I have been writing and talking about S&OP for the past 20 years, and one of they key reasons I have focused on it over other Supply Chain Management processes is that S&OP is the most prevalent cross-functional process that bridges a team of customer-facing managers from Sales, Marketing, and Customer Services with Finance and supply-facing managers from Manufacturing, Operations, Logistics, and Supply Chain.

My career experiences have been on both sides of this process bridge. While most know me as a supply-side professional, the reality is that the first part of my career was spent on the customer-facing side—as a manager and consultant in marketing and sales research, as well as in program marketing and demand forecasting. Throughout my experience, I have learned that it is very difficult to align the goals and views of demand and supply facing managers so they can agree when making joint decisions. This makes S&OP a “work-in-progress” since the personalities of the participants frequently get in the way of developing consensus-based plans, often resulting in a dysfunctional cross-functional team. At times, the so called “S&OP bridge” blows up.

Because I have been on both sides of the bridge, I believe that if a company can get its S&OP process to work well, there are substantial benefits to be obtained from jointly optimized decisions made by S&OP team members. The major roadblock to this seems to be team dynamics. A while back, I never had a formal way to think about how to leverage different personalities engaged in an S&OP team until I met Dr. Shalom Saada Saar, a senior fellow at Harvard University’s Center for Public Leadership. He had been teaching leadership to our graduate students in MIT’s Master’s of Engineering in Logistics program for some time.

Understanding Mindsets

I ran a Demand Management Symposium at MIT in September 2006 and invited Dr. Saar to lead a closing session entitled “Critical Success Factors for Bridge Building in Demand Management.” His session was well received by the participants who were largely supply chain managers. As I watched him run that session, I realized he had a structured approach to addressing the S&OP dilemma. He described corporate research from the 1970s that had identified 220 different mindsets among managers. He went on to describe how all these mindsets can be distilled into the following three color-coded types of people. (See Figure 1)

Blue Mindset: These people are very focused on “doing what is right.” They tend to be decisive because, based on their historical perspective, they inherently “know” what the right thing to do is. Of course, they also tend to be judgmental and have little patience for the people who don’t get it.

Red Mindset: People of a red mindset aim for “doing what is true.” They are the analytical types who rely only on numbers and facts to make decisions. Moreover, they do not want to make decisions until they can get the most recent data to support them.

Green Mindset: These people are into “doing what is new.” They are futuristic in their thinking and can imagine all the possibilities and opportunities of the future. They tend to be the dreamers and creative types who don’t let the facts get in the way of a good story. They also tend to consider the other mindsets to be too rigid in their thinking. People of a green mindset like to think and stay outside the box.

While most managers have mindsets that are multi-colored, they usually have a dominant color that draws them to a specific functional discipline. It is what makes them good at what they do. However, when you have a cross-functional process, such as S&OP, which requires a team of Sales, Marketing, Supply Chain, Operations, Logistics, and Finance managers to engage in joint planning, the process can get out of hand when the views diverge.

Varied thinking and perceptions can quickly make the team dysfunctional if the team members don’t understand, value and leverage the strengths that each teammate brings to the table. Leveraging these strengths involves recognizing that there are natural roles each functional area can play during the S&OP process.

Natural Roles In S&OP

In order for an S&OP process to be successful, the strengths of all three mindsets must be leveraged. If just “blue” managers drive the process, it will lead to plans totally rooted in the past because, to them, that is “what is right.” It could also lead to chaos if team members have divergent views of what right is. Similarly, if all members of the team are “red” managers, it will lead to plans that must be based only on today’s reality, which can lead to analysis paralysis and indecisiveness, particularly if all the so-called necessary facts are not available or if “the facts are too old.”

Lastly, if all the team members are “green” managers, it can lead to plans rooted only in possibilities and dreams, with little relation to reality. Recognizing that all types of mind-set managers need to play a role in the S&OP process, a key question arises, “What are those roles?” I offer the following recommended roles that I believe to be natural and logical, based on the color-coded mindset structure shown in Figure 2.

