Sales and Operations Planning Process–
In the parable, John Gray weaves around the battle of the sexes Men and Women frequently have problems communicating with each other because their brains’ anatomies are hardwired in very different ways. We were reminded of that parable recently when, as part of a larger supply chain transformation project at a major global consumer products company, we sat in on the monthly meeting on How to Improve Sales and Operations Planning (S&OP). Similar to the Martians and Venusians of John Gray’s creation, we felt that the two predominant groups in the room were essentially approaching the communication from mindsets that might have been hardwired on two different planets. And despite, or perhaps because of, more than 25 years of history Sales and Operations Planning might have fallen into a communication rut. The company took great pride in being “Class A” in its supply chain processes as certified by one of the reputed supply chain process certification firms. What struck us as counterproductive was that the whole S&OP process, including the agenda, key steps, preparatory work, and documentation was set up for failure. How so? Let us first describe a typical Sales and Operations Planning process that we have seen played out month after month at countless organizations around the world.
The key differences between the traditional S & OP and i-SOP and How to Improve Sales and Operations Planning (S&OP)
The sales department, the operations department, the logistics department, and statistical forecasting analysts get together in a room. The meeting starts with a review of what happened last month. The forecast accuracy is reviewed and found inadequate. The blame game starts.
Operations and logistics blame the sales department for getting the forecasts wrong again. Sales people blame the customers, the weather, the economy, the government, the statistical analysts, and any other thing they can lay the blame on. And from here the meeting just keeps getting worse and worse.
All the participants are generally good players with lots of experience and come well-prepared with the necessary ammunition. Genuine collaboration is out of the window from the start. Ultimately there is a vague conclusion on what is going to be achieved over the next month or so, and hopefully, some actions assigned. Rushed and reluctant agreement comes about due to a shortage of time at the end of the meeting rather than from any sudden bursts of inspiration or teamwork.
Everyone leaves the room dissatisfied and with rancor towards most of the other participants, and the whole cycle repeats itself the next month.
However, it need not be this way. There are better ways to structure, support, and run the S&OP process that will encourage internal collaboration, genuinely enhance communication, and create much more positive and effective outcomes. We call this i-SOP, short for Intelligent to How to Improve Sales and Operations Planning.
Junior staff in many corporations develop a silo mentality in the first few months they join. If they dare to think of the greater good or the company as a whole, they are frequently rapped on their knuckles for not being corporate savvy. Their objectives and rewards only reinforce this attitude.
Over time this silo mentality becomes ingrained and leads to each person defending the position of his silo and/or attacking the other silos to score points in the game.
By its very nature, S&OP is a collaborative exercise, which cannot be carried out properly with a defensive or offensive attitude.
An open, trusting attitude is a must for success. Every participant has to believe that they all share a common goal, and everyone else is doing their best for the common success of the team. And every participant has to do their best in this belief.
The way most S&OP meetings begin, however, sets the scene for exactly the opposite. There are few positive stories of shared victories, or of meeting some difficult-to-achieve outcomes during the past month.
On the contrary, the meetings start with failures of the past month. Any rational discussion is soon high-jacked by emotional self-interest. Granted that learning from past failures can be useful; however, the timing and manner for that exercise could be vastly improved.
In traditional S&OP, the focus of participants is on blaming others for the bad outcomes and taking credit for the fortuitous good ones (of which there are a few).
With this distributive focus, no wonder few people can think outside the box to find creative, lateral solutions to the end-to-end supply chain and operational problems besetting their organization.
S&OP is a collaborative exercise that requires a great deal of teamwork. Most companies pay respect to teamwork – but their definition of teamwork is generally restricted to teams within a silo.
Cross-functional teams have a mixed track record. Hidden agendas, inadequate training, lack of understanding of shared goals and a history of dysfunctional behavior towards each other sabotages teamwork in most S &OP meetings.
Most S&OP meetings are oriented in past. This is a surprise because by definition planning (Sales and Operations Planning) is for the future.
The only reason one needs to refer to the past is for some guidance for the future. However, the way most S&OP processes are structured, even those certified by the best process certification consultants, results in a majority of the time being spent rationalizing what happened and making sure it does not happen again.
This time would be best spent on planning for the future (obviously while taking into consideration what happened in the past). The reactive orientation of most S &OP processes is perhaps its most visible weakness.
In the absence of a collaborative attitude, and a focus on teamwork the communication during an S&OP meeting becomes formulaic, stale, and stilted. People are saying things for the sake of saying them and being seen to be saying them. There is no commitment to joint problem-solving by any means. Instead, it is just a chore to be gotten over with. There may be an occasional breakthrough of open, honest communication when a large, threatening problem confronts the whole group. However, these occasional bouts of collaboration are soon forgotten as people settle back into the comforts of their departments.
Guiding the communication of the traditional S&OP process, and setting the tone of the whole event is a set of archaic checklists and formalistic process charts, designed by the process consultants that certify these processes. While the ’70s and ’80s were a huge step forward when none of these things existed, their newer versions of the ’90s and ’00s are barely adequate to guide the supply chain process of a modern global corporation through some of the most important decisions that their executives routinely make every month. The newer collaborative tools are still being forged, however, none of the old guards, who are well set in their ways and are in a way victims of their success, have the motivation or capacity to provide them. Dynamic, light, open, collaborative, and balancing tools are the way forward. We expect to see a few more of these in the future, but probably not from the existing suppliers of standard supply chain processes.
In a traditional S&OP meeting, each silo sends its most battle-hardened corporate warrior to fight it out with the competing interests in the other silos to maximize its chances of getting the glory and resources that it needs to flourish. And they play this role with relish. However, in the process, the shared goals of the organization are frequently forgotten.
Collaborative, forward-looking teamwork requires positive, pragmatic business leaders to jointly sit down together and solve problems by building on each others’ ideas. We find this is frequently missing in the traditional S&OP processes.
Measure of Success
Each silo measures the success of the S&OP process differently. Sales might believe it is successful if it manages to “hoodwink” the production to produce so much that there is no likelihood of stock-outs. On the other hand, production might believe that making sales acknowledge the past forecast inaccuracies was its biggest success in the S&OP. The logistics department frequently believes it is successful if its representative walks out of the meeting without too much blame for missed deliveries or stock-outs. A single measure of success, linked to the overall performance of the business – profit for example – is frequently given only superficial consideration by team members. It is no wonder that under the circumstances profits are frequently sub-optimized, though each department manages to look good using its measures. If this rings true in your organization, there are ways to ensure a better outcome. Let us look at that now.
Intelligent Sales and Operations Planning relies just enough on tools, formulas, and checklists to make it a success. The key to its success is, however, the collaborative approach built into the process from the beginning. As indicated above, the leadership and participants are selected and trained for a positive, results-oriented attitude to joint problem-solving using lateral thinking. Open and honest communication is guided by the instruments and tools created especially for this purpose. Finally, a single measure of success is used for all participants in the process. While the limited space in this article does not allow a comprehensive description of the design and implementation of i-SOP, the authors are happy to communicate further on the topic.