I believe our sales and operations plan (S&OP) has lost all effectiveness. I am the CEO of Varskeeta Velocity, a $300-million manufacturer of material-handling equipment. Each month, I sit with my leadership team and deal with an S&OP that is a plan in name only. We quickly argue about past performance (and look for more data to make our case), debate the reasons for current performance (and look for more data), try to determine emerging demand and supply issues (and look for more data), and, then, somehow, revise our course to meet the next monthly horizon. We also have little capability of reconciling financial (dollars) and operational (units) information, and have no capability to evaluate alternative scenarios. We've done it this way since I took over three years ago.
Yet, while we plan at the 10,000-foot level, I've got Varskeeta plants and outsourcing facilities productively running as their local management reacts to daily (or even hourly) demand signals they receive from customers, using that information to also schedule our complex supply base. Our supplier management group and sales teams look to our manufacturing leaders for their guidance and decision-makingnot the S&OP. And other than send up the numbers we request, our manufacturing managers and outsourcing partners could not care less about the S&OP.
It's as if I run two different companies: reality (in units) and S&OP (in dollars). Over the span of six months or a year, actual Varskeeta results do resemble the S&OP projections. But how we get there and the details look extremely different. The people who actually make work happen plant managers, contractors, engineers, sales managers, procurement and logistics staff tell me they rarely get any S&OP information in a timely manner, and they either ignore it or work around it, devising their own-short-term sales plan, production plan, inventory plan, product development plan, etc. based on their continuous feed of "live" information.
How can I reconcile this? Or should I? Why do I need an S&OP and S&OP planning if the company runs productively without it anyway? Can Varskeeta develop an S&OP that allows our workforce to manage daily yet has the teeth to guide us toward more successful longer-term objectives?
* The Challenge incorporates hypothetical persons, companies, and products and does not portray the actions of any actual persons, companies, or products.
By Tom Wallace
The information you present is a study in contradictions. You say, "I believe our sales and operations plan (S&OP) has lost all effectiveness." Yet you continue to operate it after three years of no benefits. What's wrong with this picture? Why didn't you scrap S&OP years ago when you saw it wasn't working?
In another apparent contradiction, you say, "Why do I need an S&OP and S&OP planning if the company runs productively without it anyway?" For two reasons I question whether Varskeeta Velocity does, in fact, run productively: First, a company with the symptoms you describe almost invariably runs non-productively. And, second, I doubt if you'd be holding on to S&OP if the company were truly productive; you'd have scrapped it years ago.
That said, let's take a closer look at your situation. There's bad news and good news and perhaps surprisingly the good outweighs the bad.
Bad News
-
Your S&OP process, if one can legitimately call it that, is extremely
short-term. You're arguing about the recent past; you're arguing about the
present; you're arguing about the current month. S&OP is a
medium-to-long-term planning process to create the conditions for success when
those time periods move into the near-term. It is not a short-term expediting
tool.
-
Your S&OP process seems to be all about arguing. It's confrontational, not
cooperative. S&OP done properly builds teamwork and cooperation within the
company at many levels, including the executive team.
-
You're unable to validly express the sales and operations plan in financial
terms. Doing S&OP in units but not dollars is like trying to fly an
airplane on only one wing: it won't get you very far.
-
You're not evaluating alternate scenarios within your S&OP process. When
Plan A won't work, you need to develop Plan B, Plan C, and so on. Of course,
you need the financials tightly integrated in order to do effective scenario
planning.
- The results of the process are being ignored by people who matter. As you say, "Plant managers, contractors, engineers, sales managers, procurement and logistics staff tell me they rarely get any S&OP information in a timely manner, and they either ignore it or work around it ..."
Good News
There's only one piece of good news, but it is much more important than all the bad combined. The good news is that you are still engaged in S&OP and, despite some of your comments, seem to truly want to make it work. That's huge. It's enormously important, because you have the leverage over what happens within your organization. If you want to make it better, you and your people can do it.
Here's what I recommend you do:
-
Make certain that you recognize that your S&OP process is broken. You've
already said it "I believe our sales and operations plan (S&OP) has lost
all effectiveness." so just make sure you really believe that.
-
Learn about S&OP, specifically its volume-planning component. And learn
about executive S&OP, its benefits, and how to implement it
properly. There are plenty of resources available (books, videos, live classes)
to do this. Take your pick.
-
After you learn about it, ask: "Do I still want to do this? Will it be good for
our company? Will the benefits outweigh the substantial amount of work and the
relatively small costs involved?" The odds are high that the answers will be
"Yes."
