The real challenge of S&OP is cultural change
By Edwin Kock, PA manufacturing expert Industry leaders are becoming increasingly frustrated about the inefficiencies caused by misalignment in their organisations - but better Sales and Operations Planning (S&OP) could change all this. Recognising the potential benefit of improved coordination between sales, finance and operations, businesses are investing heavily in S&OP programmes to introduce best practice processes, new tooling and data quality. At the same time, however, there is little focus on achieving the necessary cultural change.
As with many cross-functional initiatives, most organisations find it difficult to get the envisioned benefits of S&OP to align with functional plans. In particular, there are frustrations around low forecast accuracy and poor data quality. Despite the investment in S&OP, little improvement is being made, primarily because the individuals involved in the process have not changed their behaviour. The result is a weak basis for commitment on the new plans!
Breaking through strongly embedded functional behaviours requires a skilful, top-down change management approach. It is crucial to add a cultural focus to ensure S&OP initiatives pay off.
For this approach to be successful, businesses must:
- Make sure the objectives of the S&OP process are thoroughly understood
All individuals involved should understand why the organisation is running the S&OP process, and what the potential could be. This objective is not obvious, as each sector has its own reasons for the tactical alignment of plans, and each has its own planning principles. The fashion industry, for example, aims for the reduction of off-price sales and for the optimisation of availability, while project-driven industries aim for overall working capital reduction by better managing the need for expensive critical materials, and for an accurate prediction of revenue realisation. A clear understanding of the objectives and related planning principles will help the individuals involved recognise the importance of the quality of their contribution.
- Demonstrate management commitment to the common goal
S&OP should always prioritise the strategic intent of the company over functional goals. This requires a shared view and a common understanding of what is leading and what is lagging. Clarity regarding the common goal creates a solid basis for decision-making in the planning process. Decision-makers (starting with the CEO) should demonstrate their commitment to the firm’s common strategic goal in their decisions and actions, and must sometimes compromise lower-level functional interests. As soon as the organisational goal is neglected, the S&OP process will lose importance, and decisions taken will be overruled outside the meetings. Behaviours will not change.
- Provide an enabling governance structure for the S&OP initiative
Any S&OP initiative should include a review of capabilities, accountabilities and responsibilities. For example, if forecast accuracy and data quality are key for your planning processes, there should be greater focus on the individuals responsible for providing this input. Do they have the skills to uphold this responsibility? Does the governance structure encourage the right behaviours?
Another important aspect of governance is defining the business function that drives the S&OP process. When responsibility is allocated to the supply, demand, or financial side of the organisation, the delegate will be perceived as biased, which hurdles the change of behaviours. In the end, only the CEO can be accountable overall, and therefore the planning process should converge on the executive level. Of course the CEO can delegate the responsibility for driving the planning process, but this would preferably to a facilitator ‘on neutral ground’.
- Promote openness and responsiveness
S&OP promotes working with the same set of data company-wide. This not only requires the right tools, data quality, and governance structure, but also a culture that supports the sharing of ‘ugly facts’. Functions must be open about commercial misfortune, production problems and supply interruptions; only then the right actions and decisions can be taken. It is also critical for leaders to be responsive towards imbalances in the different plans. Planning meetings are not only to share insights, but also to take decisions based on these insights on how to eliminate imbalances. This requires having the right people in these meetings empowered to take decisions. As soon as decisions are overruled outside the meeting, the whole process and its related decision-making meetings will lose their value. And again, behaviours will not change.
- Persevere to achieve S&OP success
Change of deeply embedded behaviours will not happen overnight.Top management must persevere to achieve S&OP success. Weakening the focus and commitment will immediately result in a drawback. Reaching higher maturity levels in integrated business planning is a continuous process.