In my years of experience leading implementation projects for such vital processes as S&OP, I have noticed that Tom Wallace and Bob Stahl were right when they indicated in their S&OP handbook that the implementation effort is 65% changing mindsets, 25%  process methodology and the remaining 10%, systems used to make the process work.

Without having the heads and hearts of key people invested in the process, S&OP is doomed to failure.

S&OP Fights Against Chaos

With the S&OP process, we can give more clarity to how the work of each person in the organization influences company goals. Through the processes of demand planning, capacity analysis and inventory calculation, each sector leader can reveal to their teams the overall strategy and how the day to day activities implement it.

This is important because, sometimes, people who are on the production line, or far below where decisions are made, can not see how their daily work is aligned with the company’s global goals. The S&OP process gives us that clarity up and down the organization.

Lack Of Confidence – Why People Resist S&OP

When the S&OP process is first implemented in an enterprise, there is an initial resistance to change. There’s resistance to sharing information, resistance to collaboration, resistance to attending meeting, and resistance to sharing problems in the pre-S&OP meetings.

Personally I think that this resistance is due to lack of self-confidence concerning the people involved in the process. This lack of confidence makes them self-conscious, making them think only of themselves. They are hesitant to engage for fear of getting it wrong. This, of course, is not conducive to the teamwork and collaboration required for S&OP.

How can you improve people’s confidence? By consistently indicating where they contribute in the process, and indicating that with their methodical work of bringing true inputs to the process, you can obtain quality outputs and therefore reach the best decision.

The S&OP Calendar Is The Best Tool For Leadership

Reading the Winter 2011 – 2012 issue of the Journal of Business Forecasting,  I found a very revealing article by John E. Boyer regarding the Centralization or Decentralization of the process. In the article there is an annual calendar showing dates, times, and the names of important people who interact with the process. This is an example of order in chaos. See the calendar below:

An S&OP calendar is a simple yet highly effective way to bring order to chaos.

The important people of the company know a year in advance when they must be present to bring all the possible inputs that contribute to the process.

The following thoughts appear in the mind of each person:

S&OP Coordinator: Joe knows that he must bring all the pieces together so that the best decision can be made.

Sales and Marketing: Sue, Jack, Marvin, Wally, etc., know that on the indicated dates they must contribute all the necessary inputs to be able to validate the sales forecast that will be used to perform the capacity analysis.

Production: The members of production must know all the details by which the production process and logistics may not be able to meet demand. I.e, they present capacity and logistics limitations. They should contribute with possible solutions that will be addressed in the Pre-Meeting. So Wendy, Joe, John, Randy, etc. must be prepared.

The general direction must give clarity about the strategy and must be committed to the process so that everyone is on the same page.

We can see here that a simple calendar is one of the main leadership tools of the process. It generates order and fosters commitment. If any of the people involved cannot attend the meeting, there is enough time to assign a replacement at that meeting. This means that there is no reason for the right people not to attend the S&OP meetings.

This type of calendar should be posted on the internal network of the company. This is useful for multinational companies where different regions have their own planning processes. It means they can sit in on meetings and learn how it works so they can develop their own S&OP process.

All Members Can Benefit

Sometimes the S&OP coordinator is so involved in their work of “numbers” that they must force themselves to step back and learn new methods of working. These meetings, published for all those responsible for S&OP in their regions, can be a great input for improving their management.

The S&OP coordinator for the USA can improve their management by attending one of the pre-meetings of their peers in Australia or South America and seeing what they do better. You’ll often pick up new ideas you never thought about.

For those who are starting out on this journey, I invite you to demonstrate your ability to unite information, unite people, unite expectations, and identify new ways of working in the process that fosters collaborative decision making.

To learn more about effective S&OP, come to IBF’s Business Planning, Forecasting & S&OP Best Practices Conference in Orlando from October 20-23, 2019. The biggest and best event of it’s kind, you’ll hear leaders in the field reveal best practices and avant-guard techniques, plus a very special keynote speaker.

