S&OP Made Good: The Importance of Investing In People

Many companies still struggle to get value out of their sales and operations planning processes. They invest heavily in technology and processes to reach for S&OP’s cross-functional potential, but end up with discouraging results. For companies that truly understand the role of people in an effective S&OP process, it’s a different story. Here’s what it takes to get the people dimension right.

Here’s an uncomfortable question: After 30 years of talking about sales and operations planning (S&OP), can we truly say it’s working? S&OP is a terrific idea in principle.
When it’s done right, it’s great in practice too. But the trouble is, it’s not often done right. Here’s how I know that.
Recently, my company, together with the trade organization Eye for Transport (EFT), surveyed 131 supply chain executives, mostly from large manufacturers, to explore their S&OP experiences. At first, the evidence was reassuring: 85 percent of respondents claimed to be following S&OP with discipline “somewhat to completely.” But answers to the follow-on questions weren’t so encouraging: 
Almost 40 percent said that they thought a monthly meeting was enough to qualify as S&OP, and a staggering 94 percent were making crucial supply chain decisions outside the process.
(See Exhibit 1.) Not good. 
I’m under no illusion that most companies have yet to reach full S&OP maturity; the final “orchestrate” stage identified in Gartner’s S&OP Maturity Model will be an aspiration rather than a realistic destination for many. Still, it surprises me that 70 percent of our survey respondents have plateaued at the “anticipate” stage, where just a single department owns a standardized “one size fits all” process.
Why, after all this time, are so many companies stuck here? Let’s begin our analysis by looking at which elements of S&OP—people, process, and technology—are in place.
We have process, and then some. Enough material has been written about the S&OP process to sink an ocean liner! There has been no shortage of speeches, Webinars, training courses and more on the topic.
We also have technology in abundance. If you aren’t getting enough cold calls from supply chain software vendors to believe this, a quick online search for “supply chain planning software” reveals more than 40 million results, among which are links to thousands of vendors, industry reports, and articles. There is something out there to meet practically every functional requirement.  
So why such limited success? What’s left? I contend it’s a lack of focus on the people. When I meet executives for the first time to discuss their S&OP experiences, I ask them to break down the percentage of their overall investment (money and time) that they think should be allocated to each of those three key areas. Invariably almost everyone— especially those with past S&OP experience—will allocate 70 percent to people and the rest to process and technology. “People are our greatest asset!” goes the inevitable cry. Reality, however, is very different. Most companies invest roughly 70 percent of their budget on technology, 20 percent on process, and a mere 10 percent on people—and that’s if we’re really lucky.
(See Exhibit 2.)
In practice, this means they roll out new technology. They bring in consultants to design processes and sometimes to integrate those processes into the technology. As to the education budget, it’s mainly used to train people on the new technologies and processes and to deliver one-way “communications” to tell people that S&OP is happening.
In case there are supply chain managers out there who hope otherwise, let’s make it clear that technology and processes, no matter how cleverly customized and well-conceived, can never run supply chains in isolation. S&OP’s full potential is realized through a collaborative process across the whole business, involving functions ranging from product development, marketing, finance, human resources, and yes, supply chain.
That’s where the people come in. These functions, and so many more like them, depend on human judgment, relationships, negotiations, and influence. Technology can certainly help by handling the grunt work of numbercrunching and more advanced services such as making trade-offs between inventory and service levels. But it’s people who need to apply those calculations to make the right judgment calls for their companies at a given time, taking the current business context into account. And it’s the people who will rightly be held accountable for crucial business decisions—not machines or process maps.
How to Invest in S&OP People
So what does it take to put people back in the S&OP picture? I regularly challenge supply chain leaders to meet their aspirations of investing 70 percent of the budget in people, and roughly 20 percent on process design, and 10 percent on technology. The inevitable question they ask is: What does that look like?
