Balanced S&OP: Sunsweet Growers’ story
In most supply chains, the key constraint lies either on the supply side or the demand side. But for dried-fruit producer Sunsweet Growers, both supply and demand are determined by factors beyond the company’s control. To operate more effectively in this doubly constrained environment, Sunsweet updated its old sales and operations planning (S&OP) program with new tools and processes. The new S&OP program helps not only to balance supply and demand but also to sustain that balance.
By Harold Upton and Harpal Singh -- Supply Chain Management Review, 3/1/2007
The supply chain today is becoming increasingly complex. Outsourcing and contract manufacturing are increasing, while at the same time, more and more companies are striving to achieve higher levels of customer service. Because of these new challenges, more large and small companies are recognizing that a successful sales and operations planning (S&OP) program can be the key to managing an effective supply chain. In simple terms, S&OP can be viewed as a process to bring together the business organization on a regular basis to make effective decisions on how to reconcile conflicts and develop a profitable game plan.
S&OP has been a supply chain discipline for more than a decade. In the past, however, not many companies had the tools or knowledge to implement it effectively. After 2000, however, companies became better educated and realized that the S&OP process is not entirely an information technology implementation program.
The following case study from Sunsweet Growers, a California-based dried fruit producer, shows the results of implementing a successful S&OP program. The key to Sunsweet’s S&OP program was bringing together its organization around one set of data to develop a profitable plan.
A Look at the ChallengesSunsweet Growers has many of the same supply chain management challenges as other manufacturing environments. (For more on Sunsweet Growers, see sidebar.) Yet these challenges are compounded by a number of variables that can affect production, including weather and crop yield. Unlike most industries where production can be controlled, the dried fruit industry has little control over how much inventory it produces.
As a cooperative, Sunsweet’s access to raw materials is limited by its network of growers, and the planning process must take this into account. When there is a bumper crop, Sunsweet has to manage the sales throughout the year to utilize the crop. Conversely, when there is limited supply, Sunsweet has to fairly meet the demand.
In the past, members of Sunsweet’s grower cooperative had typically produced an overabundance of plums used for making prunes. To address the oversupply situation, farmers began cutting down some of the plum trees in 2003. With fewer trees to harvest, California experienced two unusually cold and wet growing seasons, causing crop yields to fall to only 24 percent of a normal harvest in 2004 and 50 percent in 2005. Sunsweet, however, still faced the challenge of delivering products to customers and filling store-shelf space that the company had purchased in advance. At the same time, recent retail consolidation had increased buyers’ clout at the expense of suppliers, putting additional pressure on Sunsweet’s margins.
Scheduling and line utilization also presented a constant challenge to the company. While Sunsweet’s Yuba City plant operates throughout the year, harvest takes place only during September and October. The fruit is dried and stored immediately after being harvested and then processed and shipped throughout the year. Demand, however, is highly seasonal, with peak times occurring during the Christmas holiday period. These seasonal spikes resulted in costly overtime for Sunsweet as it tried to keep up with production and maintain its 98-percent customer fulfillment rate. At the same time, Sunsweet has also been working for a number of years on advancing the efficiency of its supply chain, including reducing inventory and transportation costs as well as improving order lead time.
Finally, the company’s wide variety of products requires a sophisticated scheduling and planning matrix. The fruit is automatically weighed and transported to 10 packaging lines for inserting into clear bags, stand-up pouch bags, cartons, bulk cases, and cans. The fruit is packaged in containers ranging in size from one ounce to 50 pounds and labeled in 20 languages. Scheduling becomes even more complex due to the fact that there are 20 different sizes and grades of prunes alone to be processed and packaged.
Importance of S&OPSunsweet needed a way to balance these supply and demand issues so that it could create effective plans and schedules. In Sunsweet’s competitive environment, supply chain assets must be used as productively as possible. In any environment, however, unpredictable events can occur to disrupt a cost-effective plan, and solving these unforeseen problems often increases costs and lowers productivity. Good supply chain planning is all about creating repeatable business processes to handle exceptions.
