Sales and Operations Planning at The Hershey Company

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Sales and Operations Planning at The Hershey
Company

• Jason Reiman
• Director, Customer Service Planning
• April 20, 2006

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(No Transcript)
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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 Valentines 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 ()
Mass
Merchandisers
Military
Small Retailers
18
1
7
Fundraising
1
Drug Stores
16
Supermarkets
35
Convenience
Stores
Vend
Wholesale
13
Concession
Clubs
6
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Data Source Confectioner Magazine, Hershey
estimates
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Setting the stage for Sales and Operations
Planning (SOP)

• 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 SOP help Hersheys evolve the supply
chain?

• External Integration
• CPFR/VMI enablers
• Establish critical mass
• Joint business planning
• Customer centric

• Internal Integration
• Internal collaboration via SOP
• Clear accountabilities action plans required
• Common goals objectives
• Single financial operating plan
• Measure quality

Effectiveness

• Functional Plans
• Functionally driven
• Weak accountability
• Multiple, disjointed plans
• Measure accuracy

Time
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Sales and Operations Planning
Strategic 12 months
Business and Financial Planning
Sales and Operations Planning
Operations Plan
Tactical 3-12 months
Demand Plan
Master Production Schedule and Distribution
Requirements Planning
Collaboration
Operational Forecast
Operational 0-3 months
Finite Schedule and Deployment Plan
Deployment Forecast
Execution 0-3 weeks
Supply Planning
Demand Planning
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Why implement a SOP Process?
It ensures alignment and commitment throughout
the organization

• Before SOP
• Multiple, disjointed plans
• Reactive executive involvement based on issues
• Weak accountability
• Limited collaboration in planning
• Goals focused on functional performance
• Performance review in reaction to fires

• After SOP
• Single financial operating plan
• Formal cycle for proactive executive review and
  commitment
• Ownership and accountability in all areas and
  levels of organization action plans required
• Sales, inventory production plans reviewed by
  all areas
• Goals focused on business performance
• 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
Executive Review
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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 SOP 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 months
  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 SOP 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
Executive Review

• 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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SOP Results AchievedImprovements 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
• SOP happens everyday its 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 SOP 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
SOP process
Gather Information
Forecast Consensus
Supply Planning
Create Partnership
Executive Review
Monthly Business Review
Pack Season Brand
Executive Forecast Review
Customer 1
Customer 2
New Products
Customer 3
C-Store COT
Club/Dollar COT
Drug COT
Key Food/Grocery
Sales Review
Marketing Review
Executive Review
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Next Steps

• Leverage customer level planning capabilities in
  the SOP 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 SOP process
• Create linkage to the companys PL statement
• Full financial integration
• Extend SOP practices to customers and suppliers
• Use benchmarking to incorporate new ideas

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Questions