It involves educating managers from the board level on down about S&OP, clarifying their roles in the process, and explaining why they should care. Then it’s the people across the whole company who should set about designing the S&OP processes, using consultants only to coach and facilitate rather than prescribe. New technology should be implemented last of all; it should be aligned with the defined processes and set up to do the labor-intensive number crunching. Let’s explore some of the typical S&OP pitfalls and bottlenecks—problems that we can eliminate through interactive workshops and skills development involving people up, down, and across companies. We typically see four areas of difficulty:
Setting the right goals for S&OP. If I had to pick the S&OP goal that companies most commonly set, the hands-down winner would have to be “cutting inventory by X percent across the board.” Every time I hear that, I need to take a deep breath. Besides the fact that this is a very narrow, tactical objective, it could turn out to be a very bad idea. It also reflects a total misunderstanding of inventory’s proper role as an asset to protect the business.
If anything, a company should be looking to optimize its inventory against, say, a target service level or revenue figure. Granted, in the process of auditing SKUs we find that we can hold lower safety stocks for many items. But this does not mean that lowering inventory should be “the goal.” When I’m holding executive workshops on this topic, I advocate using one of the S&OP maturity models, such as Gartner’s, to set goals that grow in ambition over time.
Resolving KPI conflict. One of the chief reasons that companies introduce S&OP is to get people out of their silos and to work together. This means that key performance indicators (KPIs) must be calibrated to reflect shared goals and ensure that they don’t cannibalize each other. Companies often discover that they need to shed some dated Management by Objectives (MBO) ideas that advocated siloed departmental goals that roll up to high-level KPIs. As logical as this approach may seem, it has resulted in many departments working at cross purposes.
The principle for resolving KPI conflict is fairly simple,albeit not always easy to implement: It involves creating win-win scenarios for the relevant stakeholders. We solve this in workshops by bringing together teams of people with conflicting KPIs and getting the participants to negotiate. Sometimes this involves counterintuitive decision-making: For instance, that could be a department or function accepting a cost increase that will ultimately cut the overall costs for the business.
Involving every part of the business. It stands to reason that the more business functions that are involved in an S&OP initiative, the more complete, robust, and successful will be the outcome. Despite this, I talk to a lot of companies that want to leave out key roles such as finance and marketing—or worse, keep S&OP isolated within the supply chain group. To counter such inclinations, our workshops often include hands-on, interactive education and business simulations that model S&OP. This approach paid off recently at a large manufacturer of animal nutrition products, where the marketing director, who’d initially been reluctant to free up one of his staff to work on the S&OP team, saw how the company could benefit from his group’s active, ongoing participation in demand planning. (We say more about this example later.)
Leading from the top. Don’t bother with S&OP if your Board and CEO aren’t prepared to lead it from the top. It won’t work. However, simply agreeing to lead or sponsor isn’t enough either. Most executives will first need to learn more about supply chain. Many initially resist, which is why we always start with the executive workshops to ensurewe genuinely gain their buy-in.
In many cases, that can mean going back to basics togain a complete, cohesive understanding of “supply chain.” I define supply chain management as the perspective and management of all the processes that affect the flow of product from the customer’s customer to the supplier’s supplier. This is a much broader definition than most organizations actually endorse. They say it, but they don’t do it. Today, 32 percent of companies have source, make, and deliver reporting to the same organization, and the gaps in alignment between operations and commercial teams are large. Workshops that paint the whole dynamic picture of the supply chain can be eye-opening for many executives.
People ROI: Two S&OP Success Stories
Rather than give you more theory, let me share two stories of companies whose S&OP journeys are well under way, and whose leaders have made brave decisions to emphasize the S&OP roles of their people. In effect, the companies are democratizing S&OP by investing in people both across functions and up and down the hierarchy.
CAN India. After Cargill acquired the global animal food additives manufacturer Provimi in November 2011, the resulting company, Cargill Animal Nutrition (CAN), had an extremely large and complex product assortment, along with a vast but disintegrated body of supply chain expertise. CAN combined Cargill’s expertise in compound animal feed, supply chain, and risk management with Provimi’s trusted wide range of nutritional expertise, its technology, and its product portfolio of premix, additives, and ingredients.
