I recently read Bob Stahl’s newest book, Sales and Operations Planning – An Executive Update, and I came away with a different perspective on a long-time problem; how to get consensus on a challenging forecast.  

Over the course of my long career, I have been part of, or facilitated, more than a thousand consensus meetings. And while most of these sessions generated little to no organizational tension, there have been times when it has been particularly difficult getting different parties (Sales, Marketing, Finance) to agree on a forecast. Under normal circumstances, early in the year and new product forecasts tend to cause the most tension because of the significant commercial ambitions loaded into these plans.

However, even these plans are often malleable with sufficient supporting data and conversation. The most difficult consensus challenges are always those forecasts that are most speculative, with little supporting data or with the greatest uncertainty.

Finding Consensus During Demand Chaos

COVID created forecasting chaos for many organizations. Tension increased during consensus meetings, especially during the early phases of the pandemic when, as an example, the fortunes of different product families were trending in opposite directions. Demand felt out of control.

“It was as if the pandemic froze us into inaction.”

The once-in-a-lifetime disruption confronting all of us made it hard to arrive at a forecast that everyone could agree on, despite having considerable supporting data. And for those product families for which orders and POS activity were down, arriving at consensus often seemed more difficult. No one wanted to “give-up” on the forecast so early in the year – especially given the unknown nature of consumer behavior in disruptive times. It was as if the pandemic froze us into inaction.

How I Handled Disagreements During COVID & What I’d Do Differently

When I was faced with the inability to arrive at consensus for many of the declining categories, I found myself proposing a simple approach that short-armed the forecast. I suggested looking at only at the next two to three months—acknowledging the reality of a short-term decline–while also holding the outermost forecast range to prior expectations.

We then provided a growth ramp back to the original forecast. It was a cheat of sorts. We did not “put the moose on the table” as Bob Stahl might have suggested but the short arming allowed us to move forward, effectively kicking the can down the road to the next month when better or more confirming information might be available.

While this tactic felt right in the moment, it also tossed out the window some time-honored S&OP concepts regarding managing the depth of horizon of a forecast. And while it is hard to call this approach a mistake, as we were in dark and unknown waters at the time, in hindsight it would have been better to press the issue more—to lean less on the crutch of uncertainty and rather push each member of the consensus group for their best (in this case, lowest) call.

“Start with a plan that everyone can roughly agree on, and then further challenge the assumptions.”

Instead, we did not so much collaborate on a plan; it was more like we ducked for cover. Which brings me to Bob’s book, in which he makes a pragmatic point that really resonated with me: Start with a plan that everyone can roughly agree on, and then further challenge the assumptions of that plan to get further clarity.

The ‘Greatest Common Denominator” Approach to Planning

Think of this as almost a “greatest common denominator” approach to planning. Effectively, the consensus facilitator starts by asking everyone their estimate and supporting data before trying to seek agreement. For example, in the face of double-digit declines ask, “Does everyone agree the forecast should come down for the year ?” Then follow that up by asking, “By how much, and how would you pace the decline?” By asking relatively open ended questions all voices and opinions are heard, and the range of perceived opportunities are dimensioned.

After reading Bob’s book, it became apparent to me that by putting in a short arm “device” we avoided much in the way of thoughtful conversation. We did not seek common ground. I know this because nearly everyone walked out of the consensus meeting thinking that the forecast should have been lower. We did not reach consensus – we only postponed the hard decision by four or five months when we finally made the hard calls needed to reset the forecast lower.

Some Conflict is Normal is S&OP – Embrace It

Most long-term S&OP practitioners know all too well that at least some level of tension, conflict, and disagreement are normal in consensus meetings. In fact, some disagreement within the S&OP process is to be expected and perhaps even encouraged. No one wants an S&OP plan put together via groupthink and without some rigor of organizational tension applied. Unfortunately, in the midst of COVID, we avoided this tension.

“No one wants an S&OP plan put together via groupthink.”

One of the most important lessons to come out of the COVID crisis (and Bob’s book) is to solicit more opinions and points of view as a way to put more voices into the forecasting process before trying to arrive at an agreed number. Let the opinions of the consensus team come out and bloom to see if there is a unifying or common perspective before trying to narrow the forecast. Disagreements over outcomes earlier in the pandemic would have helped avoid “chasing the forecast down” phenomena that ultimately occurred.

If history offers a lesson, avoiding tension is, well, wrong. If we believe disruption will become more common place, this is a lesson worth learning.

To get up to speed with the fundamentals of S&OP and IBP, join IBF for our 2- or 3-day Boot Camp in Miami, from Feb 6-8. You’ll receive training in best practices from leading experts, designed to make these processes a reality in your organization. Super Early Bird Pricing is open now. Details and registration.

Effective demand planning requires ongoing collaboration with many other teams. Sales, Finance, Supply and Operations — among others — depend on reliable demand planning data. Demand Planners frequently exchange data with members of these teams in order to improve forecast and sales performance.

And in many cases, members of these other teams will request specific data from the demand planning team. Salespeople want to review future forecasts; Finance wants to know about promotional plans; Supply may question a future number that seems unusually high. So, in many cases, this exchanging of information is key to the process of improving future forecasts. And since data from the demand planning team can impact many other teams’ performance, it’s important that Demand Planners collaborate effectively with these teams.

