S&OP: Closing the Gap between People and Processes - Part 1

On September 14, 2011 we presented a webinar, Sales and Operations Planning: Closing the Gap between People and Processes. The webinar can be viewed on our On Demand Webinar Videos collection. As a follow-up to the well received webinar, we are going to blog about many of the items we covered in the webinar. This is the first in that series.

Sales and Operations Planning is, of course, a business process and methodology. But, even more so it is a journey of continuous improvement. What is the objective of S&OP? The objectives are to impact and improve the large core of the day to day operation of the business. Through better planning and collaboration between the functions of the business, the goals of S&OP can be summarized as follows:

• To proactively balance Supply and Demand to get everyone to agree on:    
  
  
  
  • One Demand Plan
  
  
  • One Supply Plan
  
  
  • Fulfilling the Plan 
  
  
  
  


• Having the right products:
  
  
  
  • In the right places
  
  
  • In the right quantities 
  
  
  • At the right time 
  
  
  
  


• This is done in order to optimize these fundamental business measures:    
  
  
  
  • Maximize revenues 
  
  
  • Maximize service 
  
  
  • Minimize inventories 
  
  
  • Efficient and effective management of capacity  
  
  
  
  

This is not much to ask for. These are the primary goals of any business. It is what we all do. It is what we all strive for. People have been trying to do this in some form since the earliest days of commerce and trade. In today’s fast paced, complex, and global environment, the need is greater than ever. Markets and economic drivers change at the speed of information. Businesses must be agile and skilled in their planning and execution. Those who are not do not perform well and risk going out of business.

Why then do we struggle with something so fundamental and critical to business?

Engineering and operations management curricula have been teaching Inventory and Production Planning or Management at the undergraduate and graduate levels for years. People have spent their entire careers working in and then leading operations. We struggle with the same problems all the time: basically the same objective that underlie most S&OP implementations. 

• Maximize revenues 


• Maximize service 


• Minimize inventories 


• Efficient and effective management of capacity 

We should add that we endeavor to do all of the above at or below budget.

Managing operations pre-computers was the balancing flow of information and the flow of goods. The movement of information was excruciatingly slow and inefficient. This mismatch was best exemplified by “The Beer Game” which was a manufacturing and distribution simulation developed at MIT in the 1960s. Since then, there has been a steady improvement in the flow of information.

That flow of information improved with the capability of specialty systems and eventually in the fully integrated Enterprise Resource Planning systems such as SAP and Oracle that we use for end to end business management. ERP systems essentially flip-flops The Beer Game scenario. The information flow used to be the limiting factor for sound Supply Chain Management. That is no longer the case. it is possible to have any and all information available to anyone in the supply chain who wants or needs it.

If the goal is to have the right products in the right places at the right time in the right quantities, it is essential to have the right information in the right places at the right time. This is now possible. This instantaneous access to information is the engine that makes an integrated planning process like S&OP possible. Possible becoming probable with a lot of hard work and continuous improvement. This is, essentially, the focus of this series of blogs.

S&OP: Closing the Gap Between People and Process

With the proliferation of items or SKUs and the global nature of many of our supply chains, it is imperative to have the best and most accurate Sales Plan we can have. It is equally important to have an Operations or Supply Plan to ensure that the Sales Plan can be supported. As a result, we have seen Sales and Operations Planning (S&OP) become a very popular tool in today’s fast paced business environment.  

There are countless books that outline the S&OP process. There are numerous software packages that will assist in the data management, forecasting, and rough cut capacity plan development to facilitate the S&OP process.  The software offerings range  from very low cost spreadsheet macros to modules of the best known ERP systems on the market today.  

The S&OP process is well known and available to everyone. Software to support the process and manage the large amounts of data are also available to suit almost any size business and budget. Yet, S&OP is not universally successful even though the process is sound from a Technical standpoint.

Why is this?

If it were as easy as just “putting in” the process and getting a software package to help, why are there entire conferences and seminars dedicated to S&OP?

We have found in our practice, that simply getting the process steps and appropriate software is not enough. We are firm believers that when S&OP fails it is because the people part of the process is too often ignored. We call this the Socio part of the process.  

S&OP requires a consensus Demand Plan. This is the cornerstone of a good S&OP process. A consensus Demand Plan is contingent on all functions in the business to agree. This means that Marketing, Sales, Finance, Supply Chain, and General Management all must agree on the Demand Plan.

It is not easy to get all these functions to agree and cooperate. Yet, to make S&OP deliver on its promise, the level of cooperation and agreement has to be quite high. 

All complicated business processes have both a Socio and Technical piece. For the process to operate effectively and efficiently, both parts of the process need to be well designed and managed.

We at Cadent Resources, Inc. are introducing a webinar that will introduce the concept of Socio-Tech systems and how it applies to the S&OP business process.

We would love to have you join us and share your experiences. Click here for more information. If you feel there is anything you would like to see added to this webinar, please let us know. 

Best of the Best!

Last week we attended the APICS & IBF Best of the Best Sales & Operations Planning (S&OP) Conference in Chicago Illinois. This was a 2-day event of educational sessions filled with practical lessons from the supply and demand sides of sales and operations planning (S&OP). 

We attended this event as an exhibitor introducing DemandCaster® our comprehensive demand and supply planning software as a service. This was our first such event. Prior to this our sales and marketing activities were largely limited to word of mouth. Additionally, we thought that events such as these did not attract our target market of smaller manufacturers and distributors. We decided to give it a try because our offering is so different that we hoped to introduce DemandCaster® to a wider audience.

