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Lean and Agile

By Ehap Sabri, CFPIM, LSSMBB, and Salim Shaikh, CPIM, CSCP | September/October 2013 | 23 | 5

S&OP first and foremost must be both lean and agile. Lean and agile S&OP is a company’s single-most-important competitive weapon for ensuring that customers are being profitably served through the right channels and with the right product mix.Achieving peak levels of sales and operations planning

Companies aiming to reach higher levels of maturity through advanced sales and operations planning (S&OP) require a practical and proven approach to change transformation. Once implemented, such organizations can become more demand-driven, improve margins, and increase market share.

However, S&OP first and foremost must be both lean and agile. The lean principles of operational excellence, efficiency, and eliminating waste are essential to successful S&OP—as is agility, which puts emphasis on planning and controlling variability. Lean and agile S&OP is a company’s single-most-important competitive weapon for ensuring that customers are being profitably served through the right channels and with the right product mix.

Only when S&OP is truly lean and agile can the process help companies recalibrate business strategy through continuous replanning. Lean and agile S&OP involves stakeholders from sales, marketing, development, operations, sourcing, and finance coming together in a formal, structured cadence to produce an integrated company game plan. This approach reconciles the views of all functional areas simultaneously, making sure the strategy aligns with strategic business objectives.

Principles
The following principles are fundamental to lean and agile S&OP:

  • Focus on customer success. Make sure all participants share the same goals and are linked to the end customer.
  • Create a mutually advantageous and trusted environment for all stakeholders. S&OP is a cross-functional process, so organizations must look beyond local departmental efficiencies and performance metrics and instead focus on a performance measurement system that creates benefits for all stakeholders and aligns to the business plan.
  • Eliminate waste and reduce non-value added activities. This principle encourages firms to free resources to enable greater focus process rather than a reporting exercise.
  • Institutionalize continuous improvement. A formalized, structured S&OP process that rewards continuous improvement should be institutionalized so that it becomes a part of the company culture.
  • Close the loop between planning and execution. This principle emphasizes a “one number" plan to which the whole organization is aligned. This is made possible through vertical integration among strategic, tactical, and operational planning. In addition, using agility to mitigate risk via scenario analysis enables businesses to become more flexible and responsive.

Many companies fail to realize the value of S&OP because stakeholders are operating in silos, entrenched in resolving day-to-day priorities, and putting out fires. Perhaps each department has its own version of the plan and thus decisions are made as an independent functional group. There are no key performance indicators (KPIs) and no plan ownership, which leads to the “blame game” and finger pointing. Companies that have more integrated and lean S&OP—while a definite improvement—still suffer from a lack of flexibility, ineffectiveness with what-if scenarios, and the inability to recalibrate plans in the event of inevitable surprises. This situation can disrupt even the most efficient supply chains.

Lean and agile S&OP successfully leverages the previous five defining principles in order to achieve the highest level of maturity. The process is led by executive management, and there are clearly defined roles and responsibilities. Company leaders are made accountable to own the plan, and S&OP coordinators prepare the review meeting. There are holistic cross-functional and cross-organizational KPIs, which are geared toward internal and external collaboration, rather than exploitation.

Technology aids with automation and the elimination of non-value-added activities, such as manual time and effort spent collating and reviewing data from multiple places. Process calendars help the S&OP orchestration and bring structure, repeatability, and discipline by enforcing cutoff dates through alerts, emails, and notifications. Flexible hierarchy representation and navigation enable stakeholders to enter inputs at different levels and facilitate top-down, middle-out, and bottom-up reconciliation. In a lean and agile S&OP process, emphasis is on not only quantitative inputs, but also qualitative comments, assumptions, risks, and opportunities associated with the plan. Audit trail capability is used for all the stakeholders’ inputs to add transparency and accountability to the process and encourage open and honest communication. This also increases participation and helps create a single version of the truth with no hedging, underestimating, or overestimating.

Process playbooks close the gap on sales and profit budgets. For example, if a gap has emerged between budget revenue and actuals, the playbook would identify root causes and possible resolutions. Playbooks are ingrained in the organization in order to facilitate continuous learning and improvement. It is an exception-driven S&OP process, which increases stakeholder efficiency by making it easy to proactively identify, analyze, and resolve gaps with focus on the plan-do-check-action framework for continuous improvement.

In lean and agile S&OP, there is continuous horizontal reconciliation among stakeholders and vertical integration among strategic, tactical, and operational planning, which are interwoven harmoniously in order to create a cohesive fabric. In addition to being lean, this tactic accentuates inventory and capacity flexibility and cushions against market volatility and forecast inaccuracies, strengthening the organization. Capacity and inventory buffers act as the shock absorbers between strategic planning and operational planning in the event of unpredictable events. What-if scenarios for alternative courses of action and contingency plans help the organization mitigate risk and enable greater responsiveness to changing customer and market needs.