But it’s also important that the demand planning team manage the many requests they may receive in a way that doesn’t place excess strain team members. Pam in Finance hears how you created a custom report for Jan in Operations, and now Pam is asking for help with another report. Paul in Sales asked you for an updated forecast for one of his customers, and now his sales manager wants similar reports for all his salespeople. Over time Demand Planners can find themselves doing work for other departments, and in some cases these requests are valid and help to support the business. But it also easy for these requests to grow to the point where the Planners are not able to devote the time needed to provide timely and accurate forecast data.

How do we balance collaboration with other teams with preserving time for quality planning? Here are my five recommendations for keeping your planning team from being overwhelmed by outside requests — for defragging your planning process to maintain a proper balance.

1. Communicate in advance your team’s priorities so that the members of all other teams know in advance what requests are appropriate
2. Always ask if demand planning is the correct team to be handling the request
3. Always ask how a request will help improve forecast performance
4. Beware of sticky requests
5. Estimate the time required and whether the request needs to be handled immediately
6. Communicate in advance your team’s priorities so that all other teams know in advance what requests are appropriate.

In my work in demand planning, I have often found that the members of other teams are not fully aware of the purpose of my role. So when I explain to them what I do and how it impacts all the other teams involved in Supply, Finance, Operation and Sales, they may still ask for help. But in these cases, they now know that their requests need to be aligned with my central role in planning, and they are not offended when I refer them to another team for help. And I have appreciated the managers who regularly reminded all the teams that we worked with that our central role was not reporting but research and planning, and that good planning requires a clear focus and undisturbed time, and that requests that distract us from our central role hurt every one that depends on our work.

Ask if Demand Planning is the Correct Team for the Request 

People from other departments who ask a demand planner for help with information are often looking for help with issues within their own department, and may not be aware that their request is unrelated to planning. So, for example, asking a Demand Planner to research issues with past purchase order data might seem like a legitimate request to someone in Finance or Operations. However, in most cases, Demand Planners are not concerned with past orders. In addition, asking a Demand Planner to take time to do this will not help with planning future forecasts. In this case, it makes sense for the Planner to gently recommend that the requester contact a department such as Customer Service for assistance.

Ask how a Request Will Help Improve Forecast Performance

Since demand planning’s role is to provide the best possible forecasts of future performance, it makes sense for members of this team to question how requests for help from outside teams will help Planners improve forecast accuracy. A salesperson who calls for help reviewing a customer forecast can provide insights that can help the Planner with future forecasts, and collaborating here is part of the Demand Planner’s role. However, requests for help with managing purchase orders, pricing or late shipments is mostly outside the Demand Planner’s realm, and such requests need to be referred to the appropriate team.

Beware Sticky Requests

Some requests may not be directly related to demand planning, but since they are easy for Planners to handle, they help without questioning if they should do so. Where this gets them into trouble is when a single request turns into an ongoing request to provide information or reporting. I call these sticky requests. While collaboration is important, taking up a Planner’s time with ongoing requests that distracts them from their key role — providing the best possible view of future requirements — is harmful to everyone who depends on reliable forecasts. I have personally fallen into this trap, and in some cases I have had to ask my manager to inform the requester that I am no longer able to provide the requested information. A willingness to be helpful must always be balanced against managing the core demand planning responsibilities for all the teams that depend on our work.

Ask if the Request Needs to be Handled Immediately & Estimate the Time Required

When people ask for help with appropriate issues, it’s easy to assume that they need help immediately. I have learned to ask requesters when they actually need the information. Sometimes they need it immediately, but very often their need is not urgent. So, knowing when they need the information helps me manage my workload while also helping them. For my own planning purposes, I also estimate how much time and what resources I would need to allocate to each request, so I can give the requester an honest answer as to when I might have what they need. And when a request truly is urgent, take the time up front to get as much detail as possible about what the requester really wants. There’s nothing worse than dropping everything to help someone only to hear afterward that it was not what they truly needed.

The Balancing Act 

In my experience, most Demand Planners are highly skilled, they know their business, and they want to do their best to improve their forecasting skills. They know that other teams are depending on them for reliable forecasts. And it’s natural for people on these other teams to look to these talented individuals for help. The challenge is to balance collaboration and helpfulness with tactfully defending your time and focus required for truly effective planning. Defragging your demand planning processes and keeping them free of distractions is key to maintaining this balance, and allowing the demand planning talent to drive ongoing improvement.

This article first appeared in the fall 2023 issue of the Journal of Business Forecasting. To access the Journal, become an IBF member and get it delivered to your door every quarter, along with a host of memberships benefits including discounted conferences and training, exclusive workshops, and access to the entire IBF knowledge library. 

Research carried out by EY in 2019 suggested that more than 90% of senior executives were making or planning to make risk management and Business Continuity Planning key pillars of their businesses, and that 70% already had begun to. Following COVID, which struck in early 2020, these findings have not aged particularly well. 

COVID or not, we know that a majority of companies lack an effective planning process. It raises the question, why do we so frequently invest substantial time and effort into implementing corporate planning without seeing it through to completion?

