Last week, I spoke at the S&OP IE event in Boston (http://www.theiegroup.com/SOP/Overview.html). There were 29 speakers. In the course of two days, 80% of the speakers stated “for a successful S&OP implementation, start with process, then follow with technology.” I sat on the back row, and I wanted to raise my hand and shout, “STOP! You are missing the obvious.” The largest problem with S&OP is change management. Companies that tackle change management FIRST accelerate results. Their S&OP processes mature 3X faster.
For most companies, change management is the Achilles Heel. Not tackling it first will call S&OP processes to stall, meetings to become dysfunctional , and the loss of process momentum. As a result, S&OP will gradually stall and lose management support. This is why SO many companies struggle.
The reason? A Sales and Operations Planning (S&OP) project is 60% change management, 30% process development and 10% technology. Many are only giving it 40%. Some even try to START with technology. <Don’t get me wrong, I feel that technology is important. I have not seen any mature S&OP process successful without technology.> To get off to a good start, tackle the change management issues FIRST!
Where do I start?
There are three primary stumbling blocks that need to be tackled:
Goal Alignment: S&OP is a horizontal process that extends from sales to procurement. While leaders want S&OP teams to collaborate, the lack of goal alignment is an impediment. Consider the typical organization in figure 1. The sales organization is rewarded for volume, the marketing department is rewarded for market share, and the supply chain/other back office functions are rewarded for lowering costs. As a result, when the team members pull up their chairs to the table to work on S&OP, they are not aligned. Collaboration is difficult at best. To overcome this issue, focus on an overarching set of metrics that align with the operating strategy. Companies with a clear operating strategy, call to action and corporate mission make progress quicker.
Recently, I discussed this dilemma with a big pharma company. They heard the concept, but dismissed it. They thought that this would not be a major stumbling block for their project. I said, “We will see.” A couple of weeks later, I landed in LAX. My voicemail was full. The company had come to the STARK realization that this lack of goal alignment could not be ignored. They asked for help. We sat down together and answered the hard, but necessary questions. How many value chains do you have? What drives value in each? What is the operating strategy? What are the over-arching goals to drive success? I am pleased to report that they are now off to a better start.
Rewarding Planning Efforts: The second barrier is making time to plan and rewarding planning efforts. Supply chain planning is nearing a 25th anniversary. However, organizations naturally reward the URGENT not the IMPORTANT. Culturally, companies reward REACTION. As a result, planning efforts often get short shrift. Many S&OP processes are hampered by a lack of resources to focus on the IMPORTANT. Ask yourself the question, does your organization reward planning?
A Clear Roadmap: Over the course of seven years, I have interviewed over 200 companies on S&OP processes. I can determine S&OP maturity based on the answers to the questions:
- What is the Goal?
- How do we Make Decisions?
- What does Good Look Like?
In the interviews, 90% of companies cannot answer these three questions. However, for the most mature, the answers look like this:
- What is the Goal? The goal of our S&OP process is to maximize opportunity and mitigate risk.
- How do we Make Decisions? The S&OP process reports to a profit center manager. We manage a monthly process to only bring critical decisions to the executive S&OP meeting where the profit center manager drives the answers to the the critical decisions to balance the opportunity for go-to-market strategies with the risk of the supply plan.
- What does Good Look Like? We have X number of supply chains. We use the same metrics with different targets for each. The critical metrics are forecast accuracy, inventory turns, margin, revenue, and customer service.
Change management matters. Start there first.
There is no substitute for networking with leaders and learning first-hand how they overcame these issues. But, where to start? To network with others that have crossed the great divide look for presentations from supply chain leaders. While there were 29 presentations at the S&OP IE conference, I found it woefully short on stories from REAL supply chain leaders. My favorite are Cisco, Dupont, Intel, and Samsung. In general, the industries that have been forced to focus on tight margins, short product lifecycles, and global coordination have reaped the greatest benefit from S&OP. To accelerate your learnings, network with companies from chemical and high tech industries first. The followers are in consumer products and the laggards are in healthcare and retail.
What do you think? Did I miss a critical change management issue? What is your perspective?
More reading on S&OP:
For more on S&OP processes, you may want to reference these articles on my website:
S&OP Letter Perfect. Practice Imperfect. http://www.supplychainshaman.com/supply-chain-excellence/sop-letter-perfect/
What if: Focus on the & with the End in Mind. http://www.supplychainshaman.com/supply-chain-economic-recovery/what-if-focus-on-with-the-end-in-mind/
Make Money turn your Supply Chain on its Ear. http://www.supplychainshaman.com/uncategorized/make-money-turn-your-supply-chain-on-its-ear-go-horizontal/
Mirror Mirror on the Wall, Who has the Best Supply Chain of All? http://www.supplychainshaman.com/uncategorized/mirror-mirror-on-the-wall/