CAN India provides manufacturing services for CAN, whose products are delivered by more than 16,000 employees across a global network spanning 37 countries. The need to optimize planning in this context, and to ensure that organizational supply chain knowledge was being deployed to best advantage, created the “burning platform” for CAN India to rethink its 26-year-old sales and production control processes— processes that focused much more on the short term—and to move toward S&OP.
CAN India’s transformation started on June 4, 2013 and touched all key functions within the company, including marketing, commercial, and operations. That month, CAN India engaged our company, Hughenden Consulting (we’d already worked in many other areas of CAN), to design and deliver a tailored change and education program and provide ongoing mentoring and support for people at every level. Executive roadshows—to educate and win over the top team—were the first step in the effort. Hughenden co-led a session with the project’s executive sponsor, Jaro Caban, to reach 16 executives. This one-day workshop explained the highlights of the proposed education program, including the concrete benefits to the company. It also gave the executives a chance to ask questions.
The workshop was an early win, according to Raghavendra Joshi, CAN India’s financial director. “We now see how small changes to our processes, like forecasting, can deliver immediate benefits to our working capital that continue to accumulate,” he says.
Next, we helped CAN India with a series of “Manager Involvement Sessions” designed for top and middle management in areas including finance, sales, logistics, and operations. These sessions were more intensive than the executive roadshow, providing detailed information about key roles including demand planning and supply planning, and showing how the various business functions come together in the S&OP process. The sessions paved the way for a series of ad hoc S&OP workshops designed to help the CAN India managementteam deliver S&OP effectively and sustainably. These follow-on workshops intentionally covered the same topics repeatedly to ensure that people really absorbed the new knowledge and also had the opportunity to question and apply it in context as people and processes underwent change. They also included games to illustrate the tangible benefits of S&OP.
Next came specialist education for practitioners such as demand planners, commercial team members, and later, marketing team members. These sessions helped build a range of technical demand planning and communications skills and included assignments, homework, coaching, presentations, and classroom training. After CAN India’s marketing staff took that specialist course, it became clear that the next logical step would be to have a marketing person permanently join the demand planning team.
Today, CAN India‘s S&OP process is firmly established. The monthly management review meeting is now an integral part of the monthly leadership team meeting. Only two hours are allocated to S&OP decision- making, which is met through a disciplined meeting agenda and chairmanship ofthe meetings. Another significant change is to the forecasting process, to which CAN India agreed during the specialist education sessions and which the company’s change initiative leaders successfully “sold” to the management team. To explain: CAN India had estimated that its established forecasting methodology was about 60 percent accurate, but upon closer review with Hughenden, the accuracy level turned out to be significantly lower. After much debate and discussion, the planning team conceded that it needed to change its forecasting methodology, accepting that its current “reality” was not as rosy as previously thought.
The first change was to start forecasting with much longer lead times, initially moving from 15 days to 30 days. It also called for bringing in marketing intelligence much
earlier, before the commercial inputs, where before the intelligence had been added at the end. These two changes have increased forecast accuracy by between 5 percent and
8 percent—still far short of ideal, but a very positive step.
CAN India is looking forward to many other improvements, including a new enterprise planning system. Overall, the company stands to improve its position in the highly competitive animal nutrition market, spurred in large part by the change in mentality and behavior instilled through its S&OP education program.
Westmill Foods. In ethnically diverse Britain, leading foods company Westmill Foods has a veritable feast of planning challenges. Demand for specialty foods peaks during religious festivals such as Ramadan, Diwali, and the Chinese New Year. And plans for non-peak demand must be continually fine-tuned as demographies change in cities up and down the country. Westmill, which serves up popular brands like Patak’s, Amoy, and Habib to restaurants and take-out shops, was a good business that aspired to be great. In early 2012, Jonathan Downes, the company’s supply chain director, suspected that the introduction of an integrated business planning (IBP) process would be key to making that leap because it could unite cross-functional departments to achieve shared goals. (At Hughenden, we regard IBP and S&OP as synonymous.)