Applied behavioral economics can help answer his question. This discipline examines the social, psychological, and emotional factors in organizational behavior and decision-making, and an understanding of its core concepts can shed some insight on what we can do to maximize the chances of success when implementing a planning initiative. 

Concept 1: The Isolation Effect

In simple terms, the Isolation Effect describes how people are not good at making complex judgements, and therefore prefer to break down integrative processes into isolated components. In a strategic context, the people responsible for implementing strategy usually aren’t thinking about the overall organizational picture; they’re concerned with their own part in it, because that is a level of complexity that people can readily understand and act upon. 

The result, as we have all seen, is that departments devolve into siloed thinking, focusing only on how a strategy or initiative impacts them, and not the business as a whole. 

When teams consider only their own tasks, it is unlikely that the overall strategy will come to fruition

The problem here is that organizational strategy is usually holistic and integrative, and requires considerable mutual interdependence across functions. When teams only consider their own role and tasks, it is extremely unlikely that the overall strategy will ever fully come to fruition. 

Some management frameworks such as S&OP and IBP attempt to address the resulting siloes by (theoretically) connecting every part of the enterprise to a core set of objectives and metrics, but without explicitly making a call to action these processes frequently become mere rote recitations. 

Concept 2: The Status Quo Effect

In essence, we respond to the Isolation Effect by pushing the strategy to all levels of the organization and setting up communication between the groups involved. Putting aside the practical issues with such an approach, this generally leads to an unintended outcome that is even more pernicious. 

When faced with considerable complexity and/or uncertainty around a task or decision, people tend to avoid making any sort of commitment to a path and stick to what they have already been doing. This is commonly known as the Status Quo Effect. 

Attempts to push an integrated strategic plan down through an organization frequently fail

Between issues of isolation thinking and status quo responses, it is unsurprising that attempts to push an integrated strategic plan down through an organization frequently fail. 

Connecting Individuals to Enterprise Objectives

As both the Status Quo and Isolation Effects arise both from an individual’s disconnection from overall objectives and the misapprehension that many leaders have about the power of their dictates to influence behaviors, we must clearly articulate the reason for the enterprise’s strategies and goals.

It is insufficient to tell a team that “the plan for next fiscal year is 10% revenue growth”. This may be fine as a target, but makes no reference to a plan or strategy, nor does it provide the many stakeholders with sufficient context or purpose to make clear what specific action is required of them.

Leaders often fail to take the time to explain why each of the steps or actions are necessary

Similarly, while S&OP and IBP processes make a valiant effort at connecting corporate strategy with individual departmental plans, their leaders often fail to take the time to explain why each of the steps or actions are necessary, and why the corporate goals and plans are what they are. Thus, in both cases, although a high-level plan may have been communicated, the complexity which challenges human judgment remains unaddressed. Where questions persist, inactivity invariably arises.

Define Explain Enterprise Targets & Goals

To address the psychological root causes of this inaction, effective communication not only of the plans and the reason for those plans, but also of the specific expectations of action for every stakeholder is key. In practice this can take several forms. In the case of Annual Operating Plans, an explanation of the rationale supporting targets – e.g. why did we choose 10% growth, and not 20% or 5%? – and a requirement from stakeholders to provide a qualitative statement describing how their department will help achieve the corporate plan prior to submitting a departmental action plan and KPIs can help clarify what steps are necessary to advance the plan.

In the case of S&OP or IBP, there are several initiatives which can be useful at addressing inaction. First, a clear statement of purpose at the outset of each meeting, tying the intended objectives and outcomes of that meeting to the overall corporate plan. In the case of a Portfolio Review, that might look like: 

“Our meeting objectives are to review New Product Introductions, End of Life Products, and review portfolio performance over our strategic planning horizon. By ensuring we consistently have a healthy pipeline of new products and space for them to grow by culling underperforming products, we can achieve our objective of 20% contribution of the overall growth target of 8%.”

Asymmetries between executive goal setting and employee tasks inevitably create ambiguity and uncertainty

Provide a clear line of sight on every slide in a meeting presentation to the decision or action that is expected. Going so far as to explicitly write it out on the footer of each slide keeps content creation aimed at this critical objective, but also keeps meeting participants laser-focused on action, as is the intent.

The Bottom Line

It is tempting when planning at the highest level to expect that the reasons for plans or paths to goals are as immediately obvious to everyone as they are to those formulating the plans, but the frequent gap between planning and execution makes it clear that this isn’t the case. 

Asymmetries between executive goal setting and employee tasks inevitably create ambiguity and uncertainty, and the extent to which we struggle to make judgments and plans under uncertainty in complex environments should not be underestimated. Therefore, to increase the chances of successfully implementing any strategic initiative like S&OP or IBP, leaders must be mindful of the root causes of inaction and both overcommunicate the context and purpose of corporate plans and make explicit the paths to action for key stakeholders. 

Jonathon Karelse will be speaking at IBF’s Business Planning, Forecasting & S&OP/IBP Conference in Amsterdam from November 16-18. With dozens of workshop sessions, panel discussions and networking opportunities, it’s the biggest and best event of its kind nf Europe. Click here for more details.

