Gary A. Smith, CFPIM, CSCP | September/October 2013 | 23 | 5
Unite your company’s vision with its operating plan
There often is a disconnect between a company’s annual goals and its strategic plan. Annual goals can be subject to the whims of the annual planning process, while a lack of focus can create gaps in continuity. Thus, annual planning cycles, while possibly successful at meeting short-term objectives, can fall short of meeting strategic objectives. As organizational cultures have long memories, the discontinuity is noticeable—eventually, employees feel that their efforts to meet objectives are unappreciated because the focus keeps shifting. The question becomes, how can supply chain and operations management professionals support the firm’s long-term strategic plans with short-term annual goals?
A multi-year operating plan uses the organization’s strategy, mission, and values as drivers. These drivers guide the plan to industry best practices, enabling supply chain managers to accomplish specific initiatives, projects, and goals over the course of several years. The purpose is to close the gap between current performance and the ideal future performance based on the company’s vision.
Changing the culture
Taking on long-term planning means bringing significant change to the organization. And, according to John Kotter in his book Leading Change, 70 percent of change management projects fail.
Why is the failure rate so high? The reason lies in the nature of change itself. Change occurs in two ways: mechanistically and organically. The majority of change at an organization begins as mechanistic and usually is introduced from the outside. Mechanistic change comes in the form of new ideas, recommendations, and processes introduced by outside consultants or management. Mechanistic change comes from the top down.
On the other hand, organic change is implemented from the bottom up. While it is slower to catch on, it is taught to successive generations of workers and becomes part of the organization’s culture. It is “just the way things are done around here.” Organic change is permanent, while mechanistic change is often temporary.
Mechanistic change can become organic if it is properly and consistently applied, taught, reinforced, and rewarded. The reason that two-thirds of change management efforts fail is not that organizations won’t change; it is because management is unsuccessful at converting mechanistic change into organic change. Change that does not become part of the organization’s culture is doomed.
In creating a multi-year operating plan, managers in effect become modern alchemists. They develop cohesive and complementary initiatives that, when implemented over the long term and based on best practices, transmute mechanistic change into organic change through consistency and reinforcement. Change should be built brick by brick, with success measured not just in terms of a series of annual metrics, but in what is built over time and how that change contributes to the entire organization.
Drafting the plan
An overview of the various components that go into a multi-year operating plan can be seen in Figure 1. The first element is the strategic plan, which can be found in public, private, for-profit, and nonprofit organizations alike. Here, the organization defines itself in terms of what it does, the customers and markets it serves, and its plans for the future. It covers a period of several years and describes actions and goals in general terms.
The next components are the vision and mission statements. In order to have any meaning, these first must be assimilated into the organization’s culture. The vision statement provides the organization’s long-term view of itself in a perfect world and is designed to be a source of inspiration. As an example, the following is the vision statement from Ohio-based manufacturer Lincoln Electric:
We are a global manufacturer and the market leader of the highest-quality welding, cutting, and joining products. Our enduring passion for the development and application of our technologies allows us to create complete solutions that make our customers more productive and successful. We will distinguish ourselves through an unwavering commitment to our employees and a relentless drive to maximize shareholder value.
Meanwhile, the mission statement describes how the company will attain its vision—it is the engine that will propel the organization to the desired state. The following is the mission statement for auto retailer Advance Auto Parts:
It is the mission of Advance Auto Parts to provide personal vehicle owners and enthusiasts with the vehicle-related products and knowledge that fulfill their wants and needs at the right price. Our friendly, knowledgeable, and professional staff will help inspire, educate, and problem-solve for our customers.
The APICS Dictionary defines a best practice as “the measurement or performance standard by which similar items are evaluated.” They are procedures, processes, or systems that have a noticeable, long-term, positive effect on the organization. Best practices provide the path from the present to the ideal state as articulated by the vision, mission, and strategic plan of the organization. Likewise, the strategic plan, vision, and mission provide clues as to which supply chain best practices to apply.