We were quite pleased with the response and noticed that though we were in the company of some very sophisticated and excellent offerings, our combination of price, capability, and expertise really stood out from the rest. Additionally, we met a number people from some great companies that fit our niche. Because they were attending the conference to learn how to implement S&OP within their organization, it was a pleasure having the opportunity to learn more about their business and explain how DemandCaster® can translate their business data into optimal demand and supply plans that drive smarter, more effective sales and operations planning (S&OP) processes.

This event was a great experience and we are already planning for the next one!

Mark Gavoor, VP of Consulting, Ara Surenian, President and Developer of DemandCaster, and Jolene Pratt, Marketing Director

Operational Definitions Part II

In part I of this two part blog we discussed Operational Definitions and how specific words, terms or concepts can have a distinct meaning in a specific organization or business and how people must be aware of this when communicating in effort to solve problems and improve operations.  Now, let’s discuss how Operational Definitions plays an important role in Operational Measure and Inventory.
A recurring theme advocated, or mantra chanted, by process improvement experts is that:

• If you do not measure it, you cannot improve it.  


• If you do not measure it, you will never know if your efforts and actions have had any impact, positive or negative, on the process.

Operational Definitions are even more basic.  Without the right Operational Definitions, there can really be no Operational Measures.
In any particular situation, everyone has to know and agree on:

• What is the attribute that is to be measured and monitored?  


• What is considered good quality as well as bad quality?  

While Deming provides plenty of examples in his book, the problem is even more complicated in our modern world of ERP.  We are awash in a sea of data.  We need operational definitions more than ever to turn that data into information that we can then monitor and act upon.
Let us consider something as obvious as inventory.   We all know what we mean by inventory… don’t we?   Let’s start with a formal definition from dictionary.com:

Inventory: A complete listing of merchandise or stock on hand, work in progress, raw materials, finished goods on hand, etc., made each year by a business concern.

There we have it.  What could be easier?  Now that we all have the same understanding, we can easily measure it.  It is just Inventory.  Our experience at Cadent Resources while working with our clients is that we can break it down, per the above definition, in terms of stock on hand, work in progress (WIP), raw materials, finished goods on hand, etc. Etcetera?  What is included in etcetera?  What exactly does on hand mean?  Here are some questions we make sure we review with our clients and feel everyone in a company interested in inventory needs to have good definitions for including general management, finance, supply chain (planning, inventory management, purchasing, and more), and IT.

• What does “on hand” mean?  When is ownership taken of merchandise?  When does this include in-bound in-transits and under which criteria are out-bound in-transits considered as on-hand?


• WIP might be understood, but what is Construction in Progress (CIP)?  Do you use it?  Should you be using it?


• What exactly are raw materials?  Should packaging materials be counted separately from raw?  Are components, sub-assemblies different than raw?  How are they defined?


• Are returned goods counted as part of inventory?  Under what conditions and exceptions?


• What about inventory of every category on Quality Hold status?  


• What other exceptions, special rules, and “off the book” status categories are used?

This simple, or seemingly simple, area of inventory can be very complicated.  When working with an ERP such as SAP or Oracle, the complexities can be daunting.  There are so many levels and layers of transactions that must be considered.  The system may have a definition different from the common lore held to be true inside the company.

Operational Definitions

Operational Definitions were a large part of what W. Edwards Deming used to advocate in his teachings. Chapter 9 of his book, Out of the Crisis is dedicated to this concept. “Operational Definitions, Conformance, Performance.”

In the opinion of many people in the industry, there is nothing more important for a transaction of business than the use of operational definitions.  P. 276.

The concept, while being critical, is nothing complicated.  Basically an Operational Definition defines a word, term, or concept that has a distinct meaning in a specific organization or business.  People cannot communicate effectively or hope to solve problems and improve operations if they do not all have the same understanding of the various terms being bandied about in the workplace. 

One of the first things to be done is to define terms as precisely as possible.  In our business, we run across this every day while working with prospects, clients, etc. In fact, just recently while presenting at a conference on S&OP. The attendees in our session were all seasoned Supply Chain professionals from well known companies. During the Q&A at the end of our talk we experienced a basic Operational Definition difference.  In response to a question, we talked about the risks of making changes in orders within lead times.  An attendee raised his hand and said “Don’t you mean outside of lead time?”  It was immediately clear to us that we were operating under different Operational Definitions.  His outside of lead time was our inside of lead time.   We all meant the same thing however:  If changes are made to an order when the promised delivery date of that order is less time than it will take to get the materials, schedule, and complete the production, then that order is at risk. 

So, who was right? While we believe our operating definition of within vs outside of lead times is more using it. We throw around terms like Forecasting Accuracy, Inventory Turns, Days Coverage, Cash Cycle, and many others all the time. We assume, whoever is speaking or writing an email assumes, his or her audience is using the terms in the same way we are using them.  This is not something we should ever assume.  Even when we are the audience, we cannot be sure the speaker or writer has a clear operational definition of the terms he or she is using. 

There is something that all teachers say.  There is no such thing as a stupid question. This is, in large measure, true.  The teacher, professor, or instructor always follows up the statement with the following explanation, If you are not fully understanding or grasping what is being discussed, there are probably others in your same shoes.  I believe the second statement may be truer than the first.universally used, there is no right answer to this question.  The term needs to be defined by the people.

The problem in both classrooms as well as in the workplace is that no one wants to look, well, for lack of a better term … stupid.  It is a fundamental human trait to avoid being embarrassed.   Also, if we are to question a term or concept, it needed to be done very early in the business relationship.  If we wait a few weeks which then turn into months we find that  asking a basic clarification or definition question is really embarrassing.  Everyone assumes that everyone else understands.

Although it is quite possible they do, the question still remains, do they understand it the same way you are relaying it. In many cases, the answer is “NO.”