S&OP: What Great S&OP Feels Like
Often individuals raise questions about how S&OP is performing in their company. They ask: how can I know if it’s really working well?
There are two answers to this question, one qualitative and the other quantitative. The latter is in the form of checklists: one example contains 33 items of primarily enabling metrics – “if we do all of these process steps well, we’ll be getting excellent results.” Here, however, I’d like to focus on the qualitative aspects of answering the question: is it working well.
What follows are eight points.. If you’re experiencing success with a given topic, fine; if not, check the question that accompanies it. A given question may raise other questions, such as “How do I do that?” Answers to the questions except the last one can be found in the How-To Handbook, referenced in the footnote below.
- A visible increase in teamwork. When you implement Executive S&OP successfully, your teamwork will improve; it’s virtually a sure thing. This is because you get away from the confusion and sub-optimal performance that’s part and parcel of the silo mentality. Even for companies not doing the silo thing, teamwork will improve.
The president of a pharmaceutical company, talking about S&OP, stated: “This process enables my staff (the vice presidents) to view the business through my glasses.” They can see the other guy’s side of the story, view the business more holistically, and that promotes teamwork.
Question: has teamwork in your company visibly improved from what it was prior to implementing S&OP?
- Communications clearer and more certain. You may have heard the complaint: “we need better communications around here.” The odds are that the person did not mean faster fax machines or enhanced e-mail, but rather how effectively people share information. The Executive S&OP process is “communication rich” and “collaboration driven.” It requires open and complete communications on important issues and also requires cross-functional collaboration for their resolution.
Example: no longer must Fred, the VP of New Products, remember to tell Wilma the CFO that the launch date for the new product is going to slip by three months and she may want to adjust her projections to Corporate accordingly. He doesn’t need to remember because that kind of communication is built into the process.
Question: are fewer things “falling through the cracks?”
- Demand and Supply normally in balance. The most fundamental task for Executive S&OP is to help create the demand/supply balance. This is how S&OP got started, helping people balance demand and supply and to maintain that balance as the company moves forward through time. Getting demand and supply in balance is essential for the rest of the important elements within S&OP to work well.
Crisis management – putting out fires – is no longer a way of life. I remember a plant manager at an oilfield equipment company saying, “Tom, I used to spend most of my day out on the plant floor expediting and putting out fires. Now, periodically I have to remind myself to get out of my office and make an appearance in the plant."
Question: has “fire fighting” visibly decreased from before S&OP?
- One set of numbers internally. In many companies, multiple sets of numbers abound: Sales and Marketing has their set of plans, Operations has theirs, and Finance has a third. And guess what? – hardly ever do those different sets of numbers agree;. With effective Executive S&OP, there is one and only one set of numbers serving these different groups, expressed in different units of measure.
Many companies take the position: Under Promise but Over Deliver. That’s fine; S&OP doesn’t care what you tell Wall Street or the corporate office. What is required is to use only one set of numbers internally within the business. And companies that do so will tell you it’s a nice way to live.
Question: is everyone singing off the same sheet of music, or are there still some separate sets of plans remaining, perhaps from “the old days.”
- Fewer surprises, resolved quickly. Executive S&OP provides a “window into the future.” It’s uncanny; with S&OP working well, people can see into the future; it enables people to see potential problems and to resolve them before they move into the near term and become real problems.
Does this always happen? Of course not; please note the first word above – fewer. When a surprise does occur, it can often be resolved quickly thanks in part to the one set of numbers covered earlier.
Question: does your S&OP process allow for mid-period adjustments when “surprises” occur, such as demand spikes or supply crashes, and to make those mid-period adjustments quickly?
- Eighteen months or more forward visibility. Why 18 months? Why not 12 or 15 months? Because a planning horizon of 18 or more months best supports the creation of next years’ Annual Financial Plan. Take the case of a company with a January to December fiscal year: work typically begins on next year’s plan in August or September.
At that point, an 18-month S&OP horizon covers all of next year, January through December. The demand forecast, the supply plans, finished goods inventory projections and other plans already exist, and they’ve been worked every month for quite some time. This makes the creation of next year’s Annual Plan much easier – and much less hassle.
Question: does your annual planning process depend on demand plans and supply plans from Executive S&OP or does all of the data it uses come from other sources?
- Top Management engaged and enthusiastic. This means you’ll no longer have to worry about attendance at the monthly Executive Meeting; the execs will be there because they’re deeply involved in the Executive S&OP process. They know it helps them to run the business better.
From the CEO of a consumer products company: “Tom, when I think back to last year, before we got S&OP, I can’t imagine how we were able to run this business.
Question: does your executive team, up to and including the leader of the business, participate hands-on in the Exec S&OP meeting each month?
- Executive S&OP helping to achieve strategic goals. S&OP does not create strategy, but rather it helps companies to reach strategic goals. One example is the launch of major new products; we’ve seen examples – Eli Lilly and Applied Materials are two that come to mind – of S&OP playing a substantial role in making new product launch more efficient and more “sure-footed.”
Other examples, all with major support from S&OP, include Dow Chemicals (integration of a major acquisition), Cisco Systems (creation of an entirely new business unit), and BASF (capturing first place worldwide in their industry).
Question: is your company’s use of S&OP confined to the traditional processes of balancing demand and supply, integrating financial and operational plans, and so forth – or is it also being used to support strategic initiatives?