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For most of us, we’re experiencing unprecedented economic challenges. The implications to the supply chain management profession are profound. We’ve gathered some of the industry’s brightest minds to discuss these challenges and seek innovative solutions. We hope you enjoy the Kinaxis Supply Chain Expert Series as we challenge these experts on these issues.

Tom Wallace
Writer & Educator
T.F. Wallace & Company

Tom Wallace is a writer and educator specializing in Sales & Operations Planning, Sales Forecasting, Demand Management and Resource Planning.  He is currently a Distinguished Fellow of The Ohio State University’s Center for Operational Excellence.

Kinaxis: Sales and Operations Planning (S&OP) is a process that has existed for 30+ years.  Why has it taken this long for S&OP to be widely adopted?

Tom: There’s a phenomenon that some call the “Adoption Curve,”  which says that a roughly 25 year lag exists between the invention of a  process and its widespread adoption. Examples: Statistical Process Control to become Six Sigma/TQM, Just-in-Time to Lean Manufacturing, and MRP to MRPII/ERP. S&OP is no different. I suppose it takes that long for the word to get around widely.

Kinaxis: What is the stimulus to the current level of interest in S&OP?

Tom: One stimulus is the adoption curve. S&OP started to get hot about 5 years ago, and the word has definitely got around. Example: the executive in charge of Division D, a successful user of S&OP, gets promoted to head up Division A. She takes S&OP with her; she’s seen it in action and knows that it’s too good not to use. Or the president moves to another corporation; same thing.

Another stimulus is based on the nature of S&OP; it’s a tool to help people cope with change and complexity. As businesses grow more complex, and as the rate of change continues to increase, there is more need to acquire a robust process for decision-making and change management.

Kinaxis: What is the difference between Integrated Business Planning and Sales and Operations Planning, especially with the adoption of the term Executive S&OP?

Tom: I’m not completely certain just what Integrated Business Planning is, so I can’t comment there. I might say that Sales & Operations Planning is highly integrative: it integrates financial planning and operational planning, enabling the business to be run internally with one set of numbers; it integrates strategic planning with detailed day-to-day operational planning; and it has a highly integrative effect on the various departments: sales, marketing, finance, operations, supply chain, new product development and, of course, top management up to and including the leader of the business (president, CEO, COO, general manager, managing director, etc.). It’s very cross functional

I can speak about Executive S&OP, because I, along with my partner Bob Stahl, developed that term. It was a totally defensive move and has absolutely nothing to do with Bob’s and my books, videos etc.  We hope everyone will use it, so of course it’s not copyrighted.

Why did we do this? Because the term Sales & Operations Planning has morphed enormously over the past 10 or so  years. It used to mean an executive-centric process that balances demand and supply at the aggregate volume level — product families and the like. It was never meant to deal with mix — individual SKUs, customer orders, etc. That’s the job of Master Scheduling, Plant Scheduling, Supplier Scheduling, Distribution Scheduling, Kanban, and so forth.

But over the years, the term Sales & Operations Planning came to include all of that. This has resulted in much confusion, to the point that today, when someone says Sales & Operations Planning, you really don’t know what they’re talking about. Is it the high-level, semi-strategic process that it started out as, or is it all of the mix elements as well? The term Executive S&OP takes the confusion away; it refers very clearly to that executive-centric process mentioned above.

This is very important for one simple reason: top management. One, they have a low tolerance  for confusion and ambiguity. The second and more important issue concerns the fact that top management — up to and including the leader of the business — must be involved hands-on with the process. (Some call it “top management’s handle on the business.”)

Well, let’s take the president of a company who has the impression that S&OP involves detailed mix stuff, which is what the morphed terminology communicates. Next he hears that he needs to be hands-on with the process. How willing and enthusiastic will he be to do that? Not at all; that stuff is not his job. And if you don’t have the president on board and hands-on, the process won’t be successful.

Is there a maturity model to describe the adoption of S&OP best practice? Yes.  We don’t call it that, but rather have labeled it “The  Executive S&OP Effectiveness Checklist.”  The issues raised don’t really address measures such as customer service levels, inventory turns, plant productivity and so forth. These are resulting metrics. Rather we focus on enabling measures; they get at the essential process elements within Executive S&OP. If these are done well, the resulting measures will normally be in very good shape, or improving nicely. This checklist is available no-charge at http://www.tfwallace.com/pages/content/free_downloads.html.

Kinaxis: Are the barriers to the adoption of Sales and  Operations Planning best practices organizational or technological? What is the role of technology in S&OP?

Tom: The barriers are almost always organizational. The challenge in making Executive S&OP work is for people to change the way they do some aspects of their jobs. Note the word “change.” Change almost always comes hard, and it frequently comes hardest to the people who have been the most successful. Who are these folks? Well, it’s the people in executive row, most particularly the guy or gal in the corner office.

I was teaching up at Ohio State a few years ago and met a gentleman named Peter Tassi, from the Ford Motor Company’s Lean Supplier Institute. Talking about making major improvements in organizations, Peter said “The hard stuff is the soft stuff.” What he was saying is that the really difficult elements are not in technology; they’re in people’s heads.

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Tags: Sales & operations planning (S&OP)
Posted in Sales & operations planning (S&OP), Supply chain expert series
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