Upcoming Meetings

Tour of Hatman Jack's

December 13, 2016
6:00 PM to 7:00 PM

Hatman Jack's
601 W Douglas
Wichita, KS 67213
http://www.360wichita.com/ClothingApparel/HatmanJacks.html

Tour of Hatman Jack's

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PDM - Topic TBD

January 12, 2017
5:45 PM to 7:30 PM

To be determined

PDM - Topic TBD - joint with ISM

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Apics News

 



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Welcome to the APICS Wichita Chapter!2016 C-BAR award

Are you interested in getting more involved with the operations of the Wichita Chapter?  We have two board positions open (VP of Marketing and President-Elect).  No experience is necessary.  For more information, contact Sandy Jessop at president@apics-wichita.com.

Message from our President

How Sales and Operations Planning (S&OP) impacts the bottom line.

The APICS National Conference was held in Washington, D.C. in September with the featured topic of S&OP. S&OP has been around since 1987 and is still actively pursued and considered a leading business practice. During the seminar briefings, I heard a great deal about the theory behind S&OP and tactically how to implement it as well. What I didn’t hear much about was how using S&OP can impact the bottom line directly, which is really what makes S&OP so important.

Let’s look at two metrics that show the success or failure of a business: EBITDA and Net Working Capital. Net working capital is the funds it takes to run the business (Assets – Liabilities). EBITDA is Earnings before Interest, Taxes, Depreciation and Amortization. Remember, the goal is to minimize Net Working Capital and maximize EBITDA.

A good S&OP process will bridge the gap between forecast and actual demand by bringing the right people together regularly. Any changes to customers by part number will be captured, any new customers coming on board, and any other market intel will be shared during these meetings. Why is this important? The closer your forecast is to actual demand, the less factory variance and less inventory you will have on the books.

If forecast is higher than demand, you will have too much production capacity and overhead expense as well as too much inventory. Therefore, you would have increased Net Working Capital requirements to run the business and decreased EBITDA – this is opposite of what we want. If forecast is less than demand, you will have increased factory variance due to working more overtime or hiring of temps to increase capacity. You may also have increased freight expense due to air freighting raw material and potential factory shutdowns due to part shortages. Although the inventory would be reduced, thereby decreasing Net Working Capital, EBITDA would have suffered. The goal, then, is to get the forecast as close to the actual demand as possible.

In many industries, it is impossible to eliminate the forecast error completely. Knowing that, supply chain leaders must use S&OP for more than just bridging the forecast/demand gap. Stratification of customers and SKU reduction are just a couple of other important facets of S&OP processes. Are all customers created equally? Are you allowing a customer that buys one product from you annually, spending less than $1K to cause you to miss a delivery with your #1 customer who spends millions with you annually? Create a plan for each type of customer: A, B, C. Perhaps you protect the forecast of your “A” customer by sending your “C” customer to a distributor. What about eliminating the disruptive and low volume SKU’s completely? These are decisions that the sales team will help make throughout the S&OP process. Both of these actions help reduce costs by eliminating unnecessary disruption to the factory floor, minimizing the number of SKU’s offered, and hopefully allowing for common raw material and more flexibility within the inventory plan. By using more common raw material, you should also be able to command better pricing with the increased volumes, impacting profit margins and EBITDA.

These are just a couple of ways that a good S&OP can impact the bottom line of a company through Net Working Capital and EBITDA metrics. There is a lot more to S&OP than I have discussed here. My question to you is this: What are you doing to impact the bottom line? Could an S&OP process help?

Sandy Jessop