It’s your first day at a new company and you’re tasked with implementing S&OP. What’s the first thing you do?  The best starting point is to figure where to get the data for your forecast, and how you’re going to prepare it for input.

When we start with S&OP implementation it is essential to have the support of senior management and key people in each function to put all the pieces together. We’re talking Sales, Operations, Finance, Logistics and Purchasing. This collaboration is crucial for many reasons but primarily because this is how we get data, and without data, you don’t have an S&OP process.

The S&OP process must be aligned with Finance, making sure data inputs for both forecasts come from the same source. But before you start thinking of preparing your forecast, it is necessary to understand the following:

1. Know The Financial Performance Of The Company

The income statement of the company provides insight into what is really going on in the company. I consider it highly advisable to spend some time studying these statements and talking with the Finance people to identify the burning issues of the moment that are driving the decision-making process. Never lose sight of the fact that the S&OP process is a decision-making tool that directly impacts the income statement. Work to build the trust of senior management to reinforce this idea.

2. Know How Finance Uses Financial Statements

If Finance is using this information to plan for demand, the company will almost inevitably have planning problems. Using only this information is limiting because it is simply sales, dispatches and credit and debit notes applied to the account of each client. Dispatches and sales are not enough to plan effectively. It may happen that the difference between billing and dispatches is minimal, but either way, we need to know what the difference is in order to align the objectives of the business with those of Supply Chain and Operations.

3. Use Finance’s Data For Your Forecast Input

Use the same dispatch/sales information used by the Finance team as the input for your forecast. Why? Because we must use the same data if our forecasts (and subsequently plans) are to align. In every S&OP process, shipments to customers valued in USD is the first information we get from Finance. Use this data as the main input for your sales forecasts. If we skip this step and use Sales’ data for our capacity planning, we can end up Production not having the required resources, because Finance has developed the budget using completely different assumptions.

Once we have covered these 3 points, we can move onto data management.

Data Management

1. Look At The Data In Different Ways

Breakdown the data by client, by product, by production plant etc. This allows us to identify customers and their buying patterns. We can manually check for quirks that, if not picked-up on, can create errors in the forecast. One such quirk is a customer who used to buy products from one of your production plants, for but for whatever reason now buys from another. It can look like two different customers in two different locations, but in reality is the same customer. Another example is a customer changing its business name – it looks like two different customers but is again the same customer. Statistical forecasting without this manual override will not identify these quirks and will result in forecast error that is easily avoidable.

This bit of the process is repetitive and, frankly dull, but it’s important at the beginning because we need to cleanse our data that goes into the forecast. The old adage of garbage in, garbage out applies.

2. Look At product Mix

Looking at product mix is valuable because it allows use to identify changes in consumer behaviour, drops in demand of a particular product, changes in a specific customer’s behaviour etc. We can gain insight into what customers are doing and why, relating their behavior to specific demand influencing factors.

3. See If New Products Will Be Released

The S&OP process pays special attention to new products. Why? Because there is no historic demand to help us understand how many we’ll sell. We have very little idea how it’ll perform until it’s released into the market, by which time the initial planning phase is already completed. This means we must leverage the S&OP process, with its benefit of cross-functional collaboration, to gather as much qualitative insight as we can. We may not have hard data, but this knowledge can help us predict how it’ll perform.

With these steps completed we can start our forecasting process and arrive at numbers we can take into the pre-meeting. In the pre-meeting you’ll sit down with representatives from the Sales team and gain their input into short term demand and another factors that may influence demand that salespeople have unique insight into. This qualitative knowledge will help us refine our statistical forecasts. We’ll then be ready to go to develop a one number forecast all functions will work from. And when we have done that, we will have achieved the core component of S&OP – the creation of an integrated approach to understanding and fulfilling demand.

