unilaterally by Production or Distribution, without including Sales.
Environment with little collaboration between the areas, there was a habit to find culprits rather than solutions for problems.

All the above combined generate an organization that was tired of the constant complaints and claims from the clients, a very low service level (68% of deliveries vs. orders per route), sales losses (estimated at 5-10%) and a high level of operational shrinkage as product that didn’t leave the distribution center (+3%). The above was impacting the profits of the business and, on the long term, its survival.

The level of service to the routes needed to be increased, boosting product availability at the distribution centers without increasing or even reducing operational shrinkage. That was the goal that needed to be achieved in the very short term, in months, to stop losing market share and improve the organizational environment.

The solution needed to be integral: processes, organization and adapting information technology to achieve sustainability. Under this focus we worked in the following stages to design and implement a complete and urgent S&OP cycle to get quick results.

SHORT THERM SOLUTION

The most relevant items in the solution were:

To design and implement a complete S&OP cycle where the main key areas were incorporated and making consensual decisions.
To redefine the supply strategy in terms of location and size of stock in the chain, as well as in terms of resupply at the plant and the distribution centers.
To optimize product loading for sale by monitoring products that are out-of-stock in each route.
To develop a basic and effective cycle management, with indicators for availability, service level and shrinkage that would be the axis for the improvement.
To clearly define the roles expected, to adapt the organization and to provide feedback to the participants during the cycle and afterward to realize in a little time the dynamic of consensual and aligned decisions, not only to find culprits.
To use the current information took, with minimum display modifications.

The project took 12 weeks for the design and preparation of the organization and approximately 12 weeks to be implemented in 3 full cycles, changes were reflected in the very short term (+ 6 months after the first cycle) in the key indicators shown below.

MAIN LESSONS:

Without a doubt, this was a successful project in terms of indicators and business results in the increase of sales and the reduction of the shrinkage, but the most relevant qualitative benefit was having a completely new, focused and aligned organization, instead of a fragmented organization with little collaboration between the areas.
The main lessons in this quick improvement project that could be transferred to other businesses in similar situations, lie not so much in the design of the solution, but rather in how to execute the implementation:

To focus on what is important and urgent, this is particularly critical, because with so many problems, there is a risk of launching initiatives that would prevent people from focusing.
Designing a solution along with those involved, even if processes are relatively standard, it is important to adapt them and to listen to people in validation workshops.
To provide constant feedback for the expected roles of each participant, specially for key positions, such as Demand Planning. It is not enough that they are clear, but to show what is expected at each stage of the process.
To guide people, without doing their job for them, so that people will embrace their roles and responsibilities quickly.

CONCLUSIONS

Implementing processes at the organizations is not an easy task, but if we don’t focus on what is urgent and important, it can become nearly impossible. A change strategy needs to be defined, what to do first and what to postpone, it is right there that one of the most important skills of the leading team lies.

We have seen that S&OP cycles are standard, and the most difficult part is the people. To get them involved, to make them embrace their roles in the process and to have them join a new dynamic is often more challenging, that’s where the leading team need to be actively involved, from the design, to attending key sessions and making demands.

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CONTEXT

CRITICAL COMBINATION OF PROBLEMS

SHORT THERM SOLUTION

MAIN LESSONS:

CONCLUSIONS