The European Coal and Steel Community: A Sales and Operation Planning Process Custom Case Solution & Analysis

Evidence Brief: European Coal and Steel Community S and OP

1. Financial Metrics

• Inventory carrying costs increased by 14 percent over the last fiscal year due to mismatched production schedules.
• Forecast accuracy currently fluctuates between 58 percent and 64 percent at the SKU level.
• Gross margins on flat-rolled products declined by 3.2 percent as a result of unplanned expedited freight costs.
• Working capital tied up in slow-moving inventory reached 85 million Euros by the end of Q3.

2. Operational Facts

• Production facilities in Liege and Ghent operate on different planning cycles, with Ghent using a 4-week bucket and Liege using a monthly calendar.
• The current Sales and Operations Planning meeting occurs once every six weeks, often after production schedules are already locked.
• Lead times for specialized steel grades have extended from 8 weeks to 14 weeks over the past twelve months.
• Data entry for demand signals remains manual, relying on spreadsheet exports from three different regional ERP instances.

3. Stakeholder Positions

• Sales Director: Prioritizes volume and customer service levels; resists inventory reductions that might lead to stock-outs for key accounts.
• Production Manager: Focuses on unit cost reduction and high capacity utilization; prefers long production runs with minimal grade changes.
• CFO: Concerned with the 12 percent increase in debt-to-equity ratio driven by working capital requirements.
• Supply Chain Manager: Positioned as a mediator but lacks the formal authority to override production or sales mandates.

4. Information Gaps

• The case lacks specific data on competitor lead times during the same period.
• Customer-side inventory levels are not reported, making it difficult to distinguish between actual demand shifts and bullwhip effects.
• The cost of lost sales due to stock-outs is estimated but not verified by historical transaction data.

Strategic Analysis

1. Core Strategic Question

• How can the organization synchronize fragmented demand signals with rigid production constraints to stabilize margins and reclaim working capital?

2. Structural Analysis

The primary bottleneck is a failure in the Value Chain integration. Sales and Production operate as decoupled silos with conflicting incentives. Sales is incentivized on revenue, leading to over-forecasting to ensure availability. Production is incentivized on cost-per-ton, leading to over-production of high-volume grades regardless of actual demand. This structural misalignment creates a permanent state of inventory imbalance.

Applying the S and OP Maturity Framework, the organization sits at Level 1: Reactivity. Decisions are made in isolation, and the S and OP meeting serves as a post-mortem rather than a planning engine. The lack of a single version of truth regarding data prevents any meaningful trade-off discussions.

3. Strategic Options

• Option A: Centralized Demand-Driven Planning. Transition to a weekly S and OP cycle led by a newly empowered Global Planning Office. This requires stripping regional managers of final production veto power.
  Trade-offs: Higher central overhead; potential for local market resentment.
  Resources: Unified ERP overlay and a dedicated S and OP Lead.
• Option B: Inventory Buffer Strategy. Maintain current silos but implement strict inventory ceilings for each product grade. When ceilings are hit, production must halt regardless of unit-cost impact.
  Trade-offs: Protects cash flow but risks significant increases in per-unit manufacturing costs.
  Resources: Real-time inventory tracking tools.
• Option C: Segmented Service Levels. Prioritize production for Tier 1 customers with guaranteed lead times, while moving Tier 2 and Tier 3 to a make-to-order model.
  Trade-offs: Reduces complexity but may alienate smaller, high-margin niche buyers.
  Resources: Customer segmentation analytics.

4. Preliminary Recommendation

Pursue Option A. The current 14 percent increase in carrying costs is a systemic failure that inventory caps (Option B) or segmentation (Option C) will only mask. The organization must move to a 26-week rolling forecast updated weekly. This shift will align Ghent and Liege operations and force a reconciliation of demand and supply before capital is committed to the furnace.

Implementation Roadmap

1. Critical Path

• Week 1-4: Establish a Single Version of Truth. Standardize data definitions across Ghent and Liege ERP systems. Eliminate manual spreadsheet manipulation.
• Week 5-8: Redefine Incentives. Align Sales bonuses to forecast accuracy and Production bonuses to schedule adherence rather than just volume.
• Week 9-12: Pilot the Weekly S and OP Drumbeat. Implement a strict 80/20 rule focusing the executive meeting on the top 20 percent of SKUs that drive 80 percent of the margin.
• Week 13+: Formalize the Executive S and OP Board. The CEO must chair the monthly reconciliation meeting to resolve deadlocks between Sales and Production.

2. Key Constraints

• Data Integrity: The transition fails if the Ghent and Liege plants continue to report metrics using different logic.
• Executive Will: The Production Manager will resist any schedule changes that increase the per-ton cost. Without CEO intervention, the old behavior will persist.

3. Risk-Adjusted Implementation Strategy

To mitigate the risk of operational friction, the first 90 days will utilize a shadow planning process. The new centralized plan will run in parallel with existing schedules to identify discrepancies without risking immediate delivery failures. Contingency funds are allocated for temporary external logistics support if the Ghent-Liege synchronization causes short-term bottlenecks in the first two cycles.

Executive Review and BLUF

1. BLUF

The organization is hemorrhaging cash through excess inventory and expedited freight because Sales and Production operate with conflicting objectives. To stop the 3.2 percent margin erosion, the company must move from a reactive six-week meeting to a proactive weekly planning cycle. This requires centralizing authority over the production schedule and tying incentives to forecast accuracy. Failure to act will result in a breach of debt covenants within three quarters.

2. Dangerous Assumption

The analysis assumes that the Sales department possesses the market intelligence required to improve forecast accuracy if given better tools. If the 60 percent accuracy rate is driven by market volatility rather than poor process, centralized planning will only centralize the error, not eliminate it.

3. Unaddressed Risks

• Labor Unrest: Reducing production runs to align with demand may reduce overtime pay for plant workers in Liege, potentially triggering industrial action. (Probability: High; Consequence: Severe).
• IT Latency: The ERP systems may not support real-time data synchronization, leading to a planning process built on week-old data. (Probability: Medium; Consequence: Moderate).

4. Unconsidered Alternative

The team did not evaluate the divestment of the Ghent facility. If the two plants cannot be synchronized due to structural or cultural differences, consolidating all specialized steel production into one site would eliminate the coordination problem entirely, albeit at a high restructuring cost.

5. Verdict

APPROVED FOR LEADERSHIP REVIEW