Executive Sales & Operations Planning – Leave It ’Til Later – Part 2 The IOM and MLG Management Consultants ran a series of breakfast briefings in March in London, Bristol, Huddersfield and Bathgate, Scotland. The theme of the sessions arose out of our noticing too many companies suggesting that S&OP is not needed now, but can be left ‘til later. One company’s ERP implementation plan excluded S&OP from phase 1 of the implementation. Another company had S&OP very low on its list of priorities. Robin Goodfellow spoke about what Executive S&OP is, and Ian Henderson went on to discuss why companies leave it ’til later, with the objective of suggesting that this conclusion is clearly erroneous. DO IT NOW. DO IT FIRST. USE IT TO DRIVE THE ERP IMPLEMENTATION. The last issue of Operations featured a summary of Robin’s presentation. This is a summary of where Ian picked up the theme. Few Successful Implementations Robin had explained that S&OP has been around for about 30 years and was central to the evolution of Material Requirements Planning (MRP) into Manufacturing Resource Planning (MRPII). He had explained the benefits and hopefully established the general principle that this is not a high-cost approach to achieving these benefits. However, we have to recognise one indisputable fact. Relatively few businesses have successfully adopted Sales & Operations Planning. Many businesses still suffer from planning systems driven by plans to which Sales Management have had too little input (and certainly no ownership) and which may not have been tested against resource availability. It may be an associated fact that few Enterprise Resource Planning (ERP) systems have delivered clear and measurable business benefits – though in fact we could explore other possible reasons for this.

Another key requirement of all businesses is that planning is a team game. We need shared ownership of decisions – such as the level of resources required to meet potential market demand. This shared ownership can be difficult to establish; we have probably all at some time seen examples of Sales not wanting to know about problems in Operations and Operations promising to do their best to meet Sales’ requirements “but we haven’t got a magic wand, you know”. Breaking down the wall between Sales and Operations can be difficult, but has to be done. Managing Demand and Supply needs the two brought together into one plan which can be presented to and managed at a senior level. Why Leave It ’Til Later? Ian suggested 4 reasons that he and his colleagues have been given for Executive S&OP not being in use – sometimes with the qualifying statement that the people in question were planning to implement the approach later. These were: 1. It’s very complicated with lots of jargon. 2. It’s demanding on resources with people being needed to develop and bring together the demand plans, assess capacity and material requirements and prepare operations plans. 3. If we’re implementing a sophisticated package like SAP or Oracle we should get the basics in place first and come back to this later. 4. The senior management team is too busy to get involved in planning or in business systems (they have a business to run). These were then explored. Jargon

Fundamental Needs of All Businesses All businesses, not just manufacturers, need senior management taking responsibility for the most important decisions. As planned supply to the market is the driver for everything else, this surely has to be important – what can be more worthy of senior management time? However, as senior managers can’t allow themselves to be © MLG Management Consultants

dragged into the detail, all businesses need a process by which the detail can be translated for the decisions needed at the senior level.

The approach of S&OP and its role in the bigger picture of planning using the MRPII approach – now central to ERP systems, was best explained in Oliver Wight’s introduction to the topic from 1985 – MRPII: Unlocking America’s Productivity Potential.

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Executive Sales & Operations Planning – Leave It ’Til Later – Part 2 that people then struggle to keep up to date with management thinking based around the standard terms. “Pay your money and make your choice,” as the saying goes, but remember one thing. The goal is to implement a tool to provide business benefit. Don’t allow jargon and textbook complexity to cloud matters. Demanding On Resources Robin’s description of S&OP included this diagram: There are a lot of names in here – in fact in the original version S&OP was termed ‘Production Planning’ so S&OP is a clear improvement; the device by which the Sales and Operations teams get together and create a shared plan is surely SALES and OPERATIONS planning. The fact that the Sales and Operations plan is assessed for feasibility by something called Resource Planning and is followed by a step called Master Production Scheduling (MPS) looks a little process-heavy. That the MPS is then assessed by something called Rough Cut Capacity Planning in the same way that the higher-level plan was reviewed by Resource Planning may add to this concern. Given the concern that people may already have when implementing a multifaceted business system like SAP – or even one of the less sophisticated packages – it might be tempting to avoid another batch of complexity. This may lead to a decision to leave S&OP until the new system is up and running. But a planning system running without a plan set and approved at senior management level must represent a significant risk. So – strip out the jargon. If the output from the S&OP process can be defined at a level which can drive production plans and for whatever technique you use to plan material supply (maybe MRP, maybe something else) then you don’t need two steps. If you need two steps but can use the same tool to assess the MPS as you used for S&OP, use this tool. Mr Wight used separate names to identify where in the process one is being used but if this causes problems – simplify matters! All businesses face a decision when implementing any methodology – be it ERP, Business Process Management, Lean or any other flavour of the month. We can react to concern about the apparent complexity of standard terminology by creating our own – perhaps retaining phrases already in use. This may provide comfort, but there is a risk in © MLG Management Consultants