Once Sunsweet recognized that supply chain planning was critical to its profitability, the company went through an extended effort to streamline its supply chain planning tasks. At the heart of supply chain planning is the S&OP process. Sunsweet recognized that an S&OP process, and the communication behind it, is key to running an optimized supply chain.
Companies like Sunsweet that see the importance of improving the supply chain with a S&OP program and then sustaining those improvements have three things in common:
1. Supply chain planning and execution are considered key competencies. These companies recognize that ongoing efforts must be made to maintain their advantage in supply chain operations. Often, these companies have a distinct supply chain organization with the same clout as the manufacturing, logistics, and sales organizations.
2. Supply chain management is viewed as a professional activity. Scheduling, for example, is not regarded as a clerical activity; instead, it is recognized as a job that requires proper training and skills.
3. There is an ongoing search for improved technologies within an overall information systems (IS) strategy to make the work processes more effective. As a result, these companies can respond to business crises rapidly and, if necessary, develop tools that can be institutionalized and absorbed over time.
Keeping Supply and Demand in BalanceThe focus of S&OP is not only to balance supply and demand but also to keep them balanced. To maintain this balance on a regular basis, it is necessary to have an effective process in place. Sunsweet knew that in order to implement a successful S&OP program, managers needed to focus on the right problem in the supply chain, use the appropriate tools, and create the will to accept change within the organization.
The Right Problem
In a normal supply chain, the “right problem” is typically identified as either constrained demand or supply, but not both. For Sunsweet, both demand and supply are determined by factors that the company does not control. Supply is determined by how good the growing season is, and demand is also somewhat fixed by the market. The challenge for Sunsweet was to have a process that could work in this doubly constrained situation.
Sunsweet Growers understood that structuring and streamlining the S&OP process was important. But to get real benefits, the S&OP process had to be transformed so that planners could routinely handle unexpected events such as unanticipated demand, shortages in supply, and production disruptions. For Sunsweet, this meant modifying its traditional approach, which constructed a plan periodically. Many of the existing steps involved in constructing the plan were sequential because all the complexities of resource allocation could not be considered simultaneously. The challenge was to educate planners to understand that material and resource complexities could be handled together.
The Appropriate Tools
For years, Sunsweet had used a paper-based spreadsheet system to manage its supply chain functions. Sunsweet realized that the spreadsheet-based planning system was limiting further improvements to its supply chain. While Excel can be a good place to start, Sunsweet ran into issues with the spreadsheet infrastructure. First, as business complexities increased, so did the spreadsheets. The same data in different spreadsheets was inconsistent, and the spreadsheets did not allow for managing complex planning and scheduling issues.
There are a number of obstacles that many companies face using Excel-based tools:
- Spreadsheets often don’t have the latest data if data updates from corporate systems are not automated or systemized.
- Setting up a collaborative environment can be difficult because merging spreadsheets can break down into a tedious, manual process.
- A number of complex spreadsheets are needed to represent the business problem, and these eventually collapse under their own weight.
- Many of the business rules embedded in the spreadsheets are lost when a planner leaves his or her job.
- Excel lacks the required optimization, simulation, and statistical tools needed to model the business. To get around this, complex rules of thumb are embedded in the worksheet, which unfortunately may not be relevant as business conditions change.
- Formats change and considerable manual effort is required to resynchronize the spreadsheets when they are passed from one person to another.
Sunsweet had many of these common issues when it used Excel for planning. Making changes in the fruit-crop forecast and how the crop would be processed and packaged was a slow and manual process for the company. Additionally, mistakes in the sales forecast could result in too many changes to the set-up of the processing line as well as production overruns. Finally, planners were spending a great deal of time managing the spreadsheets, and most of the work was repetitive and could be eliminated. For example, cost analysis could take as long as three days to perform.
Sunsweet’s goal was to reduce its planning and analysis time from days to hours. It also wanted to be able to run multiple versions of the production plan and to schedule plant usage more effectively. But there were many variables that affected how the production runs could best be scheduled. Sunsweet needed a technology tool that could help process the different sizes and types of fruits in a logical matrix. By doing so, the company knew it would save time and money.
