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WORDS FROM WALLACE - July
'06
Is Your
S&OP Stuck In The
Middle?
Many of you –
too many, unfortunately – will answer that
question with a YES. You’ve implemented S&OP,
but it’s just not generating the benefits that you
had hoped for, and that other companies are
achieving.
Survey
Results
In a survey
conducted earlier this year by Interlace Systems
of San Mateo, California, 80% of the
respondents indicated dissatisfaction with how
well their S&OP process is working. The other
20% of companies in the survey reported high
satisfaction with their Executive S&OP
processes.
What causes
this difference? I believe the number one cause,
by a large margin, is the lack of
active, willing, enthusiastic, hands-on
participation by the executive group, up to and
including the leader of the business unit
(president, general manager, COO, etc.).
Some of you, as you read these words, might be
thinking, “active, willing, enthusiastic, hands-on
participation by top management – is that
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Hell yes, it
is. That’s how it works in companies with a
first-rate Executive S&OP process. Top
management views Executive S&OP as one of
their most important tools.
They’re
enthusiastic and are committed to it. They view it
as essential for:
- balancing
demand and supply, often
across an extended supply chain
- integrating financial planning and
operational planning, thereby running the
business with one set of
numbers
- providing
a window into the future,
enabling proactive responses to the
inevitable shifts in demand and supply
One CEO of a
multi-billion dollar consumer packaged goods
company told me: “Tom, when I think back to before
we had S&OP, I wonder how we were able to run
the business without it.”
Stuck in the
Middle
Many companies
have attempted to implement Executive S&OP
with only limited success. Their top management
people have stopped participating or they
participate only half heartedly. This is almost
always the result of the process not being of
value to them.S&OP
people in these companies frequently feel trapped.
The executive group has been briefed on S&OP
and its benefits; they’ve given it a try; and they
don’t see the benefits coming. They don’t want
another briefing and they don’t want to start
over; all they want is results and they’re not
getting them. The company is “stuck in the
middle.”To address
this issue, I recently wrote a white paper –
S&OP Mission Critical: Getting Top
Management on Board. (Click here to see white
paper) More on this
later.
A
Better Tool
New
software is available – now – with capabilities
far beyond those of traditional S&OP. These
capabilities include simulation at virtually the
speed of light, far greater alignment of financial
plans and operational plans, a much tighter
linkage between volume and mix, and others. I
believe that these capabilities will lead to an
enhanced S&OP presence within the executive
group, including the CFO.
Here’s one
example, which I call the “Running Delta.” After
the Executive S&OP meeting, the authorized
volume plans are converted into detailed plans and
schedules. However, as the company moves through
time, stuff happens:
1.
customer orders move in and out,
or
2. low margin orders
replace ones with higher margins or vice versa,
or
3. orders requiring lots
of capacity replace those needing less or vice
versa, or
4. a plant
experiences a major problem,
or
5. a key vendor gets in
trouble and can’t ship for a ten days,
or
6. any combination of 1
through 5.
“Work-arounds” are identified,
schedules are revised, expediting begins in
earnest, overtime is activated, and so on. But
here’s the rub: the plans and schedules that the
company is now operating with are not the ones
authorized in the Executive S&OP meeting.
Their dollar value is probably less or more than
the dollars authorized, but no one knows. By
how much are they off – a little bit, or a lot? No
one knows.
Imagine coming to work in the
morning, firing up your computer, and taking a
look at the running delta – the difference in
dollars – between the authorized plan in S&OP
and the current plan (containing all the running
changes made during the period so far). Wouldn’t
that be helpful? You bet it would.
Knowing
how far off plan you are – both in period-to-date
actual performance and in end-of-period
projections – gives a company a big advantage in
taking corrective action, operating pro-actively,
and in hitting plan.
Getting from Here to
There
Right now I
suspect that a number of you are thinking, “That’s
sounds terrific. It’s a shame we can’t do it . . .
because we’re stuck in the middle. How can we
possibly get from here to there?”That’s what
the white paper – Mission Critical: Getting Top
Management On Board – is all about. It lays
out a path to jump-start a poorly performing
S&OP process, to generate enthusiasm among the
ranks of the executive team, and to get
to a
first-rate Executive S&OP process.
If you
haven’t done so already, take a look at that white
paper. It might make a big difference.
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Tips from
Tom and Bob
Early in
our careers in industry – mostly on the Operations
side of the house – we both complained bitterly
about the lack of accurate forecasts. And further,
we didn’t do much to make the
forecasters' job less difficult and more
effective. Shame on us.
Are any of
you in Operations guilty of the same thing? We
suspect many of you are. So, you may be
thinking, what can do to make the job of the
forecasters easier and more effective? Well,
didn’t you ever hear of Lean
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Manufacturing? When’s the last time you had
a major effort to reduce lead times? That’s the
very best thing you can do to help the
forecasters.
Our friend
Rick Wright from Sara Lee says: “The forecast
can always be 100% accurate – provided that
the lead time is zero.” Rick’s point: the
shorter the lead time, then the shorter the
forecasting horizon and the less opportunity for
forecast error. For more, click here to see the 12 principles
of forecasting in our
book
Sales & Operations Planning: The
Self-Audit
Workbook.
Would you
like to stop forecasting in detail
altogether? You may be able to, by using
Postponement. Click here to see Chapter 1
of our book
Building to
Customer
Demand.
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