For a long time, companies concentrated on stability in their S&OP process. This focus is now shifting to flexibility and changeability. However, without a clear course, you will not be able to respond effectively to the new demands and wishes of customers and suppliers or major changes in technology and regulations. Striking that balance is not easy, not easy at all!
This blog will outline 5 leadership commitments to avoid common failures in implementing an S&OP process.
#1 COMMIT TO THE S&OP PROCESS.
S&OP is like building a house – it needs a solid foundation. And if the proper foundation work is not carried out at the beginning, challenges down the line can prove impossible to resolve. This means major organizational change needs to be done.
The changes involve:
· establishing the framework for S&OP
· getting the right team together
· senior management participation in the process
These changes need to be anchored in performance measurements and reward structures to ensure that they align with the overall company plan. As part of the commitment to the planning process, company leadership must force the resolution of trade-offs between functions prior to approving plans. S&OP provides a transparent basis for resolving these conflicts. One of the benefits of S&OP is being able to run the business to one set of numbers. Whereby Sales & Marketing and Production & Finance all agree on anticipated sales and the company’s ability to meet those sales. Company leadership should lead the cultural change to make that happen.
#2 INCORPORATE S&OP INTO YOUR BUSINESS STRATEGIC PLANNING.
Company leadership must be actively involved in the S&OP process. Which should be directly related to the strategic plans for the company. They must ensure those insights gained from the S&OP process are used to drive long-term planning and ensure operational plans contribute to strategic goals.
#3 UNDERSTAND S&OP IS PLANNING, NOT SCHEDULING.
A common mistake is to focus too much on near-term scheduling challenges. And not enough on the planning decisions that are the actual reason for the scheduling headaches. The Sales & Operations plan represents the leadership team’s decision on how demand and supply need to be balanced. This may include tough decisions for when they are not balanced. Like postponing the promotion that was already in preparation for weeks. Schedules should be made after these decisions are taken. Mix up planning and scheduling too much and neither the plan nor the schedule will ever converge. S&OP decisions are about the company’s profit and loss and strategy. Scheduling is about operational execution.
#4 ALL FUNCTIONAL AREAS MUST AGREE ON THE NUMBERS
Make your business fact based. Representing the company plan in money, units and warehouse utilization is a challenge that can be overcome. Small inaccuracies are no reason to drop this obvious requirement. Leadership must insist that functional areas trust the numbers. Or work on the numbers to get them right. It is the only way to get the focus on where it should be, which is the company’s overall profit. S&OP plans should be tracked against the budget. One does not make sense without the other.
Once collaboration between leadership levels of the functional areas is developed and together agreed on the numbers, it can be translated into detailed plans that are in line with top-level expectations. This results in a set of common goals, improved communication, and transparent systems. The operations plan should be in complete agreement with the other functional plans that make up the business plan. Company leadership must foster this integration and collaboration.
#5 REPEATEDLY REVIEW THE S&OP PLAN
A frequently made mistake is that the Company Leadership is only involved in setting up the S&OP and its team and then step back. Experience shows that the value is only released with continued commitment. Company Leadership needs to stay involved to maintain focus on the common goals and best result for the overall business. Cross-functional collaboration must be maintained and celebrated. There is a stronger tendency to drift apart than to stay together. A successful supply chain focused company understands that S&OP is a journey, not a destination.
by Uneco de Meester & Nadine Lucas