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November 07 Businessexcellence 11 enablement of effective business management decision making at the management business review meeting. In this series we have described the first three steps of the sales and operations planning process (Figure 1): the product management review; the demand review; and the supply review. Each of the individual reviews was done within the functional area accountable, such as product development, sales and marketing, and manufacturing and supply chain. In the integrated reconciliation review each of these functional perspectives is evaluated and considered before combining them into an integrated approach that will guide the business operation. During this review the issues from the first three steps of the S&OP process are identified, a financial appraisal of the functional plans is developed, the gaps to the strategic plans, business plans, and performance goals are documented, various scenarios are created around those issues/gaps, and assembled into the S&OP packet. There are essentially two key parts to this step: the financial appraisal and the integrated reconciliation. Financial appraisal begins with a financial evaluation of the plans from steps one through three (product, demand, supply) and a projection of the cash flow based on those plans. The financial assumptions are documented (future product mix, currency rates, customer mix, average selling prices, etc.), from which a “rough cut” financial plan is developed for the business. That rough cut financial plan is then compared to actual financial results to test the reasonableness of the projected financial plan. Once the financial plan is considered “reasonable”, the financials are then forecast for the next 24 months. Ultimately, the goal for this financial appraisal is to forecast, on a monthly basis, a full profit and loss statement Strategicmanagement “Experience has shown that where the sales and operations planning process is viable and effective, companies have named an S&OP coordinator to manage the process and the data”

for the upcoming 24 months. This financial appraisal will require an integrated view from demand, supply and finance. For example, the average selling price needs to be forecast for each family and sub-family over the planning horizon. This price forecast is provided as an output of the demand review, and must take into account product mix changes, pricing changes, promotions, etc. Variable costs, such as material, labor, and other variables, are forecast by purchasing, human resources, and production. This set of cost projections is provided as part of the output of the supply review. Purchasing forecasts the purchase price changes, by commodity, over the planning horizon. The cost of resources and other product management costs (tooling, etc.) are developed from the product management review. Overheads, period costs, and capital expenditures are forecast as well as cash flow plans generated from the operational plans. The financial data in this step converts the plans developed in steps one through three from units to dollars and allows senior management to better understand the impact of the plan on the profit and loss statement of the business. Once the financial evaluation is complete, the issues arising from steps one through three and the alternative plans developed to resolve those issues are reviewed. The plans are evaluated against the business plan, the strategic plan, and the performance metrics of the business. A gap analysis is then performed where there are shortfalls to the business and strategic plans or a performance metric such as EBITA (earnings before interest, tax and amortization). The individuals accountable for this step discuss the issues and gaps and create alternative solutions to resolve these issues and gaps. The integration reconciliation team then develops recommendations on the selection of the right alternative (or alternatives if there are valid scenarios around the issue or gaps) and fully costs and evaluates those alternatives. Once all the appropriate information is gathered, the group prepares the “S&OP packet” that is sent, at least 24 hours in advance, to the attendees of the management business review (MBR) meeting. There are some companywide projects or initiatives that do not naturally fit into the first three S&OP steps (product, demand, and supply). These projects are coordinated through the integrated reconciliation step. The integrated reconciliation team will communicate the impact of these projects or initiatives on common resources to the other process steps and recommend priorities for those projects. The senior management team will establish the overall priorities for these projects. 12 Businessexcellence November 07 “To be truly effective, plans must be converted to the language of senior management—revenue, profit, costs, cash flow, and so forth”