In its vision statement, Lincoln Electric clearly values high quality and technical leadership in its industry. Advance Auto Parts, on the other hand, is focused on low price and friendly service in its stores. There is no right or wrong—just different approaches to different markets. Each of the methods drives a different set of best practices. Based on your organization’s strategic plan, values, and mission, there are a number of paths to travel and best practices to choose.
Best practices are most easily identified through research. For almost every facet of supply chain, there are multiple best practices to model and benchmark against. Common examples of best-practice topics in supply chain include inventory control, demand-pull, distribution network, procurement, and technology.
Call in the SWOT team
If your organization lacks a strategic plan, you might consider synthesizing its most important elements. One method is to conduct a strengths, weaknesses, opportunities, and threats (SWOT) analysis. It is an effective analysis technique that can be used at strategic, operational, and technical levels, and it is relatively easy to teach, implement, and understand.
Strengths are the characteristics perceived to be the firm’s advantages over competitors or in the business environment. Meanwhile, weaknesses are what management perceives to be disadvantages in the marketplace. Opportunities are the factors that can be exploited to the company’s advantage, and threats are the elements that could have negative consequences.
Strengths and weaknesses are both internal factors in that they are characteristics internal to the organization. Opportunities and threats, on the other hand, are external factors: They are part of the external environment that affects the organization.
Begin by meeting with key people in production, marketing, accounting, purchasing, warehousing, and any other department that has a stake in the supply chain. For each department, identify one or more major supply chain issues that affect the organization from its perspective. Then conduct the SWOT analysis, identifying the strengths, weaknesses, opportunities, and threats for each issue.
An interesting twist on the standard technique is to identify the probabilities of success or failure for each issue based on the results of the SWOT exercise. If there is a high probability of success, identify negative situations in which the probability would be significantly reduced. On issues with a low probability of success, identify situations in which the probability would significantly increase. The result is a 360-degree view of the issues and a much more realistic view of the outcomes with possible ways to mitigate failure.
Next, distill your issues into high-level drivers—four to eight may suffice. These drivers should realistically define the operating environment, challenges, and opportunities for the next three-to-five years in terms of finance, budget, and operations. Finally, close the loop by reviewing these drivers with executive management for buy-in and consensus prior to identifying appropriate best practices.
Bridging the gaps
The last major step in developing a multi-year operating plan is to form the initiatives that will drive the plan. Each best practice can produce multiple initiatives. Form brainstorming meetings where you and your team develop as many ideas for each best practice as possible, then prioritize the list. Consider the following questions, as well as your own, when determining priorities:
- Does the initiative support the organization’s vision, mission, and strategic plan?
- Does it have a high probability of success?
- Are there enough resources and talent to implement the initiative?
- What major change management issues first need to be addressed?
A good rule of thumb is to develop two-to-four initiatives for each year of the plan. Layer them so that they can be built upon. For example, if one of your goals is to implement supplier relationship management, you would first want to ensure you have a good supplier scorecard system in place, understand who your strategic suppliers are, and maintain good relations with them.
Each initiative should be identified using as much detail as possible so that both executives and team members have a basic understanding of what the initiative is; why it is important; the anticipated benefits; the best practices it’s tied to; and its relationship to the organization’s mission, values, and strategic plan. High-level costs should be included, if known.
Finally, develop a critical-skills plan outlining any changes required and new skills that need to be acquired. (See Table 1.) This should be coupled with a high-level implementation plan showing each initiative, its priority, and its estimated start and complete dates.
Using short-term initiatives to reach long-term visions and goals invites failure. A multi-year operating plan, developed by a supply chain manager using a series of cohesive initiatives, can bridge the gap between annual and strategic plans and provide continuity and reinforcement to create change—real change that lasts.
Gary A. Smith, CFPIM, CSCP, is director of supply chain operations for the New York City Housing Authority, where he oversees the management and distribution of approximately $60 million in annual spend for materials used in the repair and maintenance of over 179,000 low- and moderate-income apartments in New York City. He is a board member for the New York City-Long Island APICS chapter. Smith may be contacted at Gary.Smith@nycha.nyc.gov.
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