S&OP Spreads to Japan

S&OP Spreads to Japan

My second visit to Japan late last year was quite different from my first, which occurred a quarter century earlier. On the first trip I went as a student to learn about the phenomenon  called the Toyota Production System in Japan, now known as Lean Manufacturing in the rest of the industrialized world.

On my visit late last year, I was no longer acting as a student but rather as a teacher. My mission: to teach Japanese executives and managers about Sales & Operations Planning (S&O). Some of you may be thinking: why? They’ve got a terrific process with Lean; why do they need S&OP or anything else?


THE LEAN/S&OP RELATIONSHIP

Do you have people like that in your company, people who say , “We don’t need S&OP; we’re using Lean?” If so, that’s too bad. To remedy the situation, I wrote a paper on this topic some time ago titled “Lean Manufacturing and S&OP: You Need ‘Em Both”, which made the following points:

  • Lean Manufacturing is a powerful set of processes whose objective is to enhance customer service, eliminate waste, reduce costs, cut lead times, improve quality, and so on. It does these things extremely well. Lean functions primarily in the present and near future; I think of it as somewhat “Zen-like;” it lives mainly in the present.  

  • S&OP, also known as Executive S&OP, is a set of medium-to-long-term planning tools to help people balance future demand and supply, integrate financial planning with operational planning, simulate the future, work cross-functionally and so on; it does these things superbly.

  • Lean is strong on execution; S&OP is strong on planning and decision-making for the future. Since the future involves all areas of a given company, it follows that S&OP should involve most of its primary groups: Sales & Marketing, Finance, Operations, Supply Chain and so on.

  • Some of the “leanest” companies in the world use S&OP – or variants of it under different names. These companies recognize that “they need ‘em both.”

THE PROBLEM IN JAPAN

But another group of companies, also among the leanest in the world, have not yet adopted S&OP and they’re feeling its absence keenly. Who are they? Well, do names such as Sony, Toshiba, and Toyota ring a bell? They’re in that group, along with many other household names based in Japan.

Industry in Japan has stagnant for quite a while, and that’s due not only to tsunamis, recessions, nuclear meltdowns and the like. A serious organizational dysfunction – the silo effect – is at least equally responsible, maybe more so. The silo effect means that the people in Silo A (for example, Operations) don’t cooperate much with the folks in Silos B, C, and D and vice versa. Plans aren’t synchronized, resulting in poor performance in the execution of these plans.

For decades, Japan dominated much of the industrial world through its exquisitely effective use of the Toyota Production System But not so much, anymore, because the rest of the world is closing the gap with Japan’s manufacturing prowess. This causes the difficulties created by the silos to become more severe, resulting in a less competitive situation, diminished market share, and lower profitability.

Coincidentally, we seem to have a silo problem in other places besides Japan. Niels Van Hove, who writes a blog called Supply Chain Trend, conducts an annual survey of S&OP good news and bad news. His 2012 results show organizational silos as #2 in the list of impediments to successful S&OP, second only to lack of top management support and involvement. My hunch is that the silos Niels is reporting on may be a bit more intense than those in Japan.


ENERGY ALIGNMENT

Here’s a tongue-in-cheek example of a top management mission statement:

KEEP THE HERD MOVING ROUGHLY WEST

In the world of silos, that objective is rarely achieved. Each department has its own set of objectives, which typically are not in sync with those elsewhere in the company.

S&OP helps a company break out of the silos and get everyone moving in the same direction, as shown in Figure 1. The left graphic depicts the people moving in many different directions, while the right shows the same group using effective S&OP.  See Figure 1.

S&OP enables companies to do many things well: balance demand and supply, integrate financial planning with the operational side, do effective simulations of the future, implement strategic plans more quickly and more “sure-footedly,” and so forth. However, this energy alignment issue is at least as important as the other benefits. In many situations it may be benefit #1.

 S&OP Figure 1

 So, you may be wondering how S&OP helps with this energy alignment issue. Here’s how:

  • Superior Teamwork. The president of a major pharmaceutical business stated that S&OP “enables my staff (the vice presidents) to view the business through my glasses.” In other words, S&OP helps people to see the business more holistically rather than focusing heavily on their individual parts of the business.

    This view creates teamwork, as in: “we’re all in this together.” Better teamwork follows S&OP just as night follows day, so if a company has implemented S&OP and their teamwork has not visibly improved, the explanation is very clear: they didn’t do it right. I can say that with confidence, because had they implemented S&OP successfully, their teamwork would have visibly improved. It’s never failed to do so.
  • Enhanced Communications. This does not mean faster computers, better e-mail, or state-of-the-art fax machines; it does mean better inter-department communications. No longer does Harry (VP – New Products) have to remember to tell Sally (CFO) that the launch of new product 123 will be delayed for six weeks, and that she may want to factor that delay into her upcoming earnings call to Wall Street. Why not? Because those kinds of communications are inherent within the S&OP process. There is no way that Sally can fail to learn about the delay, because with effective S&OP, that kind of communication is built into the process.
  • One Set of Numbers. In the world of silo management, this rarely happens;  each department has its own set of numbers which hardly ever agree with the others. Please note: here I’m talking about a single set of numbers with which to run the business internally. What you tell the financial community is up to you, but S&OP will not be nearly as effective with multiple sets of data and you will miss a big bang for the buck.
  • Enhanced Agility – Near Term/Tactical. S&OP provides a “window into the future.” It’s uncanny, but you can see potential problems and do corrective action before they move into the near term and become real problems. A friend of mine at Procter & Gamble, also an proficient user of Lean, said that they used to have multiple sets of numbers in the company and it caused problems, citing the example of large unforecasted orders from customers.

    In this case, they would often spend several days debating which set of numbers to use. He added that today, with a very effective S&OP process, frequently they can solve the problem in less time than they used to take just to have the data debate. This is an example of S&OP’s effective use in a tactical situation.
  • Enhanced Agility – Medium to Long Term/Strategic. S&OP’s involvement in strategy is not to develop the strategic plans. Rather, it can enhance a company’s ability to implement its strategic plans . Examples:
    • Cisco Systems – creating an entirely new business
    • BASF – achieving its strategic goal of becoming #1 in their industry
    • Dow Chemical – integrating the acquired Rohm & Haas businesses into Dow ahead of schedule and under budget

So Executive S&OP can play significant and very beneficial roles in both the     strategic arena as well as tactical. 

Strategy and S&OP is the focus of my latest book Sales & Operations Planning: Beyond the Basics, which contains examples of the three companies mentioned above – Cisco, BASF, Dow – and is currently being translated into Japanese.

Summing up, I can say that this development in Japan is yet another example of the enormous power contained within S&OP. It’s never ceased to amaze me, and I’ve been at it for over 30 years.

Thanks for listening,

Tom

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