The five change management hurdles that need to be tackled to improve both sales and operations planning (S&OP) and performance were addressed in "Take the S&OP Challenge." The S&OP barricades are even higher, but it's critical to drive profitability, alignment, and visibility, according to recent AMR Research strategy sessions with clients from diverse, decentralized businesses.
If any of the following statements sound familiar, you've come to the right place for help:
"Our S&OP process, if you can call it that, is dominated by sales. They dictate the plan and we (supply chain and manufacturing) need to jump through (costly) hoops to achieve it."
"In our case, sales are not involved at all. Our planners disregard the sales forecast because they can forecast better than sales."
"Our S&OP process always ends up being too operational, focusing on this week's issues. We cannot seem to get out of the weeds and look ahead."
"People are just too busy to attend the meetings, and the executive commitment is not there. They have no idea what sales and operations planning really is."
"Every plant is a profit center, but we are vertically integrated. We don't know what our S&OP structure should look like, but it must be across plants and include our services business. Today, every plant does things its own way."
"Our data is so bad and historical that people can find excuses for anything."
Addressing the five hurdles: Some companies are more advanced, with their S&OP initiatives making good turns and heading for the finishing posts. But for many, this isn't the case. For this reason, we provide the following basic guidelines and company examples on how to get your company out of the starting gates.
No. 1--Goal alignment: Start with executive sponsorship. Leaders must embrace and get involved with the S&OP processes, as well as understand its importance. They must ensure clarity of the strategy to align people and the decision-making process. This has the most effect when it can be tied to a compelling event (for example, a company-wide mandate and initiative to reduce inventory or increase service levels). Also, be sure to educate leaders on the S&OP process: why it's important and what their role needs to be.
An industrial manufacturer of flow control equipment needed to improve its perfect order performance, but had no executive commitment on implementing sales and operations planning. To address this, the supply chain team conducted a workshop that comprised a large, cross-functional group, inviting the CEO, the VP of sales, and the VPs of the four major product lines. During smaller breakout sessions, the executives sat next to operational staff members and discovered first hand the real challenges found out in the field, ones that, if not rectified, would soon affect the manufacturer's growth and success. This workshop got the leaders involved and committed to sales and operations planning.
No. 2--Metrics alignment: AMR Research has written plenty about North-South and East-West business metrics. Most companies succeed with North-South metrics because they're within their functional areas and tied to company financials. If well defined, preferably using some form of balanced scorecard, this goes a long way to ensuring each individual understands and is measured on his or her contribution to the company meeting its goals.
However, we seldom see a balanced set of end-to-end supply chain metrics, or what we refer to as East-West metrics, which, if defined and used properly, accomplish the following:
1. Cross-functional leaders have joint ownership.
2. Players have understanding of the interdependencies of functions and make the right tradeoffs (cost and inventory versus service levels).
3. Metrics used to drive the S&OP process are East-West metrics
A global, diverse medical device company had some businesses measuring only inventory and customer delivery performance, while others measured almost 50 metrics with no common definitions. It used the AMR Research Hierarchy of Metrics to define a shared set, with common definitions based on available data. As a result, the company gained key performance indicator (KPI) consistency and drove joint ownership in its S&OP process. We challenge your company to map its end-to-end metrics used in the S&OP process to the Hierarchy to determine whether it has some gaps or measures far too many.
No. 3--Take charge: What does it really mean to design and modify the supply chain response? Here's the first step: Define your supply chains. An A&D supplier to the large OEMs identified seven different sources of demand, covering OEM forecast and backlog, new products, spares, aftermarket demand, and inter-site demand. Each had a different business model and was viewed differently, with different tradeoffs and targets. While the supplier still uses different tools and methods for managing demand across these supply chains, it had been a long-time user of Kinaxis to pull the S&OP data together across 11 plants to see the demand and effect of changes, model cross-site impact, and provide a single dashboard for decision making.
Segmentation of your supply chains provides a clearer picture of the business and helps reduce the perceived complexity.
No. 4--Take the plan to action: For many large, diverse companies, the S&OP process is immature and tactical, differing by plant, division, or region. Getting out of the starting gates requires a level of consistency and discipline across businesses.
An industrial manufacturer has made an excellent start to its S&OP journey by having the following in place:
1. Executive commitment to sales and operations planning, as well as their involvement in a monthly meeting
2. A common set of metrics to be measured across all product lines and regions
3. A standard agenda and monthly process, with clearly defined rules and policies
4. A 3-month to 18-month S&OP timeline, which will be tied into the manufacturer's input-output process that manages current operations out to three months
5. Documented roles and responsibilities for process owners of forecasting, product-line planning, and supplier capacity planning
6. Consistent demand management capabilities using Logility's Demand Solutions, which will be deployed globally
7. A formal, ongoing education program for all involved
No. 5--Answer the question of global: Decentralized organizations struggle to develop an aligned and mature S&OP process. It's typical for manufacturing to operate as profit centers in industrial sectors, but in the high-tech, chemical, and consumer products industries, it's the brand product lines that operate as profit centers. In these businesses, it's much easier to gain alignment.
Industrial manufacturers forecast by region, translating demand into global product lines for the S&OP process. As their processes mature, their profit center and compensation structures will become barriers to making the right tradeoffs for both the company and the customer. As a result, manufacturers will need to move to profit centers that have sales and manufacturing representation, with alignment on inventory, revenue, profit, customer service, and forecasting metrics.
Start small, but have a world-class vision: As with any initiative that requires significant change management, ensure the following:
1. Create the vision, but start small with "bite-size" chunks
2. Take on only what will be a success and prove the benefits
3. Be able to quantify the benefits
4. Secure leadership sponsorship
5. Focus on people skills and education
6. Put processes before technologyCommunicate and reward success, no matter the size
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