S&OP Vital Signs

Most companies have established a planning process for the purpose of aligning operational activities. The process is typically based on the well-established principles of sales and operations planning (S&OP) developed in the 1980s to facilitate cross-functional collaboration and alignment.

The importance of aligned operational activities cannot be overstated. It is the primary factor in a company’s operational effectiveness – how well it carries out the activities required to create, produce, sell, and deliver products to its customers. While each company will have a different mix of strengths, the companies providing market-leading valuemore value than that available from the competition will survive and thrive over the long run.

Market leaders in any industry will have the highest degree of alignment across functions: product, sales, marketing, supply operations, and finance. They also are able to consistently deliver high customer value because information about unexpected events (demand spikes, capacity fluctuations, component shortages), which could compromise that value, is shared across the organization while there is still enough time for alternative solutions.

The inverse is also true: Limited cross-functional alignment is a primary driver of poor operational effectiveness. When processes for sharing information about unexpected events are limited, some functions are blindsided and have little or no ability to respond in a timely manner. The result is operational ineffectiveness, which can result in unmet demand, operational disruption, idle capacity, and excessive inventory investment each one a direct and unfavorable impact on customer value and financial performance.

Examples of S&OP success are not difficult to find and are regularly featured by leading analysts and industry experts. But for too many companies, the S&OP journey stalls before the true potential of cross-functional alignment is realized, leaving market-leading value just out of reach. Performance metrics that lag industry leaders or fail to meet individual company targets can indicate drift in one or more of the four vital signs that are essential for S&OP health and success:

  1. Executive support and participation in the S&OP process.
  2. Fully cross-functional S&OP scope.
  3. Practicing constructive issue resolution.
  4. Minimal process compromise imposed by technology.

Performing a health check of S&OP vital signs should be the first priority for companies looking to make significant performance improvements. If the vital signs are found to be outside of normal ranges, corrective action can be taken to restore those that have deteriorated and re-establish a solid S&OP foundation.

Vital Sign #1 – Why Executives Should Be Involved

The most important S&OP vital sign is whether the executive leader is directly involved in the process by participating and providing leadership in each executive S&OP meeting. In this context, the executive leader is the head of the organization in the position of CEO, president, managing director, general manager, or P&L owner. S&OP is successful because it aligns planning across functions in order to meet company objectives and improve performance. Compromise is often required between functional areas and, at times, functional leaders may disagree on the best approach. The executive S&OP meeting provides a forum for routine decision-making where the executive leader considers team recommendations and decides the course of action.

“Only three things happen naturally in organizations: friction, confusion, and underperformance. Everything else requires leadership.” –Peter F. Drucker

When the executive leader is not committed to this decision-making forum, functional leaders will find other ways to resolve their issues and, as Peter Drucker points out, the result is friction, confusion, and underperformance. As a consequence, the S&OP process is undermined, participation can drop off, and performance improvement stalls.

A low-risk, low-cost approach to executive leadership is through an executive S&OP pilot. This can be done with one or two product families to keep it simple. The executive leader will see firsthand how executive S&OP provides improved visibility and the opportunity to resolve issues before they impact performance. A major steel company did just that with their skeptical CEO.

The CFO had used S&OP at a previous company and experienced the transformation. He became a champion for S&OP and recommended it to the CEO as a way to achieve the significant performance improvements mandated by the board of directors. The CEO agreed to the pilot and took a leadership role. Even before the pilot was completed, the CEO had approved rolling out S&OP to the entire division and commented that it should have always been done that way.

The steel company approach is not an isolated case. Many companies have gained executive leadership through a pilot. Start with your company’s executive championsomeone who is trusted and respected by your CEO, shares your S&OP passion, and is willing to take a stand!

Vital Sign #2 – Success Depends on Showing Up

The S&OP process drives cross-functional alignment and collaboration. S&OP success depends on participation by all functional leaderssuch as VPs of product, sales, marketing, supply operations, and financeto provide a synchronized effort to reach the company’s goals.

Just as the competitiveness of an eight-person rowing crew would be compromised by an empty seat, the absence of any functional area from the S&OP process handicaps the ability to deliver customer value and financial performance. The consequences of an empty S&OP seat show up in many ways depending on the seat’s owner and can result in poor coordination on new product introductions, unexpected sales, unexpected promotions, material constraints, or capacity constraints. The result is mismatched product volume, mix, location, or timing, all of which negatively affect the company’s performance.