Maybe you just had a poor quarter with your forecast not aligning to operations or business plans. Maybe there was a series of bad product launches, or you’re not getting the cross-functional collaboration you need. Maybe you went to an IBF conference came to the conclusion that S&OP would be a real competitive advantage for the company. Whatever the reason, something has triggered the need to implement a new S&OP process.

[This is the first in a 2-part series about setting up a new S&OP process. This first part focuses on the ‘People’ aspect. Stay tuned for part-2 which focuses on ‘Process’.]

Now comes the most difficult step in all S&OP/IBP journeys – the first one.

Where do we start? What elements comprise an effective process? How long will it take? Who should be involved? How do we get the right functions on board?

There is a plethora of questions you must answer before you start, and many variables that will shape your organization’s S&OP. In the immortal words from the cover of the Hitchhiker’s Guide to the Galaxy – don’t panic! The key is to build a process that responds to business needs and that works over time.

Keep in mind first:

S&OP is not a project or overnight activity; instead, it is driven by continuous incremental improvements where the goal is to keep getting better.

Start where you are and build for where you want to be, and never be satisfied with where you get. This is the S&OP journey and maturity process.

Now that we’ve those 2 guiding principles, we should take time before the first meeting even occurs to do as much as possible to set the process up for success. The start-up of a new S&OP process is similar to the start-up of a new organization in that success depends on groundwork being laid long before launch. In this preparation phase, the vision is defined and decisions are made regarding People, Process, and Technology.

Questions to be answered and activities in the initiation phase may include the following:

1. Find The Right Sponsor

The sponsor will be a senior executive in a corporation who is responsible for the success of the process. While he or she may not be involved in the day-to-day operations of the process design, they are the senior champion of the S&OP/IBP process and biggest cheerleader. This is the executive that the initial S&OP team may turn to for support and to help break down potential barriers. It is someone high up that has your back and may be able to authorize resources or garner additional support.

This person need not be your direct authority and I have seen many times this role filled by a leader from another function. The most important quality is that they believe in S&OP, are willing to assist in winning over stakeholders, can authorize decisions, and be an advocate for the process.

2. Appoint An Owner Of The Process

Ultimately, this person sets senior management expectations, leads the monthly S&OP planning process, manages conflict, and guides the S&OP teams toward success. Far too often I see someone with another role adding the responsibility of S&OP to their existing tasks. While this can work (I have been that person myself) it is far better to have a S&OP manager or owner solely dedicated to the process start-up.

This role has significant responsibility pertaining to communication, managing the process, diffusing conflict, and leading change management – all of this requires time and focus. With all this in mind you need “a” owner and person that drives the process forward without their time being split between another role.

Another reason for having a dedicated S&OP manager is that S&OP is a cross functional, end-to-end process and needs a liaison that bridges all departments without bring the bias of their function.

3. Decide Who Needs To Be Involved

The answer, paradoxically, is most likely “everyone and a select few”. S&OP done right will impact every function and change the way business decisions are made. Your core team on the other hand may not be that large, rather a strategic, cross-functional group. This core team may include Finance, Demand Planning, Operations, Commercial, and IT. Initially, try to keep the core team light but do not lose sight of everyone else that you may need buy in from or who will be impacted by the S&OP process.

4. Level Setting & Educating

Change management is one of the most important and overlooked parts of a new S&OP process. People are fine with change until what they do day-to-day is disrupted. S&OP touches everyone and it is always best to educate and elevate all participants. Training helps to get everyone talking the same language to and provides a foundation of knowledge to accelerate adoption and acceptance of a new process.

Training also helps with fears of the unknown and provides vison and direction for what you want to accomplish, further facilitating adoption. This may be a 3-day workshop or in-house training but the key thing is to reveal what S&OP means for the organization and individuals involved, and to instill best practices.

The topic of Integrated Business Planning (IBP), Sales & operations Planning (S&OP) and demand/supply balancing has been widely researched for nearly 40 years, yet organizations still struggle with this fundamental business capability. What about planning is so difficult?  Why is effective business planning so elusive for many firms?

So, what is a person (or firm) to do? Simply accept the status quo? Do we search for a new application, algorithm or the latest AI capability that is guaranteed to provide the solution? Or if we redesign the business process the breakthrough we need will appear. Or maybe not.

What has helped a number of organizations break the shackles of the current state is to re-frame the problem to be solved.

Re-framing is the art of evaluating a situation, developing an understanding of what needs to be achieved, and developing a new problem to solve. More simply, re-framing is asking a different question with the goal of getting a different result.

The Capability Challenge

Viewing IBP/S&OP as a business capability helps us to begin re-framing.

We define a capability to be the integration of 3 areas: People, Processes, Technology. People have always been, and will continue to be, the most critical element in any capability and it’s no different for the IBP/S&OP process.

Why are people the most critical element? Because people define the processes, the steps required, the sequence, the roles to be involved and the responsibility of each role. Beyond the process definition, people need to identify the technology needed to perform the process as efficiently as possible.

Once we identify the elements needed for a business capability to exist, we can begin re-framing activities. Re-framing helps “zoom out” from the details of IBP/S&OP so we can reconsider the complicating factors restricting our success. When we move away from discussions about the processes, metrics, roles and responsibilities, software, etc., we start to consider what is needed to progress beyond the current state.