Operations and Logistics: Managers in these areas tend to have red mindsets because they are largely analytical and focused on getting facts to make decisions. Their responsibility and natural role is to develop supply plans that are predicated on demand plans and forecasts provided to them. These managers are very comfortable when they are systematically developing manufacturing, inventory, logistics, and procurement plans based on what is provided to them.

Supply Chain: Managers in this area tend to be a combination of red and blue mindsets. They are analytical, yet they also recognize that their job is to coordinate and harmonize all the plans on behalf of the whole company. They need to ensure that demand and supply chain activities are synchronized. While this is difficult to do, they know it is the right thing to do. These managers are naturals for moderating a disciplined and collaborative S&OP process.

Marketing: These managers tend to be a combination of red and green mindsets. They are analytical in that they rely on facts and figures, gleaned from market research, sales, and competitive analyses, to develop demand plans— including future pricing, promotional, and new product launch activities designed to shape and create demand. The green in them allows them to create new types of demand plans needed to stay competitive.

Sales: Managers in this area tend to be pure green. They are steeped in optimistic thoughts about opportunities and the possibility of windfall sales in the future. They are the best at developing sales plans that identify the sales possibilities and future market conditions. One mistake others on the S&OP team can make when dealing with their green teammates is to try to get these green people to be analytical and quantify the possibilities. In doing so, other S&OP team members usually wind up being frustrated by them.

Finance: These managers are pure red. For them, it is all about what is true— “just the numbers, please.” Their natural role in the S&OP process is to monetize the demand and supply plans developed by others, so that everyone can see the future financial picture vis-à-vis the financial plans and budgets in place. If S&OP team members are given the roles that I’ve recommended above, the process stands a good chance of working well. (By its nature, a functioning S&OP process must be contentious, to an extent!). It is important to have each S&OP team member recognize the roles played by others, as well as their own, to avoid infringing on each other’s. This approach can avoid a dysfunctional S&OP team with a great deal of discord. Moreover, in the final analysis, it can lead to consensus-based demand and supply plans that are accurate and attainable.

The Forecasting Role

Demand forecasters will note that I left out the important role they play in the S&OP process. Simply put, this role is to quantify the unconstrained demand that would be generated by the demand plans put in place. Doing this requires a red mindset that can produce an information-based forecast predicated on historical demand, the demand plans, and the assumptions about future market conditions and sales possibilities. Thus, the role of forecasting can be taken on by any of the disciplines that have significantly red mindsets—even by those members of Sales who might be somewhat red-minded.

However, the managers who take on the forecasting responsibilities should be aware that incorporating all the information into the forecast is easy once there is a consensus on the demand plans and assumptions. Heated discussion, however, is likely to occur once other S&OP team members see the demand implications in hard numbers. Because some will disagree with the numbers, a forecaster’s only recourse is to stay red-minded and get them focused on the facts, figures and assumptions that were incorporated in the forecast, rather than on the numbers themselves. After all, you are the expert at quantification and forecasting; and your forecasts are only as good as the information used to develop them.

This article was originally published in the Journal of Business Forecasting, Summer 2019. Become an IBF member and get full access to the Journal, and have it delivered to your door quarterly.

Some time ago I was on a call with IBF board members discussing situations where social media data signals rapid changes in demand for a product. These data might include some favorable online reviews of products or a celebrity mentioning a certain product, leading to a rise in demand. These are great “predictive” downstream demand signals, but since they cause very rapid spikes in demand, current forecasting processes could not incorporate the information quickly enough to act upon it. I blurted out “We need to start thinking about Quick Response Forecasting techniques”, making up the term on the spot.

Since then, Quick Response Forecasting (QRF) has gained a lot of traction among forward-thinking Demand Planners and Forecasters, and I recently wrote a detailed piece on it in the Journal Of Business Forecasting. Now we are at the point where demand planning organziations can identify very real applications for QRF in their own companies, and develop a framework to turn advance knowledge of changes into meeting spikes in demand with sufficient supply.

QRF leverages predictive analytics, social media information, and other Big Data.