When Sunsweet began the evaluation process to identify a more efficient way to accomplish planning and forecasting, the company reviewed six vendor solutions, including an additional module for its existing SAP system. Sunsweet required a solution that provided a fully integrated package of functionality that meshed with the SAP backbone, a good consumer product goods focus, and a cost return on the investment within a year. After demonstrations and a detailed evaluation process, Sunsweet selected Supply Chain Consultants’ Zemeter S&OP supply chain planning suite to replace its Excel-based planning system.
The Zemeter S&OP solution met Sunsweet’s requirements for a solution that could more effectively bring together its sales and operations functions. In the past, the company held monthly forecast meetings involving all groups within the organization. Each group had brought its own data to these meetings and typically had difficulty understanding the other groups’ data. Sunsweet recognized that it was important for the organization to reach a collective agreement so that all departments could operate in synch. Manufacturing could not operate with its version of uncertainty, purchasing operate with another version, and sales operate with its own version. Zemeter provided Sunsweet with one version of the truth.
Zemeter also provided Sunsweet an early-warning capability to alert planners and managers when and where the process has the potential for getting out of sync. These alerts give Sunsweet an early opportunity to develop several options to deal with the impending imbalance and either take advantage of the situation or ward off the disaster.
The Will to Change
Encouraging the will to accept change at all levels was perhaps Sunsweet’s greatest challenge. The changes had to be embraced not only by management but also by everyone involved in the supply chain: line manufacturing, supervisors, customer service representatives, schedulers, salespeople, sales and marketing managers, engineers, plant managers, new product coordinators, and others. Sunsweet managers knew that one of the essential prerequisites to integrating change was to demonstrate the early value of the new process. Emphasizing early wins was important to the project’s success, so Sunsweet took an evolutionary approach. The initial phase of the project concentrated on improving demand visibility, which quickly strengthened the existing S&OP process and made it more effective. Later stages then concentrated on transforming the process so that it considered all of the pieces of resource allocation simultaneously. Since the S&OP process very quickly advances communications and decision making, improvements were realized almost immediately.
Sunsweet’s Phased ImplementationSunsweet organized its supply chain improvement effort into a series of five well-defined steps:
- Demand visibility.
- Demand planning.
- Inventory planning.
- Supply planning.
- Finite scheduling.
Each step was separated by a period of institutionalization. During each step, Sunsweet introduced new tools and examined its business processes in light of the new capability. The simultaneous implementation of tools and processes is critical to the success of an S&OP program. Without the supporting tools and necessary data visibility, the improved business processes are difficult to implement and sustain. On the other hand, if the supply chain planning processes are not re-examined as new tools are implemented, then the company often ends up simply automating antiquated practices. A major change in Sunsweet’s processes was to transform the planning stage so that it became a constant re-planning exercise based on the latest data. The S&OP meeting then becomes a reporting event for a snapshot of the plan. In this way, Sunsweet created a successful S&OP process working toward the final goal—an S&OP meeting that distributes the operational plan.
Demand VisibilityThe first phase of Sunsweet’s project, demand visibility, was completed in four weeks. It delivered a complete demand-reporting and analysis system, as well as a pilot forecasting system. To accomplish this, current Sunsweet data had to be cleaned up and validated, then migrated from the old spreadsheets to a new database solution. Once the data was in the database, Sunsweet could implement and validate metrics and understand the level of complexity that the available data could support. For example, defining a scheduling process at an hourly level of detail will not be successful if completed production is only recorded once a day. Understanding this complexity is extremely important for creating a sustainable solution.
Sunsweet decided to implement the demand-visibility stage of the project first in order to strengthen the information feeds into the existing planning process. The pilot forecasting system, which had limited forecasting capabilities, provided Sunsweet with more visibility into its demand history than the previous system using SAP and spreadsheets. With the S&OP implementation, Sunsweet’s various groups had direct access to the same data for the first time. This enabled everyone within the organization to better understand other groups’ goals and challenges and to make decisions for the good of the entire company—not just one group. With the migration of the data from spreadsheets to the new database, planners were immediately able to access data and create detailed, automated reports. Within the first two months of the project, all areas of the organization were effectively able to work together in a collaborative environment by accessing, analyzing, and discussing the same data.