If a check of your S&OP process reveals an empty seat in a team that at a minimum should include the leaders of product, sales, marketing, supply operations, and finance, you have likely found an opportunity to improve S&OP performance.

Taking Action

Request that the executive leader invite the missing member to join the executive S&OP meeting and the directors to join the partnership meeting (pre-S&OP). Meeting attendance is a key first step. The level of participation can increase over time. Perfection isn’t required to start and shouldn’t get in the way of progress.

It may be challenging for a busy VP or director to find time to participate due to their demanding schedules. In these instances, an objective and constructive analysis of how their participation may have avoided or minimized past mismatches is often helpful to establish the importance of S&OP.

When several S&OP seats are empty, there is often a significant opportunity for improving performance. In such a case, a different approach may be required one that upgrades the S&OP process and expands to full cross-functional participation. The S&OP upgrade is a low-risk, low-cost approach that can demonstrate how performance would be improved in 90 days. It is based on a full assessment of your company’s S&OP needs and is led by an executive S&OP expert who may be from inside your company or a third-party consultant.

Vital Sign #3 – Encourage a Culture of Collaboration

In 2006, the executive management team at Ford Motor Company had just turned in its worst performance in history with a $15 billion operating loss. As a result, the company was forced to make dramatic cuts to the workforce and close many of its U.S. plants. Disaster seemed unavoidable. But in a bold move that shocked both Ford management and the auto industry, Ford hired an outsider, Alan Mulally from Boeing, as the company’s new CEO.

In “Why Great Leaders Don’t Take Yes for an Answer” (2015), Michael A. Roberto explains that Mulally joined Ford when the executive management team was in discord. They were highly siloed and rarely had candid discussions of problems the company faced. To address this, Mulally immediately implemented a Thursday morning “business plan review” and established “working-together behaviors” to guide constructive disagreement.

Key among the prescribed behaviors were the following:

  • Support positions with facts and data.
  • No put-downs or personal attacks.
  • No side conversations.

Mulally placed a lot of emphasis on the new behaviors and explained, “If you can’t do it or don’t want to do it or it’s too hard, that’s okay. You’ll just have to work someplace else.”

However, the team continued to have difficulty with transparency and candid dialogue despite Mulally’s mandate. The turning point came in a meeting with Mulally’s reaction to the first executive who reported bad news. Following the report, Mulally stood, vigorously applauded, and commended the executive for the transparency and visibility he’d provided to the team. Mulally then asked the team how they could help, and they in turn offered constructive suggestions and assistance. This commitment to problem-solving instead of finger-pointing cleared the way for big changes at FordMulally had made it safe to speak up, and he often retold this story throughout the company to signal the change in culture.

Under Mulally’s leadership, Ford weathered the Great Recession and, in 2009, generated a small profit despite rejecting the government bailout GM and Chrysler accepted to survive. In 2013, the year before Mulally’s departure from Ford, the company earned $7.2 billion in profits and paid workers the highest profit-sharing bonus in the company’s history.

S&OP and Constructive Issue Resolution

By its very nature, S&OP produces disagreement. After all, it is the process of developing the tactical plans necessary to achieve the corporate strategy. Functional heads are certain to have different opinions about the best approach. As demonstrated by the Mulally Ford executive team, the S&OP team needs to be able to have candid and constructive discussions about issues and challenges, otherwise tactical plans will not align with strategy, compromising the S&OP program and corporate performance.

Action

Work with the executive team to institute “working-together behaviors” to create an environment that focuses on problem-solving instead of finger-pointing. Make it safe to speak up.

Vital Sign #4 – Minimal Process Compromise

Each company conducts their business operations in a unique way based on a variety of factors that include industry, markets, culture, practices, and leadership. These factors continuously change and affect each company differently. No two companies operate or evolve in the same way. Accordingly, each S&OP process is unique since it reflects a company’s business operations.

Companies on the S&OP journey eventually require S&OP technology for continued performance improvement. This often happens after the initial value of S&OP has been demonstrated through improved alignment and collaboration across functions. For companies at this stage, most of the planning cycle may be spent collecting, assembling, and validating functional data. Little time is left to explore options for better results, which requires significant manual effort and would be outdated by the time it’s complete. While S&OP stakeholders are confident that significant additional improvement is possible, the patchwork of ExcelÒ sheets and existing systems stands in the way.