As we evaluate the capability and focus on “People” as the critical element, the questions we ask become focused on the actions that we can take that will result in positive change. The discipline of Organizational Change Management provides ideas and tools that help us to ask the right questions.

Organizational Change Management

There are several change management frameworks to choose from, and all consulting firms tout theirs as the best. Let’s start by “zooming out” and consider the underlying issues that make Organizational Change Management necessary to implementing new capabilities.

The process of company transition occurs on an individual basis which requires us to identify all individuals involved in, or impacted by, the capability. It helps to create a transformation map to identify where each person is on the transition journey.

On our map we include how each individual perceives the change. This requires only minimal interaction with each individual to gauge how they feel about the transformation and generate a first draft. A transformation map is helpful because you’ll gain insight into the team and their overall level of enthusiasm. Understanding the current state of the team and the individuals in it is useful but action is what will realize improvements. Before action plans can be developed, we need discussion with each team member to validate their stage in the transition process.

Talk To Individuals To Identify Why They’re Resistant To Change

Discussions with individual team members help uncover underlying factors that cause them to be resistant to change. Such discussions with individual team members should not be ad-hoc; a template with specific questions should be developed before any meetings take place. This template should include questions that probe for pain-points individuals are experiencing in adopting the process. Of course, the template should cover the IBP/S&OP process itself, the tools used to perform the process, and most importantly intangible “soft” areas like responsibility, performance measures, accountability, recognition and rewards, and training (attended, offered, etc).

Check List For Change Management In S&OP/IBP

By taking a proactive approach to managing change, the success rate for adopting IBP/S&OP increases dramatically. Here’s an outline of activities and actions that I use to help implement change, it’s proven to be successful at companies like AT&T, Fiskars Brands, Motorola and others.

1 – Provide education materials and resources explaining S&OP/IBP to executive leaders

2 – Conduct executive review and discussion sessions and describe how executives are involved in the process. Ask what concerns exist and resolve concerns before moving forward.

3 – Identify the individuals that will be involved in IBP/S&OP and sort them as follows:

• Directly involved – responsible for performing steps in the process
• Indirectly involved – may be asked for inputs or preliminary review of outputs
• Impacted – results of IBP/S&OP may be used in their role

4 – Provide education materials and conduct review session(s) describing how IBP/S&OP benefits the business. Ask what concerns exist and record all concerns (separate session for each group).

5 – Design and pilot IBP/S&OP with a small, focused group to ensure the process and tools deliver expected outputs.

6 – Establish an IBP/S&OP continuous improvement team to gather feedback and incorporate changes into the process .

7 – Prepare IBP/S&OP kick-off meeting.

1. 1. Conduct pre kick-off meeting with leaders of key functions (supply planning, demand planning etc.) ensuring alignment and agreement.

8 – Arrange and conduct an IBP/S&OP kick-off meeting with the entire team (direct, indirect and impacted team members)

9 – Conduct initial IBP/S&OP meeting.

10 – Arrange and convene a continuous improvement team, review feedback and prioritize updates.

Summary

In summary, IBP/S&OP is a critical process for every business but establishing it requires an effective Organizational Change Management process. This 10 step process ensures engagement of executive leaders, managers and staff to execute activities and make decisions. The challenges encountered in implementing IBP/S&OP are often associated with people – proactive change management reduces resistance to change and gets everybody working towards the common goal.

I’ll venture to guess that if you are reading this, you’re probably already sold on the idea of a forecasting function. That is, you understand the value it provides to the whole organization. Unfortunately, not everybody sees it that way.

Let’s face it, many executives have never experienced the near Utopian results that are promised by forecasting and are hesitant to give it more than lip-service. After all, when they think of new software, consultants and employees,  dollar signs start to swirl in their head with little to no perceived value added. So how do we go about selling it?

First, let’s look at some improvement opportunities that your executives can wrap their minds around:

1. Inventory

More accurate forecasts and a properly set up planning system result in proper (not necessarily lower) inventory levels. Through forecast improvements, I have always experienced overall decreases in inventory levels. This means not only few dollars tied up collecting dust, but also less risk of obsolescence, more efficient Warehouse operations, fewer damaged goods, etc. At one company, I was able to completely eliminate an off-site warehouse for raw materials and reduced finished goods and sub-assembly parts so drastically that we cancelled plans to open a third production plant. Lower inventory levels also help to expose issues that are otherwise masked or easily covered up. As the saying goes, you don’t know where the rocks are until the water recedes.

2. Customer Service

Sometimes an improved forecast identifies a need for higher (proper) inventory levels. The result will be higher fulfillments and therefore higher Customer Satisfaction. Whether higher or lower, the goal is to have the right inventory levels. A lost sale is never recovered and a lost customer can take years to make up. Caution: don’t immediately jump to more inventory as a solution when other factors can offset it, such as reduced lead-times or change-over times.

3. Operations

Improved forecasting aids in Capacity Planning. Warehouse space, production equipment, level-loading needs, workforce levels, and longer range facility and equipment needs are some of the ways good forecasting helps executives prepare for success. All of these capacity constraints are expensive and can be quite difficult to change. No one wants to find out that they need to order three new production lines… six months ago. (Yes, that happened.)