This first stage also provided three things:
- A framework for user training.
- A test of the scalability for the proposed changes.
- A way to introduce the system without requiring many changes in the existing work flows.
The second phase of the project, demand planning, took eight weeks to implement and delivered the complete forecasting solution. The complete forecasting solution differed from the pilot solution in that it provided the capability not only to generate a demand plan routinely but also to track and maintain improvements. Establishing a realistic and routinely updated demand plan had been one of Sunsweet’s most difficult supply chain tasks. The demand-planning implementation allowed the company’s planners to create and update statistical forecasts; plan for price changes and promotions; and analyze demand data, such as orders and shipments.
Zemeter’s Demand Planner can easily compare the input of multiple collaborators to determine the best overall plan and can “freeze” a plan for later metrics calculations. Streams of data provide side-by-side comparisons of sales, revenues, forecasts, annual budgets, and any other metrics relevant to Sunsweet. The Demand Planner provided Sunsweet with an objective perspective for balancing the anticipated sales forecast and desired operational plan. It has also increased the accuracy of the operational budget throughout the organization and provides more accurate information for business and strategic planning.
Sunsweet has changed its demand planning process to accommodate the new technology. The company now uses historical data to plan changes in its distribution channels, providing more accurate impact and benefit analysis. Historical product launches are used to help predict new product-launch distribution requirements. The company can also better manage items that are either dropped or discontinued by reviewing comparable historical information.
The demand planning phase also included implementing an early-warning system, which triggers e-mail alerts to the appropriate users for various situations. For example, Sunsweet is now using a “new customer alert.” When a significant amount of orders are generated from new customers, an e-mail is sent to the company’s planners, alerting them to review the appropriate metrics in the system. The new customer alert is then used to predict an unplanned increase in demand that will affect inventory levels.
Another way that Sunsweet is using the e-mail alerts is with its “top 10 item variance alert.” If, at any time, the top 10 items for a specific location exceed a predetermined variance, an e-mail is sent to the planners. The e-mail notifies planners to review the matrix used to monitor the top 10 items for each location. This notification triggers a review for the “actual versus planned” items to determine if changes in product location need to be modified.
Sunsweet planners also receive “slow item alerts” to let them know when items have not been shipped from a location in four months. Planners can then proactively challenge the plan to minimize the amount of outdated products at any given location.
By isolating problems early, corrective measures can be implemented that can help keep Sunsweet’s financial goals on track. Instead of implementing a detailed scheduling function immediately, an aggregate-level supply-and-demand balancing model was built. This helped to identify critical manufacturing restrictions, such as line capacities, production constraints, limited pitter capacity, and manning restrictions. It also provided a strong infrastructure for Sunsweet’s S&OP process by creating a realistic model that takes into account all the supply chain constraints and flattens out production over the long term to overcome any manufacturing restrictions. In basic terms, Sunsweet has moved from reacting to manufacturing issues to planning around them in a way that allows S&OP to focus on accomplishing the company’s objectives.
Inventory PlanningThe inventory planning phase of the project was completed in approximately four weeks and included implementing systems for safety-stock setting and inventory reporting. While other inventory systems can measure current inventory levels, Sunsweet’s Inventory Planner keeps a detailed record of inventory history, making it easy to see developing trends and to control issues before they become problems. For example, the company is able to use volume loss to manage inventory beyond stock levels to effectively identify slow-moving items and reduce product loss that results from outdated or obsolete products.
Supply PlanningAfter implementing the Inventory Planner, Sunsweet set its sights on improving its supply plans. The Supply Planner module provides high-level planning across Sunsweet’s entire supply network, with a core focus on maintaining a uniform labor force throughout the year. The company’s high-level planning compares a 15-month rolling forecast to all of Sunsweet’s production and supply chain restrictions. This allows the company to build long-term production requirements that are smoothed out rather than seasonal.