Typically, a 5 Step Process Decisions, agreed plans, authorise execution

Step 5 Executive S&OP meeting

lan One p

Step 1 Data gathering

Vali d

dat a

Communicate Communicate Communicate

Recommendations, agenda for SMT S&OP meeting

Step 4 Integration Reconciliation Finance Pre-S&OP

Supply plan

Step 3 Supply & Resource Planning phase

New product update New forecast Field sales & other stakeholder input

Step 2 Demand Planning phase

n s pla Sale

Sales plan 1st pass spreadsheets Unconstrained

Operations plan Resource plan 2nd pass spreadsheets

People have been known to say “we don’t have enough people to do all that”. In some (generally large) organisations these steps are actually carried out by people for whom this is the key element of their role, but of course in a monthly cycle many elements represent tasks carried out over a couple of days at most. A key point that devotees of S&OP make is that all the steps from sales forecast to procurement of raw material are being carried out now. Formalised S&OP simply ensures achieving the benefits that Robin talked about earlier – shared ownership between Sales and Operations and senior management steering the boat. Of course, another point that most of us recognise is that if we fail to plan properly we end up fire-fighting. The disciples of S&OP would promote the idea that the time spent fire-fighting would be better spent planning and nobody could argue. However, let’s not be too idealistic about things: • We can’t stop fire-fighting to start planning; fire-fighting can only stop when planning has removed the need for it. • Maybe the people doing the fire-fighting won’t be suited to planning.

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Executive Sales & Operations Planning – Leave It ’Til Later – Part 2 So is there an argument that the effort required to get SALES and OPERATIONS to work together on a plan is greater than the value?

What can be a better use of senior management time??

No, there is not. If the S&OP process is so demanding on resources that this is a reason for not doing it then we have defined the process badly. We should think about what we really need and introduce a simpler version of the process.

Ian then gave a couple of examples of the benefits of S&OP. The key phrase in the examples was ‘team game’

Basics First – Come Back Later

The Benefits

The first related to a company making to order where the January S&OP meeting might be faced with a potential spike in demand in July arising from a large order enquiry.

We’ve already discussed how planned supply to the market is the driver for everything else. Planning systems of the ERP variety are probably the best example of the ‘rubbish in, rubbish out’ law. Any system based around MRP needs a Master Production Schedule. This plan will commit the business to spend with external vendors but if we buy materials in excess of genuine requirements or in excess of our capacity to convert them to finished product, we are throwing money away. Internal management make resources available to meet the plan and if the Operations plan does not meet the Sales view of market potential then this too represents waste. Of course, Operations Management may recognise the plan as unachievable or out of step with market demand and fail to take steps to meet this plan. In doing so they will commit perhaps the greatest sin of all; leaving the business in danger of the Sales team making promises to customers based on what the plan says we can meet. In reality these promises will be unachievable. As we all keep saying, the customer is king and everything we do should be aimed at customer service. So we need a plan and we need to make it the best we can. How can this plan be the best if we don’t have Sales and Operations working in harmony? What can be more basic? Senior Management Too Busy? Robin had earlier explained that at most the senior management input to the S&OP process would require perhaps 2-3 hours in their individual team meeting, followed by 2-3 hours for the Executive meeting. As ever – manage the investment of time. Sales & Operations Planning is about real benefits to the business; do as much as is needed to gain these benefits.

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Committing to fulfil this order would mean the plant being at full capacity for three months beginning in May. This would mean that any new orders taken in April would be available on a minimum of a 13-week lead time, which would not be attractive to the sales force. The S&OP meeting would evaluate this potential order and reach possible alternative conclusions: • The Head of Operations agrees – and is authorised – to arrange additional labour and perhaps install new plant. • Certain products or services are identified as suitable for outsourcing and this is approved. • The Head of Sales tries to take the order on a different delivery – perhaps phased over a number of weeks. • If no alternatives can be established a decision is taken with regard to this order: ♦ If a 13-week lead time is acceptable, the Head of Sales communicates this to field sales personnel. ♦ If the 13-week lead time is not acceptable and this order cannot be taken without such an impact, the order is declined.

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Executive Sales & Operations Planning – Leave It ’Til Later – Part 2 Decline business? Would anybody really do this? Well, the alternative might be for Sales to take the order and then moan like mad when it starts running late. Of course, this will be a high-profile order; it may be completed on-time while service on the rest of the order book falls apart. Clearly such situations need a team decision as opposed to two sides working independently with heads buried in the sand. This is precisely what S&OP is all about. New Product Development Ian’s second example explained the role of S&OP in the bringing New Product Development projects into the co-ordinated medium term plan as illustrated in Robin’s earlier definition of the inputs to S&OP.

•

design resources are identified and allocated to each project

•

decisions on procurement and plant based upon projected completion of the design

•

sales and marketing plans driven by projected product availability.