What Is Quick Response Forecasting?

Quick Response Forecasting is updating forecasts in line with ‘real’ and rapid changes in demand, both during and between planning cycles. Data sources can be POS data or unstructured data like social media comments.

Quick Response Forecasting Solves The Availability Issue In Case of Spikes In Demand

A contact of mine works for a company that sells nail polish. Lady Gaga, at one of her concerts, wore a unique color of nail polish that his company sells. Shortly thereafter, social media lit up and sales of this item went through the roof. The company and its supply chain partners ran out of the product, as well as a key ingredient that went into making it. The company was not prepared to take full advantage of the rapid change of demand for this nail polish and missed out on a significant revenue opportunity. Had QRF been employed by the company, they would have been able to react quickly enough to ensure enough inventory was available.

Quick Response Forecasting Makes Sense Of Big Data

QRF leverages predictive analytics, social media information, and other Big Data. This relates to the explosion in digital data and the enormous amount of information available about customers and product users on the World Wide Web. As data get bigger, companies are looking for techniques and methods to both find and incorporate a few key demand signals among Big Data’s noisy information deluge.

QRF is a way to maximize revenue from rapidly emerging opportunities that are happening right now, and opportunities that are likely to develop in the very near future.

Quick Response Forecasting Supports Short-Cycle Planning

Like the nail-polish demand spike mentioned above, supply chains often cannot act quickly enough to take full advantage of the opportunity that the demand signal offers. More frequent forecasting has the potential to increase forecast accuracy in terms of identifying rapid changes in demand but supply chain responsiveness may be too sluggish to take full advantage of it. For example, manufacturing managers might complain about getting whipsawed by demand forecasts that change rapidly, despite their increased accuracy.

One quote I often use with regard to planning responsiveness came from a manager who ran the S&OP process at a high-tech company. Generally, these types of companies operate ‘responsive’ rather than “efficient” supply chains. Responsive supply chains handle high-margin, high-value products.

Their major goals are less about minimizing operating costs and inventories, and more about maximizing inventory availability at the point-of sale/consumption in order to capture potential upside revenue. One thing QFR is not, is supply chain optimization.

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How QFR Can Work In Practice

A typical S&OP process is a routine planning process that would be too disrupted by having to incorporate QRF, so it is not a good candidate process. QRF is needed to support teams that are specially put in place, on an ad hoc basis, to manage significant event-based and substantial demand changes like natural disasters, celebrity endorsements etc. These teams should be cross-functional and be supplemental to the S&OP process. The teams need to be quickly assembled once an on-going QRF forecasting organization detects that a demand spike or significant demand change has occurred, or is likely to occur.

Once the team is put in place, QRF forecasts for the event need to be continually provided to the quick response supply team. If forecasters ask managers whether they need QRF today, they will likely say no. They don’t want their operations to be whipsawed by frequently changing forecasts. This is why a separate and special quick-response supply process will be needed to handle each event.

If you are on the lookout for an organization to partner with to develop QRF and supply response teams, your sales organization is the best bet. The teams are focused on going after significant revenue opportunities, for which current processes are too slow to take advantage of. If you can identify highly lucrative revenue opportunities, Sales will jump at the chance to exploit it. A supply response team will be tasked with taking full advantage of an opportunity, in terms of squeezing as much revenue from it as possible.

Bottom Line: We All Need QRF To Maximize Big Data Opportunities

In short, QRF is a way to maximize revenue from rapidly emerging opportunities that are happening right now, and opportunities that are likely to develop in the very near future. It incorporates the ability to forecast unstructured data like Facebook comments or online reviews, and requires ta specialist supply team that sites apart from the standard S&OP process to respond quickly, switching supply up or down as required. In the age of Big Data where technology promises to deliver greater insight and greater revenue opportunities, QRF is exactly what we need to make it a practical reality.

Larry first discussed QRF in the Spring 2018 issue of the Journal Of Business Forecasting. Become an IBF member and gain access to the journal, as well as a host of other benefits.