Finite SchedulingAfter improving its high-level plans, Sunsweet moved on to making improvements in its day-to-day operational plan. The finite scheduling phase focused on the Yuba City plant headquarters. Finite scheduling handles fruit-size issues, changeover times on the packing lines, material availability, overtime and downtime, and many other shift- or day-level constraints. Sunsweet plans and schedules a single fruit size each day. The lot-sizing algorithm within the Finite Scheduler handles this at the planning level, providing an almost perfect plan for the scheduler to use as a starting point. Elements of the Finite Scheduling tool were developed specifically for Sunsweet to handle slightly different fruit-size constraints on each of the company’s three manufacturing lines.
The Finite Scheduler and the S&OP planning process use the same information. Details about the finite schedule, daily production, and inventory levels are updated daily so that all of the planning processes are using the most up-to-date information. Any short-term restrictions are discussed in the weekly operational planning meeting. Before implementing its S&OP program, Sunsweet had performed sales forecasting, operational planning, inventory planning, and finite scheduling on a monthly basis using summarized sales information. The primary focus, therefore, was based on accomplishing the latest sales forecast and meeting customer requirements regardless of the impact to operational costs.
The Zemeter implementation has allowed Sunsweet to integrate all of its planning processes from S&OP through to finite scheduling. The tools and processes allow the entire planning team to use up-to-date information in sales, production, and inventory. With up-to-date information and automated constraint planning, planners can now meet on a weekly basis instead of meeting monthly. As a result, Sunsweet has increased its ability to meet customer demands while continuing to improve production efficiencies with smooth, long-term requirements.
Tangible ResultsThe advantage of this step-by-step approach is that Sunsweet was able to see tangible improvements in both the process and the data availability at each stage. For example, Sunsweet was able to identify that production overruns dropped from 30 percent to less than 15 percent only half-way through the implementation, due to smoothing out production. Taking a phased approach also allowed planners to incorporate the improvements into their existing processes at their own pace during the early phases of the project. Now planners use the full cycle of information—from the S&OP process through finite scheduling—to plan in an integrated environment.
At Sunsweet, the implementation of a successful S&OP process has changed the company’s view of how it does modeling and organizational planning. It has provided all groups within the organization a better understanding of how to work together to reduce production costs and improve order lead time. The company also realized its return on investment after only six and a half months—about half the time that Sunsweet expected and before the project was even completed.
Sunsweet is now able to develop a more accurate forecast in a shorter period of time by generating a statistical forecast based on history rather than on guesswork. The early-warning system alerts planners about inventory levels, forecast issues, open order discrepancies, and other potential problems. These alerts allow them to react as much as two to three weeks earlier than before the implementation. For example, the early-warning system enabled Sunsweet to immediately detect a problem when crop yields were falling below normal and to make the appropriate adjustments. Prior to Sunsweet’s automated S&OP process, planners would have had to go through reams of paper to identify the same problem. Planning and cost analysis can now be done in four to five hours instead of the days it used to take using spreadsheets. Additionally, the new forecasting system has enabled Sunsweet to increase forecasting accuracy by 15 to 20 percent overall and increase product utilization by two percent.
Sunsweet has seen major improvements in delivery performance and cost management with the implementation of supply planning across the company’s plants and finite scheduling in the company’s Yuba City headquarters. Cost management has increased by three to five percent overall. Sunsweet has also realized cost savings by reducing the number of production lines, reducing changeovers on the production line, and reducing overtime from 30 percent to 10 percent. Additionally, Sunsweet has increased the efficiency of its pitter, once a source of the majority of bottlenecks in the production line, from 92 percent to 98 percent.
By implementing a successful S&OP program, Sunsweet benefits from increased visibility into its supply chain. This increased visibility and the ability to perform better analysis and more accurate forecasting has helped the organization increase its overall line utilization from 94 percent to 98 percent. Improved line utilization has resulted in a substantial cost savings that could not have been achieved without an integrated supply chain planning program. Sunsweet’s S&OP process has enabled the company to stay competitive in the industry by saving on setup time, processing time, and forecasting time. And, because the company is able to proactively manage shipment destinations better, Sunsweet has also been able to eliminate costly air freight charges and maintain fuel costs.
