Things change. We all know this. Our kids get older, we get older. We start our morning with coffee, then we are told we need to cut back on coffee. So we start our morning without coffee. Change is not always our choice, sometimes it is imposed on us. This observation leads me to the question: How do we plan for change without over-reacting?
When it comes to S&OP, we strive for consistency in how we deal with change. But how do we put this into practice?
For example, each month you run your S&OP process. You have a sales pre-S&OP meeting. In this meeting, sales and marketing look at both your customer forecasts and your marketing plans, and come up with a demand forecast. This forecast is reviewed by operations, who put together a production plan to meet the demand. Then, in the executive S&OP, you finalize the plan, and agree on the sales and production levels going forward. The plan may go out for 12 months but, at the very least, you are focusing over the next three months. Finally, you align your production resources and suppliers with this plan by updating the master schedule and material planning.
Another job well-done. You think about having a coffee after all. Then the month begins.
The day after the S&OP meeting (or maybe the week after), the emails and phone calls begin.
“Sales look a little soft,” someone says.
“Our order inflow rate doesn’t match the forecast,” someone else notices.
“I think we should reduce daily production levels due to the lower sales,” you hear in a voice mail message. “Call the suppliers to get them to reduce next week’s shipments.”
“We need to reduce a shift next week," you read in an e-mail.
At the end of this barrage you are calling suppliers to defer some shipments so that you are not left with excess inventory. You’ve made the right decisions based on what’s truly happening. You know you did. Or did you?
The month continues. Orders start to come in much stronger. The good news is that it looks like you will make the sales forecast for the month. The bad news is that you’ve already reduced your production levels and supply pipeline, based on the lower levels. To make the sales you will need to run overtime. This means you have to call those same suppliers again, and this time get them to expedite the shipments that you just deferred. Everyone works hard and you pull it off and make your numbers.
Maybe a coffee and a doughnut.
In your next S&OP meeting, you review your last month’s performance. Both sales and production come in very close to your original call for month. It looks like the process is working well. Everyone wipes the sweat from their brow—another month on target!
However, think about what it took for you to make the numbers! You had to run overtime after removing shifts from the schedule.
This hurts your production efficiency. You “jerked” your suppliers around by sending mixed signals to them in the month. It took a lot of your resources to pull off a plan that you had already laid out. You ask yourself: How do we stop doing this? The answer comes from farming. You plow.
Old McDedman had a farm
For those of you who aren’t aware, a plow is a tool used to turn soil upside down. You pull it with a tractor, and it has blades that cut into the ground and flip the soil to one side, burying the growth that is on top. Because it can only turn the soil one way (in North America anyway), in order to plow a field you need to start in the middle of the field and work to the outside edges.
A point of pride for a farmer is to see how straight they can plow and plant their fields. When I was a kid growing up, it was a favorite past time of my father’s to drive us through the countryside to compare crops and, yes, to look at how straight the neighboring farmers plowed their fields.
You may be wondering how all this relates to S&OP. If you’ve never had the pleasure of trying to plow a field (knowing that all of your neighbors will be assessing your handiwork), that is a fair question.
The answer is that meeting the challenges of plowing a field are very similar to meeting the challenges of S&OP changes. It’s a matter of perspective, and of keeping your eye on your target at all times.
You need a target
In order to plow straight down the field you need to have a visual target at the end of the field. A tree, or a post, something that you can see. When my dad first taught me, it was the big maple tree at the far end of the field.
Once you pick your starting point at one end of the field, you set the tractor towards the tree and keep driving straight toward it. You ignore the slight dips in the field, the distractions of other trees—you keep to your course. It’s important that the tree is visible the whole length of the field. If the field had a hill in the middle, where you would be unable to see the target, you may need to set a medium distance target. Some farmers put a stake in the ground in the middle of the field until they can see the tree.
S&OP is about setting targets that you can keep your eye on. In the absence of S&OP, we only have annual targets or quarterly targets to go by. When these are the only targets we have, by the time we get there and assess our performance,
it is already too late to make adjustments.
The monthly target is the best one to focus on because at the end of each month you assess your performance and make adjustments for the next month. S&OP is an iterative process each month. Set the target and stick to it.
Just as the tree needs to be big enough to see, the same set of targets in S&OP need to be visible to everyone. You need agreement on the targets in order to align the plans to meet them.
Beware the front of the tractor
A field is never flat. You drive your tractor slowly across an uneven surface. At a slow speed the tendency is to start looking over the front of the tractor, and reacting to the hill or knoll that is right in front of you. Then you begin to overreact and steer left, and right, to account for the changes in terrain. At the end of the field, you are staring up at the tree you set as your marker, but when you turn around and look at your work, the furrows snake across the field instead of line up in a nice straight line. It takes discipline to keep your focus on the tree, and ignore the other obstacles vying for your attention.
This potential loss of focus is the scenario I presented at the beginning of the article. With S&OP we make it to the monthly numbers, but the process to get there is not pretty. Unlike farming though, the result of us reacting to the changes right in front of us may not be immediately obvious. They often take the shape of:
High expedited freight charges
Purchase order revisions
Labor inefficiency
Lower fixed cost absorption
Higher inventory
Keeping the lines straight
So how do we avoid overreacting to the changes? Here is a list of four points to help you stay the course with S&OP:
The reality is that no plan is perfect. Changes will happen. How we react to those changes is what separates the straight lines from the crooked ones.
And now, I’m going for my green tea. What, did no one ever tell you about substitutions? Green tea for coffee is perfectly acceptable. Just ask me.
Remember: straight lines. People are watching, so give them something good to look at.
This article was first published in 2008 in the DBMExecutive. You can download that version here. It was also published in the March/April 2011 Edition of The APICS Magazine.
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