The company wanted its team to come together under clearly defined and “joined-up” processes, but without diminishing or otherwise downplaying the value in people’s individual contributions. The overall vision for the process was to have employees across all business functions get involved in designing and synching up the various processes so that change would be truly embedded and sustainable.
Westmill brought us in to help set the changes in motion. The first step was to set the scene for the company’s board members, emphasizing that sustainable change hinged on leadership and being able to bring people along on the journey. The board members responded very positively. They were eager to learn which parts of the businesses needed their support most urgently and how they could help make change happen.
Westmill ran the first “alignment” phase of the overall process-change initiative, working with directors and senior managers to align their expectations of IBP. Collectively, those participants came up with a list of characteristics and steps involved for four different high-level process streams: product management, demand, supply, and integrated reconciliation. For each high-level process area, the team then identified two “centerpieces” at the heart of each review. For instance, the demand review focused upon a phased and summary demand plan. Throughout these early stages, a collaborative approach was encouraged—and was very much in evidence.
The next phase of the initiative comprised four daylong IBP design workshops. Westmill ran the first product management workshop, with our firm supporting the subsequent workshops on demand, supply, and integrated reconciliation. In these workshops, teams of eight and 12 people worked on further defining each of the process areas established in the alignment phase. This included agreeing on the different review points, the inputs and outputs, the dependencies, and the people and roles that should be involved at different stages.
To motivate Westmill’s people, the workshops had to be stimulating and interactive - not a series of one-way presentations. Each day started with an “energizer” to break the ice and set the context for the day. For instance in the  supply management workshop, the day started with a “constellation-style” exercise. Each team member was assigned to represent a specific stage of supply management and wore a sign around his or her neck that symbolized their stage. Each person then physically moved to a location that represented their stage in relation to all the other parts of Westmill’s supply chain process.
A pleasant surprise coming out of the workshops was the extent to which they started driving the change then and there. When people could actually simulate how the processes might work in a production environment, they started flagging inconsistencies, duplications, and other considerations, such as the need for longer planning horizons.
According to Phillip Thorndike, Westmill’s business planning chief, “This opened up people’s eyes and developed a genuine desire to get involved with the change. Our new challenge became having to channel people’s enthusiasm without dampening it. With a collaborative process, it’s important that you don’t have some individuals running too far ahead of the pack.”
The collaborative IBP effort gave birth to “harmony,”—the company’s name for a way of working to be embedded into daily activities at Westmill and to continually evolve and improve. There would now be five stages at the heart of the monthly planning process: product management; demand; supply; integrated reconciliation; and management business review.
Communicating Crucial Change
Instead of the more traditional PowerPoints and briefing packs, we worked with Westmill to design a more dynamic communications package to launch at a day-long conference that would launch Harmony. We produced a video that captured the spirit of the review meetings and the wide range of people involved in Harmony, from managing director Paul Kenwood down and across the business areas. Each manager who attended the conference then received a branded USB stick, which included the video, a detailed briefing on Harmony, and a presentation that offered a wider industry perspective on IBP. These USB briefing packs armed the managers with everything they needed to communicate Harmony to their teams across the business.
Westmill has completed the roll-out of Harmony to all of its product segments, continued to improve its supply chain processes throughout 2015, and has seen significant benefits to supply chain governance. Forecast accuracy is now regularly above 70 percent and improving. This will be measured more formally when Harmony has been embedded long enough to make year-on-year measurements.
Westmill also sees positive changes to team culture and individual behavior. “Because everyone is contributing to one set of numbers, people can see how their actions are shaping decisions,” says Thorndike, the business planning chief. “This is extremely motivating. We also notice that people are much more confident when it comes to flagging up risks and opportunities. These are the kinds of cultural changes that are taking us from good to great.”
Companies all over the world have been relying on technology and process to push for higher levels of S&OP maturity. But those efforts are not working on their own. So isn’t it time that supply chain leaders put their trust, time, and resources into people?
By Hugh Williams
 Hugh Williams is the Managing
Director of Hughenden Consulting.
He can be reached at Hugh.
com. For more information, visit
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