4. Sales & Marketing

In addition to the aforementioned Customer Service benefits, good forecasting and analysis facilitates a successful product launch. Likewise, a lack of good numbers and launch assumptions can absolutely doom a new product, or at least result in significant lost revenue and unhappy customers. Along with this, proper analysis provides insight on changing trends, product mix, attachment rates, and life-cycle planning.

5. Purchasing

A good forecast leads to good supplier partnerships. By communicating a realistic purchase plan to your suppliers, they benefit in all of the same ways listed above. When you stop jerking your suppliers around (expedite this order, cancel this order, wash, rinse, repeat), they will service you better, accommodate special requests more willingly, and they will value the relationship more than ever. But wait!  It gets better!  Your negotiating position just drastically improved! (Three exclamation marks in a row!)  For all of the same reasons stated above, your supplier is now more efficient (lower costs) and desires more than ever to have customers like you.

All of that is well and good, but to the cynical executive it may be just another bag of promises waiting to disappoint (like low-fat, gluten-free cookies on your birthday). What is a highly capable (yet humble) manager to do? You have to prove it!

Getting Started In Forecasting With Limited Resources

Before asking for a new employee (or department), start with what you have now and do what you can. Maybe you don’t have the bandwidth to forecast for the whole company, but perhaps you can focus on one product line. Perhaps the level of analysis isn’t up to par with what you are accustomed to, but something is better than nothing. Take the time now to measure the historical and current forecast accuracy (if a forecast exists at all), inventory levels, service levels, etc., all for this one line, then improve it. Nothing sells better than success be it lower inventory, higher fulfillment rates or a successful product launch. By getting one project under your belt, you can demonstrate the measurable results and quantify the savings to the organization.

This more than anything can help sell the further benefit of taking it all to the next level by investing in someone nerdier than me (no offense), who lives and breathes this stuff and loves to do the type of analysis warranted. I’ve been able to make significant improvements and gain cost savings all by myself but I’ve been able to do just as much by knowing my limitations and getting to right person for the job. Let me be clear, forecasting and analytics is not a role you just tack on to someone who has a little free time – find someone who understands it and gets excited when they talk about it and all will be right with the world.

There is an age-old debate in demand planning: should you strive to be a “one number company” where all functions work to the same forecast. The idea is that a one number forecast creates alignment and that the whole company works to the same set of assumptions. But some say it creates more risk, and others say the idea of companies working to a one number is really just a myth. 

I personally do not understand what the fuss is about and believe there both is a right and wrong answer here. It depends on who you are, where you are in the organization, and what you are doing with the number. Taking these things into consideration, you absolutely need a one number attitude.

I think the debate may come from not defining what we mean by one number. If you mean that what you purchase matches exactly the unconstrained forecast which matches exactly what we report in financials, or if you mean that you march to a signal point forecast and ignore uncertainty – the answer is no, you don’t want that!

If you mean that you are generating the same baseline forecast for the entire company and translating it for other functions using the same set of assumptions or analysis – the answer is yes, you want that!

Besides having everyone singing off the same hymnal, this coordination ensures best practices in data gathering and analysis, modeling, managing assumptions, and, just as important, monitoring performance.

What Is A One Number Attitude?

A one number attitude is more than a consensus forecast, it is a mindset that starts from the very beginning. In defining the need of a forecast or any analysis, consensus is needed that you are working on the same problem. This too can be the same root problem with many possible tactical decisions related to it, and the analysis created to solve the problem can have many different uses by different roles and functions. The issue occurs when each need and role define their own problem in silos, driving different analysis that run counter to other competing analyses from other functions.

A one number attitude company has a core strategy and an aligned focus that relates to individual functional needs and decisions.

Data can mean something entirely different depending on where you pull it from, with what filters, at what time, and what aggregation. In gathering data and inputs, it is important to have not only a single set of truth, but consensus on what and how things are assembled.

This can be the difference between looking at shipments, orders or POS data, and how much data you are looking at to analyze sales sentiment. Problems are sure to arise when different functions are operating off of their own data sets and inputs are collected in vacuums. A one number attitude company has the same data and base assumptions and coordinates best practices on transforming or manipulating the inputs that you can tie back to original data.

One Number Forecasting & Planning Means Centralized Quantitative Analysis

You can have the same set of data and same set of assumptions and with different techniques come up with very wide and different results. Sometimes we see different functions doing different analyses using different principles using different data – even though the analyses serve similar purposes. One of the key things often forgotten here is judgment or expert opinion is used as a forecasting method and used widely without realizing the impacts. Some of the best forecasts are derailed or overridden based on someone else looking at the same data and operating off of intuition instead of a one set of number attitude.

A one number attitude company strives for centralized quantitative analysis whenever possible and is more analytically driven and performs analysis using the same principles and systems. They make sure to tie all the modeling and techniques back to the purpose of the forecast.

Not Planning To One Number, But To The Same Range

A one number attitude enables the entire organization to plan based on the same range of possibilities, assumptions, risk, and upsides. It provides the foundation for Finance, Production, Logistics, and Supply Chain to all work outside of their silos.

It gives way to meaningful and productive conversions around true planning and impacts of what each function may do. In this scenario, the same forecast that drives Operations and Sales and Marketing is now driving gross margin, variable cost, and cash flow. While there may be allowances and other financial adjustments to the sales forecast, using the same baseline allows you understand the drivers and variables better, and how they all connect to each other.