. . . they seldom consider the impact of all parallel individual New Product Development projects in the planning process. However, all the individual projects have a bearing on demand throughout the operation and therefore on overall output and efficiency. Companies who fail to recognise this cannot hope to succeed. Success can only accrue from all the key players working together and S&OP must be the forum for this. Starting Point? Having suggested that businesses need to consider their own requirements and develop processes that meet these needs, Ian suggested that the first question has to be: Do we start from scratch? Or •

Should we consider how the standard model can be applied in the organisation?

He explained that some people considering S&OP – and possibly some people in the audience of these events – may still have © MLG Management Consultants

Of course, the standard may well lend itself to simplification. After all, it was designed as a generic solution meeting all the needs of all businesses. Not all businesses have all these needs. The Laws of Planning

He explained that whilst most companies are good at managing individual new product introduction activities . . .

•

concerns about the jargon and apparent complexity of the approach. They may feel more comfortable implementing an approach based around the design of processes aimed at meeting the specific needs of their business. On the other hand, they may ask themselves whether they should start with the (proven) textbook standard and look to implement as simple a version of this standard as possible.

Ian went on to talk the audience through the first and second laws of planning. The first law, he said, is that management of the Sales and Operations Plan is essentially the Management of Change. After all, what might have changed between one month’s S&OP process and the next? So, should we analyse everything to death or work on the assumption that the previous meeting closed with valid plans; after which we can simply review progress against the actions agreed in that meeting and assess the impact of what has changed? The latter approach certainly has the attraction of simplicity! Another key element of this law is ensuring that the people on the Sales side developing the forecast and then demand plan recognise the importance of the same principle. Some companies can perhaps restrict forecasting to statistical techniques based on recentlyreceived orders but this is a very dangerous approach – as witness the current recession. Economic assessments of the economy were of far more relevance than last month’s order intake as companies made their plans. So territory and account managers have to think about what is happening in the market and what competitors are up to. They also have to understand that somewhere in the process their latest figures will be compared to the last batch; people will ask for the reasons for differences. The second law is that Sometimes the Answer Is “NO”. • Sales can’t accept an order on the proposed terms for the proposed date.

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Executive Sales & Operations Planning – Leave It ’Til Later – Part 2 • A new product can’t be launched as planned.

3 Words?

• Production can’t take a piece of plant out of commission on the planned date. • A cost saving, based on moving some tooling to Eastern Europe, will not be achieved as planned. • . . . and so on. We have to remember that Sales and Operations don’t always have the same requirements – isn’t that why companies end up in fights? Isn’t that why we need the S&OP process, so that potential conflicts can be brought out into the open and the way forward agreed before they cause major problems? This leads on to the final point about the S&OP meeting: S&OP Meeting = Decisions We’ve all had the experience of being in a meeting where issues are explored and debated at length even though this has not led to resolution of the issues.

Robin posed a question in the previous issue. He asked “what are the three words that best summarise S&OP?” He had closed his presentation by asking this question and leading delegates through the key points about S&OP, arriving at the answer of “Communication, Communication, Communication”. S&OP should enforce the top level horizontal communication between the executive team, followed by the vertical communication, down through the layers of the organisation, to work to, and execute one agreed, achievable set of plans. (Some delegates questioned whether one word could adequately sum up what Robin had described. Perhaps what we communicate is equally important? Perhaps the fact that the communication leads to decisions – shared decisions, no less – is equally important. All valid points but Robin pointed out that in businesses where Sales and Operations may not talk to each other on such matters at present, the first step may be the most important.)

Some such meetings may be of value. By providing the opportunity to establish a common vision of a situation, even without agreement on the steps to be taken, they may represent a useful investment of people’s time.

Leave It ’til Later? No!

S&OP meetings, however, are most definitely not in this category.

We have explored the resource requirements of this process and hopefully established that it doesn’t require excessive resources.

At the end of the process the business has an agreed Sales plan matched by an Operations plan. Steps to make these plans come to fruition have been debated and sanctioned. Sometimes an ‘action’ may not be of the nature of ‘recruit people’ or ‘go out and make sure we get that business’ but may relate to further investigation and discussions. In such cases actions are clearly defined, responsibilities allocated and timescales agreed. Follow-up meetings to reach final decisions are scheduled. In businesses starting their S&OP journey the process may require somebody appointed as policeman. This person sits by the door saying “nobody leaves until . . .”. Ian explained that he has enjoyed playing this role, innocently requesting that decisions are repeated by different delegates to confirm that a common view has been reached and fully understood.

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Establishing a common, medium-term plan is a fundamental requirement. Without a valid, medium-term plan the short term plans of the organisation are unlikely to be valid.

• Invalid plans require more resources than valid ones. • Running round like headless chickens is very demanding. Although some people may continue to hold fears that the approach is based upon complexity and jargon, the lesson provided in what Robin explained earlier is that the standard approach provides a simple template for a generic business. Most importantly, as Robin also explained, there can be no better use of senior management time.

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