Change Management and S&OP: Part II

In the last issue of BONEZONE, we covered the priorities involved in an implementation of Executive S&OP1 (Sales & Operations Planning) and pointed out that people were, by far, the most important element. This led to the conclusion that change management was critically important – more so than software, data, process or other parts of the implementation task.

If you missed that article, you may want to check it out because Part II builds on that. You can find the first installment, “Change Management in S&OP,” in BONEZONE Fall 2010.

Within change management, the foundation piece is understanding. Let’s explore that.

Education: The AHA! Factor

Education is a key element in people’s willingness to change. Education leads to the aha! factor. It’s what I call the “anti-WIIFM pill,” WIIFM meaning, “what’s in it for me.”

Education defuses the yeah-buts and helps convert them into yes-ands. So, the anti-WIIFM pill – Education –is a miracle drug. It’s safe; it’s effective and you can’t overdose on it. Education leads to understanding and awareness, and is fundamental to success.

Success requires informed people, those who understand the value of Executive S&OP and what it can do for the company. Only with that will the process be fully successful. People need to have understanding of the whats, the whys and the WIIFMs . Education needs to include answers to questions such as:

What’s this S&OP stuff all about?
Why should we do it?
How will it make things better?
Will I be able to do my part?
How about the other people – will they do their part?
What parts of my current job will go away?

Understanding requires not only information, but also dialogue: being able to ask questions and get good answers. People need the ability to discuss, to ask questions and, in effect, to “shoot bullets” at Executive S&OP. The atmosphere during implementation should encourage people to ask hard questions – very hard questions – about the process. Examples:

“How can you accomplish anything by looking at aggregate numbers? We don’t ship aggregated numbers; we ship SKUs. There’s no way this can help us.”

“I can see how it will work okay in the plants, but how about our contract manufacturers? I don’t think it’ll work with them.”

“This will never work because they (top management) will never agree to get involved.”

POW! POW! POW! Those are shots: There’s no way this can help usis a shot. I don’t think it’ll work with them is a shot. They will never agree to get involved is a shot.

Do the answers to these objections come from reading a book? Usually not. They come from being taught the concepts, the principles and the process in a group setting – and being able to shoot bullets as the need arises. Books can help, but they provide basic information and don’t answer specific questions.

Of course, when someone shoots a bullet, an answer must be provided – by the facilitator or someone else, then or shortly after. And the issue should be kept alive until it’s resolved to the questioner’s satisfaction.

Here are some other elements in the change equation.

  • Shoot the Messenger. While shooting bullets is positive and to be encouraged, it’s a totally different thing to shoot the messenger. If the corporate culture says it’s okay to blame the person who identifies a problem, then that will inhibit effective communication, conflict resolution, teamwork and trust.
  • Reward Systems. Another inhibitor is how people are measured and rewarded. If a key metric for the plants is tonnage, earned hours or something similar, irrespective of what products were needed by the customers and the supply chain, that will need to be changed.
  • “Attaboys” for Overselling the Forecast. Sales incentives that reward overselling the forecast can result in under-forecasting and hence, can cause serious stock outs.
  • Overforecasting to Insure Availability. This is often the result of salespeople getting burned from lack of product. The result is that they forecast higher than what they expected to sell, which most often results in bloated inventories when the forecasts don’t materialize.
  • The Silo Mentality. Also known as “us guys vs. them guys.” If the culture is to play things close to the vest and give out no more information than is absolutely necessary, that, too, will need to change.

1. Executive S&OP is the aggregate, volume planning element within the overall set of Sales & Operations Planning processes, as opposed to Operational S&OP which refers to the mix tools such as master scheduling, plant and supplier scheduling, MRP, Kanban, advanced planning systems and so forth. Here, I’ll use S&OP and Executive S&OP interchangeably.


Okay, so how in the world can you get these kinds of things fixed before you start implementation? Answer: you probably can’t, because the enabler of the changed behavior – Executive S&OP – is not yet available. So please, do not wait until you’ve fixed these kinds of problems to get started. That could take forever. Instead, focus upon the element of understanding, get the Executive S&OP process in place. Then you’ll find that solving the other issues – shoot the messenger, suboptimal metrics, the silo mentality and so forth – are much less challenging. In some cases, the silo issue for example, they’ll often take care of themselves.

It’s hard to do this right. The good news is that when you implement it, you don’t need to reinvent the wheel. Over the last 20 years or so, through trial and error, we’ve learned how to do it right – every time. Today, we see the keys to success more clearly than ever.

  1. Develop a solid understanding – before you get started – of what it is and what it will take to make it work, particularly an understanding of the need for change at all levels.
  2. Use a pilot approach to allow for rapid learning in a safe environment.
  3. Understand that there will be a learning curve and that you’ll be good before you’re excellent. Remember that people are the key to success in this venture. Your success will hinge almost totally upon the quality of the change management processes employed.

