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Nine Naive Notions About S&OP

The following is a list of “deal breakers” – things that can get in the way of successful implementation of Sales & Operations Planning (S&OP). To ensure success, you’ll need to eliminate these myths in order to get all of the key people on the same page.

Myth #1: “We don’t need S&OP in our department; that’s a ‘supply chain thing.’ ”

Reality:Yes, it is a supply chain thing – and a sales and marketing thing – and a manufacturing thing – and a finance thing – and an R&D thing – and, last but not least, it’s a top management thing. S&OP is a company-wide, collaborative decision-making process, reaching up to the top levels in the business.

Myth #2: “We’ll never get S&OP to work – we don’t have enough teamwork.”

Reality:You’ve got it backwards. S&OP doesn’t require teamwork before you get started; S&OP engenders teamwork once it’s operating properly. It enables people to view the business holistically and thus see the other guys’ problems. A company implementing S&OP and not getting improved teamwork means just one thing: they didn’t do it right.

Myth #3: “We don’t need S&OP; we’re doing Lean Manufacturing.”

Reality:S&OP and Lean are two very different things. S&OP is a medium-to-long term planning tool that provides visibility into the future, thereby avoiding surprises when demand shifts – up or down. People who know both S&OP and Lean say that they work best when they work together.

Myth #4: “S&OP is too rigid. It won’t work for us because our business changes too quickly.”

Reality:S&OP is all about change. It provides a window into the future so that companies can 1) see potential problems ahead of time, 2) take corrective action and 3) thus prevent potential problems from becoming real ones.

Myth #5: “We can’t use S&OP because we don’t have any manufacturing. We use contract manufacturers solely.”

Reality: S&OP doesn’t care who owns the factory. Actually, companies that outsource heavily probably need it more, because they generally have less control over the supply side of the business. Microsoft is a very successful user of S&OP in its Entertainment and Devices Division, and all their manufacturing is done via contract manufacturers. We also see S&OP being used in banks, retail companies, engineering organizations and IT.

Myth #6: We’re a large company. I think we’re too big for S&OP.

Reality:Are you bigger than Procter & Gamble, for example? Or bigger than Dow Chemical? Or the one just mentioned above, Microsoft? We see these companies, and a growing number of others, using S&OP very successfully in their operating businesses. Further, in these companies, the results from the operating unit’s S&OP processes are rolled up, communicated to the corporate CEO and used to form a key component of the corporation’s earnings calls to Wall Street. It also works in small companies. I’ve seen it used successfully in business units with as small as $10 million in annual sales.

Myth #7: “We have to get our forecasts a lot better before we think about S&OP.”

Reality:Here again, you’ve got it backwards. Almost always, implementing S&OP helps to improve the forecasts. One reason for that is, for the first time, people start to view forecasting as a process rather than a pain in the neck. They see that it plays a vital role in the overall S&OP process and hence, they see it as much more important than before. Getting an effective forecasting process is one of the more difficult parts of implementing S&OP; it’s also one of the most rewarding.

Myth #8: “We just dumped X million bucks into ERP software. We can’t afford to buy any more software.”

Reality:Who said anything about new software? Most of the successful users of S&OP do it with Excel or a similar package. They already own this and their people already know it. After a year or two, some companies will see the need to do things that Excel won’t support, and they’ll then start to look at S&OP-specific software. Further, deferring the software purchase until after the process is working well usually enables a better software decision, because the people then know what they really need.

Myth #9: “S&OP is really simple. We’re just going to get the spreadsheets working and then we’ll have S&OP.”

Reality:The spreadsheets, graphs and the data they contain are necessary, but not the most important elements. Of greater significance are the mindsets of the people who will be using it – all the way up to the president. Implementing S&OP successfully is largely a matter of change management.