Breakthrough S&OP means two things to us:
- Dramatic financial benefits in six months.
- Engage top management from the beginning through their leadership, by aligning the S&OP process with the business agenda and strategic direction.
Our implementation approach is Right-to-Left or Top Down and is in sharp contrast to the left-to-right or bottom up approach espoused by other groups. In figure 1, S&OP is the link between strategy and execution directed from the top right ellipse ‘strategic agenda and future portfolio’.
To insure greatest success, the proven sequence is to align, reconcile and integrate, unify towards an agreed latest view and then execute. S&OP becomes the vehicle with which the business executes strategy. We have found in twenty years experience that it is better to adopt a Right to Left approach. The widespread practice of moving from left to right follows a sequence of agreeing latest view (normally a single set of numbers), followed by reconciling and integrating, and then aligning to the strategic agenda. This is a ‘ready, fire, aim’ approach and the links to strategy are nebulous. People believe they are executing the S&OP plan, not the strategy (which of course is exactly what they are doing).
Figure 2 shows our five step S&OP model. Although the timing of all the activities within the month goes from left to right i.e. the sequence 3-5 shows New Activities, Managing Demand and Managing Supply. This is followed by 2-1 Integrated Reconciliation and Senior Business Management Review. Many have followed this sequence, which is based on designing the operational steps first and then developing the output into Integrated Reconciliation, and hope it connects with senior management. As a result, the IR team will predominantly consist of operational people because of the left-to-right direction.
Our Right-to-Left approach guarantees that Integrated Reconciliation is driven from strategic intent, and therefore is capable of resolving business issues within the context of strategy. The outputs from the operational steps, New Activities, Managing Demand and Managing Supply are considered and if necessary, modified by the Integrated Reconciliation. Under our approach the IR team will be made up of more senior management.
An integration plan showing the activities that should take place over a time frame of six months is shown in Figure 3. Phase one takes place in months 1 and 2, i.e. alignment with top management, and driving its agenda through the Integrated Reconciliation. Phase two takes place in months 3, 4 and 5 and is the driving force to insure that the S&OP agenda from the Senior Business Management Review, through Integrated Reconciliation determines what outputs are necessary from new activities, demand and supply. That in turn sets the scope for the New Activities, Demand and Supply Reviews. Phase three is the execution of strategy and consequent realization of benefits. The six month time scale is feasible when integrated data is available from existing systems.
Our approach sets out the need for strategic product groups to be the language in S&OP from the outset. The traditional approach often results in functional product families being the language, e.g. manufacturing families to suit supply or capacity needs, or some tactical marketing groups to support local brands. Examples of these latter two will encourage local S&OP participation but may mean little insight for regional or global management. Our experience with companies operating global S&OP is that a Right-to-Left or Top Down is mandatory. Although the use of strategic language is important, another principal driver is behavior change led from the global executive. It is quite simple- the global executives want transparency, honesty, integrity, aspiration, success and long term sustainability. They expect, quite rightly, that success or otherwise will be measured in their language. Product group language is communicated from the global Integrated Reconciliation process very early, but behavior change expectations must also be communicated with clarity Top Down. When this is done, regions can contribute to a global process within six months, and the benefits follow quickly.
Without the Right-to-Left or Top Down approach, countries and regions will elevate their own aggregate interpretation of the business, resulting in a global S&OP process which requires so much time translating product group language, data, and units of measure, that no time is left to make meaningful decisions. In fact, in many cases the conversation at a global Executive S&OP meeting is “Can we believe these numbers? Aren’t computers supposed to aggregate data? What do these numbers mean? Didn’t Europe say that they would recover and be 5% below forecast instead of 20%? Didn’t Australia suggest that the drought had ended?” Because this left-to-right approach leaves more questions than answers in these scenarios, no benefits are achieved within six months. The time for success can be years in some cases, and in others global S&OP is seen as a demand/supply balancing activity performed by middle management.
The foundation of S&OP, which is “demand evaluation with balancing supply/resources”, is defined in month three in the agendas for new activities, demand and supply. The scope of this vital foundation is determined by the short term business and strategic agendas and is mandatory in successful S&OP.
Some S&OP practitioners regard Ling-Coldrick as departing from ‘normal S&OP practice’, because we have espoused the business and strategic benefits of S&OP. They suggest that we have forgotten the fundamentals of S&OP, which are demand evaluation, and supply and resource balancing. We do not forget demand/supply balancing; it is the foundation of successful S&OP. Our mission is to use this foundation to maximize the potential of S&OP in generating increased profits and more cash and long term sustainability. In other words, we want to help you build a business house on a good operational foundation using S&OP.
The traditional approach suggests implementation of the demand/supply foundation first, followed by reconciling and integrating new activities and financial links. Later, alignment to strategy is suggested. This is like laying a foundation and then deciding what type of building should be erected. You will be lucky if the two match. If they do not match some people may try and justify that the foundation is a complete house!
Our Right-to-Left approach is common sense. We believe that you decide on the design of a building for your business before you install the foundation. If you don’t, demand and supply planners will suggest an S&OP foundation, and buy a software package to implement a foundation for a building that you as management don’t need.
Our experience is that businesses following strategies such as ‘Customer Relationships’ or ‘Product/Service Differentiation’ need a different emphasis in the demand supply foundation than those following ‘Cost Leadership’.
“The power of the S&OP process is that it can tailor all operational activities in pursuit of the chosen strategy.” This statement is the mission that the Ling-Coldrick partnership pursues.