Process steps
The following describes how an organization and its departments should function to achieve lean and agile S&OP.

Product and customer classification. This is the first subprocess, and decisions made have direct impact on market share and margins. Product and customer classification entail segmentation, management of product phase-in and phase-out, and market entry and exit. Rather than use a one-size-fits-all approach, classification helps the organization put more emphasis on key customers and products. This encompasses stratifying the products and customers into clusters so the company may provide a different level of service for the various groups. If there are insufficient resources for key initiatives, then product and customer classification helps with re-prioritization and balancing resources. The owner is usually the vice president of product management or marketing, with participants from marketing, demand planning, management, engineering, operations, and finance. Typical discussion topics in this subprocess include project status, product launches, cannibalization, and competition.

Consensus demand planning. This subprocess involves determining a “one number” demand plan at the product-family level that reconciles inputs from all the stakeholders. This includes not only internal collaboration between sales, marketing, finance, and operations, but also external collaboration with suppliers and customers. Consensus demand planning also incorporates being proactive and creating different demand realization scenarios in anticipation of new contracts, expanding markets, and the like. The owner is usually the vice president of demand planning, and participants include people from sales, marketing, demand planning, product management, engineering, operations, and finance. Sales might provide inputs by account and region and do a bottom-up forecast; whereas finance might provide a top-down revenue forecast. Hence, consensus demand planning needs to leverage technology so that there is flexible hierarchy representation and financial reconciliation so different functional groups can provide their qualitative and quantitative inputs.

Demand supply balancing. Here, teams perform rough-cut capacity and material planning at the aggregate level to determine a constrained supply plan and inventory projections based on the updated demand picture. Multiple supply options, such as offloading, adding capacity, adding blanket purchase orders, and using alternates, are explored to meet the updated demand plan. In addition, rapid what-if simulation provides the agility needed to check the impact of the different demand realization scenarios on key material constraints, capacity constraints, inventory, and projected financials. This subprocess also includes analyzing inventory and identifying potential excesses and shortfalls at the aggregate product family level in relation to supply variability, forecast accuracy, and customer service requirements. The owner is usually the vice president of operations or supply chain, along with participants from demand planning, product management, engineering, operations, and finance.

The S&OP meeting. This is the final subprocess owned by the chief executive officer or business unit president and orchestrated by the S&OP coordinator. In the S&OP meeting, past performance is reviewed, major changes from the last approved plan are discussed, recommendations on unresolved issues are examined, and decisions are made to close any gaps. The impact of the financially reconciled operation plan is examined, with the outcome being a final game plan endorsed by all the vice presidents. Financial reconciliation is not articulated as a separate subprocess in the lean and agile S&OP model because financial projections are an integral part of all the subprocesses.

Positive impacts
Lean and agile S&OP is perhaps the most compelling enabler for enterprise excellence because of its ability to cut waste; increase operational efficiency; and provide flexibility, risk management, and responsiveness to changing business conditions. The process can have a comprehensive positive impact on various facets of the organization, including a healthy cost reduction, better asset usage, increased supply chain visibility, streamlined and aligned processes, quicker response time, faster time to market, and higher shareholder value. Most importantly, it leads to enhanced customer satisfaction—the gold standard of success.

Ehap Sabri, CFPIM, LSSMBB, is a strategy consulting director with JDA Software and a visiting professor with the University of Texas at Dallas. He has 15 years experience developing and implementing supply chain management best-practice strategies and processes across different industries. Sabri may be contacted at ehap.sabri@jda.com.

Salim Shaikh, CPIM, CSCP, is a senior solution advisor at JDA Software and a guest speaker at the University of Texas at Dallas. He has nearly 15 years experience in management consulting, process improvement, and project management and has provided supply chain management best practices training to several Fortune 500 companies. Shaikh may be contacted at salim.shaikh@jda.com.

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Feats in Lean and Agile S&OP
Achieving lean and agile sales and operations planning (S&OP) is a continuous journey. One supply chain executive from an automotive original equipment manufacturer (OEM) began his journey having no standardized comprehensive S&OP process. Each division was approaching S&OP from its own myopic perspective and replicating information across multiple tools. The company needed a demand-driven S&OP process that would enable the business to be more responsive to customers and perform better when doing mid-term and long-term planning.

Through this organization’s S&OP transformation, the executive says his team has realized better ship-to-request performance and increased inventory turns. In addition, team members manage the supply chain more efficiently and cost-effectively. The executive explains that, more than becoming lean, his company has achieved agility because it is more flexible and receptive to the market. This has become a significant competitive advantage for the firm.

Perhaps most importantly, people at the business recognize that this kind of sweeping change is an ongoing journey. As such, the biggest effort has involved ensuring an effective change management process that will be embraced and reinforced.

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