Will Japanese manufacturers be sold on S&OP? I have been to Japan twice—as a student 25 years ago and as a teacher much more recently. On the first trip, I went to learn about a phenomenon called the Toyota Production System (TPS), now known as lean manufacturing. Then, late last year, my mission was to teach Japanese executives and managers about sales and operations planning (S&OP).
Perhaps you’re wondering why I feel this is an important goal. After all, they’ve got a terrific process with lean; why do they need S&OP or anything else? Perhaps you work with people like that in your company—people who say, “We don’t need S&OP; we’re using lean.” If so, that’s too bad. And I would encourage them to consider a paper I wrote called “Lean Manufacturing and S&OP: You Need ‘Em Both.” (See sidebar.)
The problem in Japan
A group of companies that are among the leanest in the world have not yet adopted S&OP, and they’re feeling its absence keenly. They are Sony, Toshiba, Toyota, and many other household names based in Japan. Sony, in particular, is struggling mightily; Toshiba is no longer the force in computers that it once had been; and Toyota faced a massive recall, causing consumers around the globe to question quality levels.
The Japanese industrial sector—and the entire Japanese economy, for that matter—has been in the doldrums for some time. Japanese semiconductor companies used to enjoy a 75 percent share of the worldwide market; today, they have lost both low- and high-end markets to other nations. Similarly, shipbuilders in Japan once dominated the industry, and that is no longer the case. Major causes of this stagnation include the Great Recession; the recent tsunami and nuclear meltdown; and, last but not least, the silo effect.
The rest of the industrial world is catching up with Japan in terms of manufacturing prowess. This expertise, exemplified by the TPS, enabled Japanese companies to dominate in the markets they chose to enter for decades—but no longer. That exceptional efficiency masked a major problem in most large Japanese corporations: silo management, which refers to departments not communicating well among one another. As the playing field of manufacturing expertise becomes more level globally, the difficulties caused by these silos become more severe, resulting in a less-competitive situation, diminished market share, and lower profitability.
In the world of silos, each department has its own set of objectives, which typically are not in sync with those elsewhere in the company. However, S&OP helps businesses break through and get everyone moving in the same direction. It enables companies to do many things well: balance demand and supply, integrate financial planning with the operational side, perform effective simulations of future states, implement strategic plans more quickly and more sure-footedly, and more. The following details how S&OP helps align diverse people and business functions.
Superior teamwork. A president of a major pharmaceutical business once stated that S&OP enables the vice presidents to view the organization through his glasses. In other words, it helps people see things more holistically, rather than focusing on individual business segments. S&OP engenders better teamwork; in fact, I will venture to say that, if a company has implemented S&OP but teamwork has not visibly improved, the implementation simply was not done properly.
Enhanced interdepartmental communications. No longer does the vice president of new products have to remember to tell the chief financial officer that the launch of the latest release will be delayed six weeks and that she may want to factor in that delay on her upcoming earnings call to Wall Street. Why not? Because those kinds of communications are inherent in an effective S&OP process.
One set of numbers. In the world of silo management, each department has its own set of numbers, which rarely concur with the others. S&OP will not be nearly as effective with multiple sets of data, and you will miss out on extra value for your dollar. Using a successful S&OP process, there will be clear agreement.
Enhanced agility. S&OP provides a window into the future. It’s uncanny, but you can see potential issues and perform corrective action before they become real problems. A friend of mine at Procter & Gamble, also a proficient user of lean, said that multiple sets of numbers used to cause problems for the company, citing the example of a large order from a customer that was not forecast. In such an instance, the team would spend several days debating which set of numbers to use. My friend added that, today, with a very effective S&OP process, frequently they can solve the problem in less time than they used to take debating the data.
This is an example of S&OP’s effective use in a tactical situation. It’s also important to note that S&OP’s role in business strategy is not to develop strategic plans; rather, it can enhance a company’s ability to implement these plans. In short, S&OP can play significant and very beneficial roles in both the strategic and tactical arenas.
It’s too early to know exactly what S&OP can and will do for Japan. However, there’s no doubt that knowledgeable Japanese executives, academics, and consultants believe the solution to the Japanese stagnation problem lies in S&OP. They see it as a catalyst for positive change—one with the ability to eliminate silos and enable far superior execution of strategic plans. Many of them view S&OP as the key to renewed prosperity in Japan.
Will most Japanese companies adopt S&OP in the strategic or tactical area? My answer is “yes.” They must use it tactically to balance demand and supply, integrate financial and operational planning, and so forth. Without this, there would be no foundation upon which to build a strategic role for S&OP to sharply change the essence of how the business is managed. The developments in Japan are further examples of the enormous power contained within S&OP. It’s never ceased to amaze me, and I’ve been at it for more than 30 years.
Tom Wallace is a writer, teacher, and public speaker, focusing on S&OP. He also is a Distinguished Fellow at the Ohio State University’s Center for Operational Excellence and has authored or coauthored more than a dozen books and videos. Wallace was the editor of the 4th, 5th, and 6th editions of the APICS Dictionary and has served on the APICS board of directors. He may be contacted at email@example.com.
For more on S&OP from APICS, visit apics.org/sop to download the APICS S&OP Folio “How to be an S&OP champion”; the free, members-only research report on S&OP insights and innovations; and the free summary of “APICS S&OP Challenges.”
A Powerful Pairing
“Lean Manufacturing and S&OP: You Need ‘Em Both” makes the following points:
- Lean manufacturing is a powerful set of processes whose objective is to enhance customer service, eliminate waste, reduce costs, cut lead times, and improve quality. It does these things extremely well. Lean functions primarily in the present and near future.
- S&OP is a set of medium-to-long-term planning tools that help people balance future demand and supply, integrate financial planning with operational planning, simulate the future, and work cross-functionally. It does these things superbly.
- Lean is strong on execution; S&OP is strong on planning and decision making. Because the future involves all areas of a given company, it follows that S&OP should involve most of its primary groups: sales, marketing, finance, operations, supply chain, and so on.
- Some of the leanest companies in the world use S&OP or variants of it under different names. These smart organizations recognize that they do, indeed, “need ‘em both.”
For more information, visit tfwallace.com.