Now, please take a moment and look at Exhibit 1. It shows a generalized Executive S&OP implementation path.

Exhibit 1: Executive S&OP Implementation Path

Executive S&OP Implementation Path

This chart indicates that the time required for a complete implementation will be about nine months for the average organization. Here also, there’s a bit of a paradox. Why does something that involves relatively few people take eight to ten months to implement? It’s because of the nature of the Executive S&OP process:

  • It’s different, almost totally so, from past experience and thus, requires time to sink in.
  • The pilot approach supports this, and also serves to minimize risk before proceeding with cutover of all the families onto the process.
  • Full financial integration can’t occur until the operating portion of the process – balancing demand and supply – is working well for all product families.
  • Executive S&OP operates on a monthly cycle and thus, incremental experience and expertise are gained only once each month.

For almost all of the companies that we’ve assisted in implementing Executive S&OP, benefits come sooner than six months. Some people call these “unintended benefits,” because they’re byproducts of people just beginning to communicate and work together better.

Further, once the pilot becomes operational, people begin to see things that they wouldn’t have seen without Executive S&OP. It’s common to hear comments like, “Golly, if we weren’t doing this, we’d have had a big problem with Medium Widgets. We’d have got slammed about four months from now.” Being able to get a better focus on the future means that problems can be avoided by taking early corrective action.

Exhibit 1 shows the three segments of an effective Executive S&OP implementation:

  1. Live Pilot, which is primarily a live pilot demonstration to Executive Management on how the process works in their company.
  2. Expansion, which cuts over the balance of the product lines to Executive S&OP.
  3. Full Financial Integration, including financial simulation and also data for the generation of pro forma Profit & Loss Statements and Balance Sheets and for projecting cash flow well into the future.

For each of these segments, a detailed implementation plan is required to enable effective management of the project. Each segment, however, can be looked upon as stand-alone. In other words, it’s not necessary to have all three segments planned in detail at the beginning. All that’s needed, then, is to commit to, and get started with, the first segment – the Live Pilot.


To recap, two important things to keep in mind regarding the implementation of Executive S&OP:

  • Even though the logic of Executive S&OP is simple, implementing it is not. Implementing it requires people to make changes – to do some aspects of their jobs differently – up to and including the senior executive in charge of the business.
  • It will take an investment of time to fully digest and become comfortable with the new methods because this is counter-experiential. The unintended benefits, however, will start to be realized shortly after you begin.
     

I’d like to wish you the best of luck in making this superb process work. If I can help by answering a question you may have, or perhaps point you in the right direction, I’d be happy to help. My contact info follows in my bio. Further, I’ve assembled the following list of resources. Most are available at www.tfwallace.com unless otherwise noted.

APPENDIX: Resources to Aid in Understanding

BOOKS

Sales & Operations Planning: The How-To Handbook, 3rd Edition by Tom Wallace and Bob Stahl

Sales & Operations Planning: The Executive Guide by Tom Wallace and Bob Stahl

Sales & Operations Planning: The Self-Audit Workbook by Tom Wallace and Bob Stahl

Sales & Operations Planning Best Practices by John Dougherty and Chris Gray, available at www.partnersforexcellence.com

VIDEOS

The Executive S&OP Briefing: A Visual Introduction by Tom Wallace

The Education Kit for Sales & Operations Planning by Tom Wallace


LIVE SESSIONS

Executive S&OP, by Tom Wallace, 1.5 days sponsored by Executive Education, Fisher College of Business, Ohio State University. www.cob.ohio-state.edu/executive-education

The S&OP Best of the Best Conference, each year in June in Chicago, co-sponsored by APICS and IBF, 1.5 days, multiple speakers, Tom Wallace – program chair.

The Association for Operations Management: www.apics.org

Institute of Business Forecasting & Planning: www.ibf.org

Tom Wallace is a teacher and writer who specializes in Sales & Operations Planning. He is a distinguished fellow of the Ohio State University’s Center for Operational Excellence, and currently writes and speaks in conjunction with the Institute of Business Forecasting. He’s taught in Australia, Belgium, Canada, China, France, Great Britain, Mexico, New Zealand and the U.S.

Tom has written 12 books, including Sales & Operations Planning: the How-To Handbook, 3rd Edition (2007), Sales & Operations Planning: the Executive’s Guide (2006) and Sales & Operations Planning: the Self-Audit Workbook (2005). Tom has also produced a number of educational videos, most recently The Education Kit for Sales & Operations Planning (2009), a multi-media teaching resource for delivering S&OP education. He can be reached at 513-281-0500 and This email address is being protected from spambots. You need JavaScript enabled to view it..

T.F. Wallace & Co.
513-281-0500 (phone)
www.tfwallace.com