S&OP technology solutions can help companies achieve the next level of performance by establishing a single, cross-functional planning environment based on shared data. Plans are naturally aligned since they originate from the same data source. Scenario planning capability enables fast, fact-based decision-making. Data collection, assembly, and validation are automated, allowing S&OP stakeholders to spend more time improving results.

Confirming the Right S&OP Solution Fit

The selection of an S&OP solution typically includes an initial evaluation of functional and technical criteria to determine what the solution does and whether it fits company requirements. More difficult to evaluate, but equally important, is the question of how a solution works and how it fits with a company’s unique business operations. Does the solution go beyond abstract functional requirements and provide decision support and information sharing in a way that enables a company’s unique processes? Or would the solution require unwanted changes in business operations to match the way the solution works? This is a key point of the evaluation because the success of an S&OP solution depends on its ability to enable rather than dictate business operations. A forced-fit solution typically results in low adoption and ultimately jeopardizes S&OP program success.

Solutions with the best fit to company requirements move to the next stage in the selection process and undergo deeper evaluations. The objective of this stage is to increase fit confidence and reduce the risk of a mismatch, often through a custom presentation that demonstrates key functions using customer data.

Software Engineers Required

It can be difficult to establish confidence in solutions that require software engineers for implementation, whether hosted in the cloud or on premise. These solutions are expensive to set-up because the software code must be changed for the demo and run through QA. It’s a time consuming and costly effort. Understandably, the provider will prefer to narrow the demo scope. As a result, users may be left uncertain about the fit and lack the confidence to make a selection. It’s unfortunate but all too often, the search for a solution ends with no action taken.

For some solutions in this category, functionality is predefined and adaptation to support company-specific requirements may be limiteda fact that is difficult to evaluate even with a custom demo. For companies with more time, a 90-day pilot is an effective way to more fully evaluate solutions of this type.

Business User Self-Service

Confidence is more quickly established in solutions that are modeled by business users in a live cloud application. The ease of use and high level of control are similar to other cloud-based applications such as Office 365, Salesforce.com, and Google Apps. Custom demos, including adaptations to source data, are provided quickly and include live modeling changes to illustrate solution flexibility. Model builders can implement the behavior required by a company’s S&OP process and quickly evaluate the impact. Solutions that enable self-service modeling can be managed by business users instead of software engineers and, as a result, are significantly more economical to adapt to future changes.

Consider these five points when evaluating S&OP solutions:

  • Process compromise. Place high priority on the solution’s fit to your business operations. Depending on the solution type, more time (and in some cases, a pilot) may be required for fit confirmation.
  • Ease of deployment. Longer implementation times increase the risk that the solution will be outdated upon completion because of changing business conditions or opportunities. Minimize time to value in both the solution selection and project planning phases. Plan for demonstrable value in 8–12 weeks. Avoid anything longer.
  • Ease of change. Change is inevitable. Technology must flex with the business or it becomes a friction point and slows the business down. Be cautious if minor modifications require more than an hour to get into production. Avoid those that take more than a day.
  • Business-user administration. Modern solutions can be administered by a business user without significant support from IT. This is a welcome development since most IT departments operate at capacity. Avoid a solution if technical resources are needed for application administration.
  • No change orders. Business user self-service eliminates the need for change orders to the technology provider or system integrator. Change orders are expensive and time consuming, and place a formal project justification and approval process between you and flexibility.

In short, compromising your business processes in order to adopt S&OP technology is no longer required. Protect the practices that reflect your company’s business model and adopt those that improve performance. Choose a solution that enables both and provides adaptability to your changing conditions.

Summary

The importance of a strong S&OP process is greater than ever. As supply chains struggle to slowly recover in a post-pandemic world shoring up cross-functional alignment can be an effective strategy for gaining control. Performing a health check of S&OP vital signs should be the first priority for companies looking to make significant performance improvements.

Top 4 S&OP Vital Signs

Performing a health check of S&OP vital signs should be the first priority for companies looking to make significant performance improvements. If the vital signs are found to be outside of normal ranges, corrective action can be taken to restore those that have deteriorated and re-establish a solid S&OP foundation.

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