One of my favorite authors in this world we call S&OP is Tom Wallace, who co-wrote “Sales & Operations Planning, The How-to Handbook”. It’s one of the definitive texts on S&OP, in large part because it is both easy to understand and includes insight not found in traditional S&OP theory. It helped me understand what really matters in S&OP implementation, and I have used a lot of the ideas for this quick guide, which is designed to help you hit the ground running with your own implementation project. 

For those venturing into the implementation and leadership role of this process, something that will be fundamental to your success is knowing that the process depends on more than just the statistical, process and knowledge elements. The Pareto rule applies here – in the S&OP process (both in its implementation and in its leadership) that 80% of  success in S&OP depends on the people involved, 15% of the data and 5% of the hardware or software used. People then, are what will make S&OP happen – the data and hardware are secondary.

80% of  success in S&OP depends on the people involved

Let’s take a look at the above and see how we can use it to our advantage. So, 80% of the success in S&OP depends on the people involved, but what do we mean exactly by “people”? It goes without saying that relationships play a fundamental role. When we occupy cross-functional and cross-leadership positions (positions where teamwork with different areas is the basis of the work itself), the way we communicate directly affects the outcome of the process. Communication and collaboration, therefore, are key in S&OP.

80%: The Human Element Of S&OP

One of the main challenges of the S&OP leader is to interact with different areas, speaking the language that each of them uses; with production I will talk about production volumes, frequency of maintenance, man hours required for each production step, production capacity meetings etc. With sales, I talk about sales volume, prices, market share, forecasts and forecast accuracy, and forecast validation meetings etc. When the process reaches maturity, we will talk to Finance, using such terms as sales budget, billing, profit margin, EBITDA, etc. All of this  provides an advantage if the person in charge of S&OP knows the business fully. I do not mean necessarily that this person must be an expert in the business, but they should at least know enough so that meetings and discussions are consistent with company goals.

Have a systemic vision of the process and avoid the silo mentality

Have a systemic vision of the process and avoid the silo mentality, where everyone defends their own work area. The S&OP leader works as a conductor by aligning each point with the strategic plan with the operation, so they must be a person with good verbal communication skills and, importantly, courage. Courage is crucial because there will times when this person needs to “show their teeth” to get things done. Establishing requirements between areas without conflict is also key. After all, the S&OP process is central to the company-wide decision- making process, so all interested parties should be active participants in it. The S&OP leader must motivate that behavior.

Quantitative data is only the beginning because there are a lot of details that only the heads of departments know

15%: The Data & Where To Get It

15% of success in S&OP depends on the data. Obtaining data for the S&OP process is fundamental, in fact, without data there is no process to lead. One of the main consequences of the silo mentality is a lack of data upon with which to make decisions. Quantitative data is only the beginning because there are a lot of details that only the heads of Production, Finance, and Sales know. If the S&OP process is well laid out, these details will be taken into account. We’re talking about incorporating insight into new products, consumer demand spikes that escape statistical analysis, changes in consumer demand, and negotiations with suppliers etc.

Obtain all possible information from your Enterprise Management System with the help of the IT team. Look at the data and study its dynamics because it is necessary to understand how the numbers move along the cycle. It is very important to know how each area works and how it connects with the process. I recommend investing a lot of time in this step because by improving our information system with each cycle, new information appears that enriches the entire process.

Excel is a good way to kick-start the process and bring order and discipline to decision-making

5%: Hardware And Software

5% of success in S&OP depends on the hardware and software used. There are companies that have specific software for this, others only implement some parts of the process such as Demand Planning with Excel spreadsheets. In my first S&OP implementation project, I used Excel only. We all know that a spreadsheet is not the best tool for this, but it is a way to kick-start the process and bring order and discipline to decision-making. Then, as the process covers other regions and geographies, it is necessary to incorporate other technology, but to start with, specialized tools are not necessary.

For those of you undertaking this journey, don’t allow yourself to be discouraged, and don’t lose sight of what drives 80% of this process – that is to say, people.

‘Sales and Operations Planning: The How-to Handbook” by Thomas F. Wallace is available for purchase on IBF’s online store.