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John Dougherty

S&OP is like red wine!  It doesn't get "tired and old" over the years, and if properly handled, can become richer, smoother and more robust. It becomes "the way" to get issues on the table, to get problems solved and to get opportunities captured.

How?  Let’s look at what can we learn from thirteen manufacturing companies from across the globe as documented in our new book, Sales & Operations Planning – Best Practices.

Not surprisingly, success with S&OP requires knowledgeable and involved people from many functions and levels of the organization,supported by top management that is involved and insistent on success.  It requires and helps foster a company culture of communication and consensus, based on good listening and understanding other viewpoints.  A decisive atmosphere emerges, where people are prone to take action early, based on projected, but reliably monitored information, while there's time to avoid problems and secure success.  . 

S&OP must necessarily lead to (and at the same time require) much improved teamwork.  This goes hand in hand with:

Developing and operating to a "single company game plan "

Breaking down functional "silos of excellence"

Less effort spent on "finger pointing"

Top management spending more time guiding, directing and monitoring, and less time making last-minute, "least worst" choices

Middle management cross-functionally collaborating to make more of the decisions.

The evidence from the thirteen best practice companies is that Education  is required at multiple levels of the organization, both early and ongoing, to ensure a common understanding of the objectives, principles, concepts, mechanics, terminology and required participation for success with S&OP.  The end result is a common language in every functional area of the company, used to establish, monitor and achieve business objectives. 

Inventory, sales, forecast, production plan, and capacity data have to be made reliable.  Generally this means 95-8% accuracy, but since forecast accuracy can vary widely, a predictable range of forecast deviation needs to be identified so that plans can be made to accommodate demand variations over time.

Hard numbers must be presented in a focused and usable format.  This means getting not just the data that's easily available, but the right data in a timely manner, presented in a way that highlights issues and fosters quick and confident decision-making, either in tabular spreadsheets, or wherever possible, graphical figures.  It should be displayed and analyzed in family aggregations, appropriate and specific to demand and supply viewpoints.  A planning horizon of at least twelve rolling months is needed, with the data presented inmonthly periods for at least the first six months. 

The thirteen best practice companies maintain four to thirty family  groupings, with each being reviewed monthly, in one or more partnership meetings, with the most critical getting the lion's share of attention in the meetings, especially at the executive level.

Using S&OP as a basis for updating business plans, financial plans, budgets, capital spending plans, etc.  may mean that in certain months additional steps are taken with the S&OP data to review, update or establish new financial or strategic plans.  These activities typically occur no more often than quarterly and sometimes only once or twice a year.

As well as quantitative expressions of historical and future supply, demand, and inventory information, there must be an easy, routine and institutionalized methodology that documents underlying assumptions of the quantitative data.  There also should be a focus on discovering root causes for past variation, with the majority of time spent considering the potential implications of changes in the future, especially two to six months out.

Process design , not software tools is seen as the key to success by all thirteen companies.  All companies started with the standard five step S&OP process, shaping and customizing it as they went along, personalizing it to accommodate their particular business issues and conditions.

What needs (or gets) improvement, must be measured.  Well defined and balanced performance metrics, or KPI 's are the nervous system for the healthy operation of the corporate body, and are clearly defined and reviewed at the appropriate steps of the process by every one of our 13 model companies.   

Many companies see S&OP as the key driver for ongoing continuous improvement efforts.  This could apply to business objectives such as improving customer service or lowering inventory or costs.  The KPI 's that are tracked should reflect these efforts. 

Once it’s “ready to drink”, don't just “store it in the wine cellar”, actively pursue continuous improvement through:

regular, structured self-critiques

setting and monitoring quantifiable targets for improvement

using an S&OP effectiveness checklist, at least annually, to identify process performance slippage and/or opportunities for improvement

S&OP's hallmarks are leadership, teamwork, communication, and consensus decision-making.  Properly applied, its results are consistently outstanding.  And in the end, as Alberto Fernandez , Chairman of Pyosa  has said: "El secreto esta en pegarse!" or "The secret is sticking to it!