Sunsweet is now better able to align all areas within the organization to make better business decisions. Forecast meetings are now held once a week instead of once a month, and each group within the organization works from the same data. The ability for each group to access the same data provides an effective means to communicate trends and challenges. Participants can now understand sales and marketing expectations and how they relate to realistic manufacturing scheduling and production. As a result, they can make better collaborative decisions on issues that affect the supply chain health of the entire organization. While improving the efficiency of Sunsweet’s supply chain and manufacturing processes, the S&OP process has also enabled the company to increase its productivity and reduce costs in a more efficient, collaborative environment.
Additionally, because information is integrated, Sunsweet is able to introduce cross-functional metrics. For example, instead of measuring forecast accuracy or inventory alone, the company can now measure how well the existing inventory supports the forecast. These cross-functional metrics encourage employees to develop solutions that improve company-wide performance rather than the performance of a single department.
How to Sustain ImprovementsUnfortunately, during any period of change, there are many opportunities to regress to the “old way of doing things.” A successful project is necessary but not sufficient for sustainable supply chain improvement.
There are a number of reasons why companies cannot sustain step change improvements:
Reason #1: The software doesn’t do what the user needs it to do. Because modern supply chain software is flexible, it can be configured to do practically anything. But over time, business conditions will change, and that custom-configured software can become too cumbersome. When this happens, people invent alternatives. In today’s environment, creating these alternatives is relatively easy with desktop tools like Excel.
To avoid this obstacle, Sunsweet incorporated the user’s desktop into the integrated system instead of excluding it. Because Sunsweet’s data had been cleaned up and validated during the demand planning phase, even if the planners extend their analysis to their desktop tools, the data remains internally consistent.
Reason #2: The users move on. Supply chain planning applications are notoriously complex because many of the applications are developed with heavy involvement from the initial users. While such involvement ensures success, it also means that certain methodologies—unique to that initial set of users—are introduced as well.
At Sunsweet, the development was holistic so that the new tools encompassed the entire planning function instead of just a few planners. Sunsweet has made the integrated data accessible and available to a wide cross-section of users throughout the entire organization.
Reason #3: The planning is too successful. Supply chain improvements usually occur in response to specific business needs and are articulated in terms of a business crisis such as too much inventory or missed shipments. Many of these issues are mitigated with proper supply chain planning. But it is difficult to quantify the benefit of something that eliminates problems before they occur. Over time, planning is perceived not to be an issue, and the business process is streamlined to eliminate much of the function.
This continues to be a potential hurdle for Sunsweet. To overcome it, the company is striving to highlight the successes and benefits of the integrated system through internal and external communications.
Finally, the S&OP process must be continually refined and improved. An S&OP process that does not evolve and improve is a dead process. Much of the improvement is related to making supply chain planners more effective. A company can take a number of key steps to stay on the improvement path.
• Provide ongoing education and training to those functions that can affect the supply chain by their decisions. For example, supply chain training in half-day sessions for functions like sales or manufacturing can be very effective.
• Encourage the professionals who manage the supply chain to upgrade and improve their skills. Companies typically allow training but often do not require it.
• Make sure that the supply chain decisions are transparent to allow broad access to the supply chain data. Transparency is the first step to fostering internal collaboration.
• Develop a structure and a budget that allows the supply chain to rapidly respond to business crises with improved tools.
• Recognize achievements and internally publicize specific successes.
Improvements to the tools and processes continue at Sunsweet. The demand planning process has been extended to allow the sales department to collaborate with other departments. At the same time, the finite scheduling function has been streamlined and additional optimization capability has been introduced. The sustained improvement effort at Sunsweet has demonstrated the company’s commitment to its supply chain. In turn, concrete benefits and identifiable successes have helped to keep the improvement process going and sustain a successful S&OP program for the future as the business continues to grow and change.
| Author Information |
| Harold Upton is vice president of strategic processes at Sunsweet Growers, Inc. Harpal Singh is the co-founder and CEO of Supply Chain Consultants. |
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