Forecasting is About Uncertainty & Uncertainty Is Never Just One Number

Oftentimes, companies get huge up on the term “one number” –  the truth is a train wreck on either side of the tracks is just as bad. Forecasting involves uncertainty and uncertainty is never a single number, and planning to a single number guarantee problems. On the other side not being on a single page and aligning to the same business goals, assumptions, data, and modeling to better understand and plan for the uncertainty is just as dangerous. It is the responsibility of the analyst or demand planner to present risk and assumptions that went into the analysis and it is incumbent upon users of those insights to think through all options, combinations, and permutations of potential plans.

One Number Planning Requires Coming Together

Such results do not come without challenges, however. To develop a one number culture, companies must break down information silos and eliminate multiple versions of the truth. This only happens when stakeholders throughout the organization openly share data and information, and that means the long-standing gap between functions must be bridged.

Everyone in the process has to stay very close to one another in sharing information and data coming from various parts of the organization. Often, Demand Planning is central in holding not only the entire process together but also the information to run it. Ultimately, when the forecast is tied to sound predictive analytics, and the same assumptions and data and analysis, executives have more timely and accurate information that allows them to make better decisions.

In my previous article entitled ‘How to guide for S&OP Kick Off’, we approached the roles and responsibilities within the S&OP process and the importance of each member knowing what they need to do at each step. To assist and facilitate this task, we recommend the use of the RACI Matrix to quickly identify the roles and responsibilities of each individual/team in the S&OP process.

The matrix should be used by anyone implementing S&OP to understand the S&OP structure, hierarchy and responsibilities.

RACI Matrix

The RACI Matrix is a powerful tool to assist in the identification of roles and assigning of cross-functional responsibilities to a project deliverable or activity. Click the link below to download the Excel document.

RACI represents:  R – Responsibility, A – Accountable, C – Consulted, and I – Informed

Snapshot of the RACI S&OP Roles and Responsibilities Matrix

DOWNLOAD RACI ROLES & RESPONSIBILITES MATRIX

RACI Definitions:

Responsibility = person or role responsible for ensuring that the task is completed

Accountable = person or role responsible for actually doing or completing the task

Consulted = person or role whose subject matter expertise is required in order to complete the task

Informed = person or role that needs to be kept informed of the status of the task, and informed when complete

After defining the participants and their responsibilities within the S&OP process it is necessary to communicate this to all stakeholders and deliver training (if required) to ensure each individual is capable of fulfilling their role.

This is a simple thing that goes a long way to getting S&OP off the ground and ensuring it is sustainable and manageable with the right participants, oversight and sponsorship. The next step is to develop an audit process to ensure that the RACI Matrix definitions are being followed for continuous improvement – more on that next time.

The purpose of this article is to make clear the essential requirements for sustainable S&OP process implementation. S&OP implementation has a high failure rate, with most initiatives not actually delivering any value and doing nothing to improve the balance between demand and supply. Using this S&OP kick-off guide, the chances of failure are much reduced, increasing your chances of leveraging S&OP as a growth driver that provides a real competitive edge.

Often the S&OP Process implementation initiative is carried out in a poorly structured way, especially when the implementation decision is made from the bottom up without executive sponsorship. The managers involved in this type of implementation end up not following the methodology completely, leaving out the essential pillars that are required to sustain the process. This means creating more work further down the line, day-to-day difficulties in the S&OP process, and, sometimes, damaging the credibility of the process which can result it its death. Haste and lack of capacity building are usually the key factors in the demise of the S&OP. S&OP is like building a house – it needs a strong foundation, and if the proper work is not carried out at the beginning, problems down the line can cause irrevocable damage. Here are some helpful pointers that will guide a successful S&OP, regardless of whether it is a top down or bottom up initiative.

Sponsor: This is the person who will provide the necessary support before, during and after the implementation of the S&OP process. This person must have great influence within the company, have knowledge of the process, and be able to carry out all the necessary alignments and approvals with the main managers. This person needs the necessary position and communication skills to open doors that may have been locked for years.  

S&OP in the hierarchy: Normally the S&OP area is created within the Supply Chain, however, when the process leaves stage 1 maturity it is important that the S&OP area reports to a neutral entity (free of department specific interests) in the company, for example: Finance or a senior executive. S&OP and its management need to maintain the collective interest with focus on the best result for the overall business.  

S&OP Leader: This person needs to have solid experience and knowledge in Supply Chain, as they will lead a wide range of different activities. In addition to the experience and technical expertise in the field, the S&OP leader will need to have great energy and discipline to meet the schedule, and a willingness to move people around and change processes to ensure integration. Ability to communicate at different levels is necessary.. Involvement of the human resources area is critical at this stage to find the right candidate. When choosing the right person for S&OP Leader, a junior profile will not cut it.

S&OP Team: As we are dealing with a total integration process, we absolutely must involve all areas, even if we have to demand it. An S&OP Committee is recommended for the initial phase, with all parties committing to collaboration and support of the implementation project. Choosing the right people and their backups is key to starting the process as well as maintaining it later on.