- Start to involve your people in a reimplementation of S&OP. Your current process is so far away from what's required that your folks need to start over. There's good news here: the steps involved in a reimplementation are virtually the same as with a first-time implementation, and those steps are clearly defined. You don't need to reinvent the wheel, but simply follow the path that's been proven to result in a highly successful executive S&OP process.
With a properly structured implementation plan, you can have all of the pieces of executive S&OP operational within about eight to 10 months. And your company will reap enormous benefits.
Tom Wallace is a writer and educator specializing in Sales & Operations Planning. He is a distinguished fellow of The Ohio State University's Center for Operational Excellence, and currently writes and speaks in conjunction with the Institute of Business Forecasting. He is the author of 12 books, including Sales & Operations Planning: The Executive's Guide and Sales & Operations Planning: The How-To Handbook (3rd Edition). Tom can be reached at tom@tfwallace.com or via his company's web site: www.tfwallace.com.
By Trevor Miles
It's obvious that your team spends more time collecting and collating information than in making decisions that will affect business outcomes. Much of the time your team is looking at past performance rather than managing the future in a collaborative and consensual manner, which can only lead to disconnects and a "blame" culture. Perhaps most telling, your current S&OP is performed once a month rather than being a continuous process with course corrections occurring between the monthly cycle or even the creation of a new plan when circumstances demand it.
Consider the concept of continuous S&OP: Imagine a pilot flying from New York to Los Angeles without an autopilot system, and only checking for location four times along the way. Each time the location is checked, the pilot gets out a sextant, extracts information from the flight data recorder on throttle settings and other instruments, and performs a visual check of the ground below remember, the pilot isn't sure of location. The chances of the pilot successfully navigating to Los Angeles are slim. The chances of getting to Los Angeles on time are very virtually nil, and doing so in the most cost-effective manner is impossible.
In other words, there is a disconnect between the financial plan (getting from New York to Los Angeles) and the operational plan (doing so most efficiently and effectively). Reconciling the financial objectives and operational plan on a continuous basis is imperative for achieving some level of alignment. As importantly, any proposed changes to the operational plan should be judged on the basis of their effect on the financial plan and metrics, and, of course, also on their effect to non-financial metrics such as customer-service levels and inventory turns. Most of the analysis should be performed on forward-looking information, rather than on history, which is the current situation.
The challenge for Varskeeta is not necessarily at the operational level, but rather that the S&OP process is not being used to determine what Varskeeta's financial and operational goals should be in the future. At the moment, S&OP is used merely to check performance after the fact. This can only be achieved by bridging the gap between the 10,000-foot financial plan and the operational plans. And this can only be done by translating the financial plan into operational plans and by always aggregating operational plans into financial performance metrics.
While you don't make any mention of the tools used for S&OP, my assumption is that Varskeeta, like many other companies, is using spreadsheets the heart of the problem. Wean your users off of spreadsheets gradually and carefully. There is a reason why spreadsheets are so popular: they are easy to use, customizable, and reliable. Their limitations in performance, version control, and data harmonization typically do not minimize their appeal to individual users, even though these limitations are at the core of your team's relentless search for "more data." To help with this transition, insist that the S&OP tool can offer a user experience comparable to spreadsheets. Other capabilities required are:
-
Visibility: a single tool and user experience that captures all the
relevant information and presents the information in a manner and level of
aggregation specific to the user. No more "data collection"!
-
Alerts: mechanisms to inform specific users of performance metrics
(financial or operational) that are drifting off course, and the reasons this
is happening.
-
Scenario management: the ability to quickly and effectively create
scenarios for evaluation and accommodate inputs from several people
simultaneously.
-
Dashboard: to evaluate both proposed scenarios and current performance
against corporate objectives for both financial and operational metrics.
- Integrated financial and operational planning: the ability to switch seamlessly between financial and operational views of the data, and often to view financial and operational information simultaneously, especially when comparing scenarios against corporate objectives.
It is imperative that you move the S&OP process from the current reactive, fact-checking process to a proactive, direction-setting process. This cannot be achieved without a system that provides the capabilities described above.
Trevor Miles is director of industry and applications marketing at Kinaxis (www.kinaxis.com), and is responsible for identifying market trends and translating these into high-level functional requirements for the company, and opportunities for value capture by Kinaxis customers and prospects. Prior to joining Kinaxis, Trevor worked for i2 Technologies, where he held a number of sales and marketing roles and worked with global industry leaders such as Continental, Volkswagen, Nokia, and Thomson. Previous to i2, Trevor worked for Coopers & Lybrand performing several studies in supply chain reengineering for companies such as Levi's, Burmah Oil, TNT Logistics, AGA Gas, and Schneider Electric. Trevor has degrees in Chemical Engineering and Industrial Engineering. He can be reached at tmiles@kinaxis.com
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