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One of the hottest “trends” in business practice today is S&OP, or Sales and Operations Planning. In simple terms, S&OP (or what we like to call Demand/Supply Integration) is a formal process that is intended to balance demand with supply. A vision of S&OP can be seen in Figure 1. A critical element of effective S&OP implementations is that they are processes that result in both tactical and strategic decisions about how to effectively, and profitably, balance demand with supply.

Figure 1

In a recent survey conducted by our research team at the University of Tennessee, 89% of survey respondents have an S&OP (or some other) process in place that is intended to achieve this balance; however, in that same survey, only 19% of respondents were either extremely satisfied or very satisfied with the effectiveness of their S&OP implementations. On the surface, it looks like a no-brainer. Obviously, companies need to have formal processes to bring together their demand and supply functions, so the right products or services can be produced to meet market demand. So why do companies struggle with effective implementation of these processes? In many cases, the struggle is a result of insufficient attention to Change Management.

In our research we have identified five “Levers of Change Management” that S&OP implementers must address before their implementation efforts can be successful. These Levers of Change Management consist of:

  1. Culture and Values
  2. Business Processes
  3. Information and Systems
  4. Organization
  5. Metrics and Competencies

The first three levers are fundamental, and last two levers are the facilitators of the three fundamentals. Let’s look briefly at all five levers.

  1. Culture and Values. Easily 50% of the challenge to successful implementation of S&OP processes lies here, in the organizational culture that either supports or deters integration. In many companies, demand functions (typically sales and marketing) are at cultural odds with supply functions (such as operations, supply chain, and purchasing), with finance at cultural odds with both. Many times, these cultural differences are the result of conflicting metrics and lack of understanding about the needs and challenges that each function faces.

  2. Business Processes. Probably 40% of the challenge to successful implementation of S&OP lies in creating processes that bring together the right information for the right people at the right place and the right time. Building these processes is particularly challenging for companies that are multi-divisional or global in nature. Demand and capacity forecasting processes are often poorly defined or undisciplined, and often rely on informal communication channels that fail to take advantage of useful analytical tools.

  3. Information and Systems. Although many companies prematurely focus on information systems, believing that systems will act as the “silver bullets” for effective S&OP, these tools usually account for only about 10% of the challenge to effective implementation. While it is true that clean data and common IT platforms are necessary facilitators for effective demand/supply balancing, selection and implementation of these tools should never precede well thought-out processes, and should never be seen as substitutes for an engaged organizational culture.

    The above three levers are fundamental to effective S&OP Change Management. The final two levers are necessary facilitators to the fundamental levers.

  4. Organization. By organization, I refer to the right organizational structure, containing the right people who have the right responsibilities and accountabilities. Organizational functions have inherent biases, and careful thought must be applied to ensure that these biases do not inhibit the flow of information and effective decision-making.

  5. Metrics and Competencies. Metrics involve how people and processes are measured. There is an old saw in business that “what gets measured gets rewarded and what gets rewarded gets done.” Thus, the right metrics are critical to drive the right behaviors. Competencies involve training. From statistical training for demand forecasters, to process training for sales people, to supply chain training for senior executives, training is critical to enabling the engaged culture that is necessary for S&OP processes to succeed.

How can your company effectively implement S&OP processes? First of all, don’t assume that it can be done overnight. Once again, the lever of change management that is the most critical element is culture change, and that takes time. Clear and forceful executive sponsorship and support will be needed to drive these cultural changes. All the members of the senior leadership team must buy in and embrace the goals of S&OP. Second, find an effective change agent. Someone must have S&OP implementation as his or her full-time job, and this individual must be an effective leader who can drive support and enthusiasm both vertically and horizontally throughout the organization. Don’t think that S&OP will somehow implement itself—it has to be effectively driven by an agent of change.

The results will be critical to the success of your organization. Only through effective Demand/Supply Integration, or S&OP, can companies achieve the dual goals of satisfying customers and effectively managing costs and assets. Effective Change Management is critical to achieve these worthy goals.

Additional Resources
Dr. Moon’s one-day pre-conference workshop, Change Management: Key to Effective S&OP Implementation, will be presented on February 23, 2009 at the Forecasting Summit in Orlando, FL. Click here to learn more.

About the Author
Dr. Mark A. Moon is an Associate Professor of Marketing and Director of the Sales Forecasting Management Forum at the University of Tennessee, Knoxville. Prior to joining the UT faculty in 1993, Dr. Moon earned his Ph.D. from the University of North Carolina at Chapel Hill. He also holds MBA and BA degrees from the University of Michigan in Ann Arbor. Dr. Moon’s professional experience includes positions in sales and marketing with IBM and Xerox.

He teaches at the undergraduate, MBA, and Executive MBA levels, and teaches Demand Planning, Forecasting, and Marketing Strategy in numerous Executive Programs offered at the University of Tennessee’s Center for Executive Education. Dr. Moon’s primary research interests are in buyer/seller relationships, demand management, sales forecasting, and Demand/Supply Integration (or Sales and Operations Planning). He has published in several journals including the Journal of the Academy of Marketing Science, International Journal of Forecasting, Supply Chain Management Review, and the Journal of Marketing Theory and Practice, as well as several national conference proceedings. Dr. Moon is also the author, along with Dr. John T. (Tom) Mentzer of Sales Forecasting Management: A Demand Management Approach. Dr. Moon has consulted on sales forecasting re-engineering projects, participated in Supply Chain audits and delivered custom executive education programs for numerous companies including Coca-Cola, Corning, Deere and Company, DuPont, Eastman Chemical, Hershey Foods, Johnson & Johnson, Lockheed-Martin, Sony, and Union Pacific Railroad.

 

Business Forecast Systems in cooperation with the International Institute of Forecasters