Roles and Responsibilities: Each S&OP member must have a clear role and defined responsibilities within the S&OP process. They need to be trained to contribute properly in the process – both inside and outside meetings – as facilitators and process owners. I recommend you use a matrix of responsibilities, train those involved and record all activities.

S&OP Meetings: All meetings must have: an objective, a duration, participants, inputs, discussions, outputs, attendance list, and a list of required actions. Participants at each meeting will need to be trained to ensure an effective meeting.

Meeting Schedule: All S&OP monthly and weekly cycle meetings need to be set in advance. In order for people to attend the meetings, invitations need to be sent as soon as possible. One recommendation is to keep the invitations sent for the next 3 months of meetings. It is necessary to pay attention to special dates like holidays and events that could affect attendance.

Documentation: The S&OP process must be formalized through documents like process flowcharts, procedures and operational instructions to ensure the decentralization of information and the survival of the process when a team member leaves. The is important in assisting standardization and proper management of S&OP documents. One of the most important documents is the S&OP policy which details S&OPs’ involvement in the business. In addition to containing all the requirements to establish and maintain the process, this document codifies the agreements and hierarchy of decision-making. It is a living document that must be kept up-to-date by the managers of the S&OP process.

Process Auditing: After a few monthly S&OP cycles, an S&OP audit process has to be defined to ensure that everything that was planned has been implemented in practice. This must be carried out by an independent team, who will have to be trained in S&OP to audit the process. In some companies this department already exists.

[Ed: These are the essential criteria for successful S&OP, that will both facilitate its implementation and sustainability. Only 1/3 of S&OP initiatives end up actually adding any value –  make sure you lay the appropriate foundations to ensure yours is a real growth driver.]

Have you ever produced a forecast but weren’t told about a last-minute campaign or marketing activity that went on to drive sales far higher than anticipated? If you ended up taking the blame for the company not having enough inventory to meet demand, I feel your pain. But don’t worry, there is a better way.

Why does this happen? What is stopping individuals and departments from providing each other with the correct information? Isn’t there a common interest in ensuring that the customer is served and the company delivers its business plan? Of course there is, but that’s not how it always works in the real world. That’s why we need a structured approach to cross-functional alignment.

Awareness And Knowledge Arise From Alignment

The importance of End-to-End Business Astuteness becomes clear in such cases. It’s all about the awareness, knowledge and alignment of each part of the business. This includes Supply Chain, Finance, Commercial, Marketing and any other department that can impact sales volume. Cross-departmental collaboration is key so that opportunities and risks are made visible to drive a more customer-centric and profitable business.

The challenge is that most departments do not know what the other department does or what their goals are.

Each department drives the actions of another department which results in finding the golden cog in the machine. That can be the one big sale the company was looking for, reduction in slow moving inventory or a major cost cutting initiative. The challenge is that most departments do not know what the other departments do or what their goals are. They do not understand the impact of their actions upon other departments, nor the importance of communication. Remember that any action by the various departments can drive revenue, but they can also drive costs. Be aware that any initiative you launch that is decided in your departmental vacuum can adversely other departments, and cost your company money. Unless you communicate and engage, you will never know.

These actions need to be presented in such a way that the consequences from an end-to-end perspective are clear to the decision makers.

Factors To Consider When Making Business Decisions

Imagine you have your own company and there is a decision to be made to change the production plan so that a large order can be shipped to a customer. What information do you need to make a decision? Here is what you need to consider:

• Cost to run extra shifts
• Cost to expedite the transportation
• Cost to procure materials
• Profit of the potential sale
• Risk percentage of product returns
• Impact on gross profit
• Impact on market share
• Impact on other customers
• Importance of the customer versus other customers
• Quality and compliance risk

The decision should be weighted by financial feasibility (Cost to Serve) as well the customer-centric factors. The pressure to hit the numbers often overrides the importance of doing a financial feasibility exercise. What’s more, it often takes time to get the necessary information to carry out financial feasibility tests – by the time the report is ready, the sale may have been lost, so use your judgement accordingly.

What You Need From People

• All departments must understand what the other departments do, know what they need and when they must include them.
• Create a training schedule where all employees have to learn about the other departments. This must start at the time of onboarding and then be repeated every couple of months.
• Use the lunch and learn tool, get people around the table to explain what they do and what they need from the other departments.
• Make sure that everyone speaks the same ‘language’. Departmental jargon is not helpful. Do not use abbreviations!
• Have regular townhalls or cross departmental meeting to communicate the company strategy sending the message that it is a shared responsibility that can only be successful with everyone on board. Hold people accountable!

What You Need From Processes

• New product launch – a clear project plan including all parties including accountability and timing
• Exception management – how to handle exceptions such as higher than anticipated sales, who does what?
• Clear daily/weekly/monthly meeting plan including accountability and deliverables
• The decision making process must be underpinned by financial and customer driven data.

What You need From Technology

• Manageable software – user friendly and fast
• Business warehouse – impeccable master data
• Informative interactive live Dashboards
• Scenario tools – quick action decision making tools

End-to-End Business Astuteness is the key to having one voice and a united team who are driven by the success of the company! In conclusion, having the big picture in mind and a clear understanding of how the cogs in the machine of your business will help you to make the right decisions at the right time!