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Hilton Garden Inn Waltham, Mass. March 23, 2011

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1 Hilton Garden Inn Waltham, Mass. March 23, 2011
TOPGRADING SOLUTIONS MRI NETWORK S&OP - Myths, Misunderstandings & Misinformation ----- Meeting Notes (3/23/11 16:28) ----- Jason Breault Hilton Garden Inn Waltham, Mass. March 23, 2011 Bob Stahl

2 With apologies to Charles Dickens . . .
Sources: Congressional Budget Office; Department of Labor, Bureau of Labor Statistics; Department of Commerce, Bureau of Economic Analysis. With apologies to Charles Dickens . . . Worst of Times These are perhaps the worst economic conditions in a generation or two and it may get worse before it gets better. (What’s 9%??) Best of Times For those who choose to use them, we have terrific tools in our hands today to deal with the massive uncertainty! Myths, Misunderstandings and Misinformation -- 9 %. The approximate percentage of the American workforce that's unemployed and the percentage that's employed in manufacturing. -- S&OP is one of the most powerful tools available to management today. -- Boston S&OP Summit = confusion.

3 Gravitational Force Needed . . .
Customers Natural Force = Centrifugal Desired Force = Centripetal Executive S&OP Gravitational Force Tradeoffs = Slippery Slope S&OP = Keystone of the Mfg Arch Been Talking for a long time BUT not doing it Owners Employees (Suppliers, Community, Country, Planet)

4 Muting Trade-Offs . . . When a company is trading off one constituency against another, it’s on a slippery slope Being able to serve all constituencies has a lot to do with timing: In the short term, the customer is king Proper prior planning is necessary to serve all constituencies well (Doesn't’t happen by accident) Executive S&OP is the tool to set conditions for success with regard to Supply Chain performance Rosenbluth Book – The Customer is #2

5 Speech to an APICS Audience
. . . So what else is new? March 9, 1982 Speech to an APICS Audience -- How many were <20 years old in 1982 -- Very nostalgic for RAS & others -- Meaningful even if don’t know who’s speaking

6 . . . So what else is new? March 9, 1982 Houston, Texas Oliver Wight
OWW died in July 14, 1983 Then it was Japan Today it's China Went on to speak of State-of-the-Art vintage 1982 S&OP not even thought of at that time Parable of Boiled Frog ----- Meeting Notes (3/2/11 16:43) ----- Parable of the Boiled Frog!! Oliver Wight

7 S&OP Morphing Terminology (causing confusion)
At first -- S&OP meant an executive led process for balancing demand & supply at the volume level Then -- S&OP meant any process that dealt with balancing demand & supply at both the volume & mix levels, blurring the distinction Today -- S&OP is no longer exclusively a term that describes any specific process, but rather a set of words that mean anything you want it to mean -- Some don’t differentiate between volume & mix -- Boston S&OP Summit

8 Very different, separate, & distinct practices
The Four Fundamentals Volume Mix ProActive Behavior How Much? Rates The Big Picture Families Strategy/Policy/Risk Monthly / Mos Executive Resp. Demand Supply Balance Which Ones? Timing/Sequence The Details Products/SKU’s/Orders Tactics/Execution Weekly/Daily 1-3 Mos Middle Mgt. Resp. ----- Meeting Notes (3/2/11 16:43) ----- Should not blurr the distinction! ReActive Behavior Very different, separate, & distinct practices but integrated!

9 Sales & Operations Planning
Executive S&OP Volume Demand Planning Demand Supply Supply Planning Mix Master Scheduling Demand Pull

10 Myth #1: “S&OP’s a supply chain thing”
Reality: Executive S&OP is a Supply Chain thing. and a Sales & Marketing thing and a Finance thing and a Manufacturing thing and a Procurement thing and an Outsourcing thing and a New Product thing and a General Management thing Sept HBR -- “Are You the Weakest Link in Your Company’s Supply Chain?” It is a company-wide, collaborative decision-making process, reaching up to the top levels in the business. Half Truth Chuck Connelly yesterday when introducing “Mattress Mack” he asked – how many sales & marketing???

11 Process Driven versus Personality Driven
President/General Manager Executive S&OP Sales & Marketing Operations Product Design Finance Logistics & Warehouse Blurring the Boundaries Managing the White Space

12 Soft Benefits “The Predicator”
Align Human Energy and the Power is Boundless Enhanced Teamwork Improved Communications - Defined & Disciplined Better Decisions with Less Effort and Time Better $$$ Plans with Less Effort and Time Tighter Linkage with Strategy Greater Accountability Greater Control Update to the Annual Business Plan Window into the Future Master of own destiny Top Management’s Handle on the Business Communications = defined and disciplined Vince Lombardi (Tom Landry / Bum Phillips) - work on the process; not the results!

13 Myth #2: “S&OP’s all about balancing demand and supply”
Reality: S&OP does help to balance demand and supply and integrates financial and operational planning and links strategic planning to ongoing operations and shortens the annual planning process and enhances risk management and can impact strategic plans Half Truth

14 “Strategic Planning . . . forward in reverse”
Annual Business Plan Doing The Right Things Strategy Executive S&OP Strategic Planning - forward in reverse HBR-Nov/Dec 1985 Robert Hayes Executive S&OP Tactics Doing The Things Right Wicham Skinner = Manufacturing Strategy George Gage - EG&G Staff Strategy Master Schedule ~ “Operational S&OP” Master Schedule Execution

15 Myth #3: “S&OP takes too much of Top Management’s time”
Reality: Monthly Time Requirement for the Leader of the Business ~ 1.5 hours* * Executive staff time could be more than this.

16 The Executive S&OP Process
Step #5 Executive Meeting Conflict Resolution, Recommendations & Agenda for Exec. Mtg. Heavy Lifting Decisions & Game Plan Step #4 Pre-S&OP Meeting Capacity constraints 2nd-pass spreadsheets Financial Involvement Management Forecast 1st-pass spreadsheets Step #3 Supply Planning New Product Involvement Sales Actuals, Statistical Forecasts & Production Actuals Step #2 Demand Planning Creates a Disciplined Rhythm Step #1 Month End Data End of Month

17 Myth #3A: “S&OP is too much detail for Top Management to be involved”
Reality: That’s a misunderstanding of what Executive S&OP should be. If you’re trying to set policy & strategy while living in the “suicide quadrant,” you’ll not succeed.“

18 Planning Perspective Full Granular Detail III Building to Customer
PTF III Building to Customer Demand I Suicide Quadrant II Aggregate Only Quadrant Executive S&OP Full Granular Full Horizon Detail Horizon

19 Mix Problems Scream for Attention Volume Problems Barely Whisper
Problems Perspective Mix Problems Scream for Attention Volume Problems Barely Whisper Creates the illusion that all problems are MIX problems -- therefore need a forecast for full granular detail for full horizon.

20 Myth #4: “We’ll Never Get S&OP to Work; We Don’t Have Enough Teamwork”
Reality: Teamwork is not a Prerequisite. It’s a Result!

21 Soft Benefits Enhanced Teamwork
Improved Communications - Institutionalized Better Decisions with Less Effort and Time Better $$$ Plans with Less Effort and Time Tighter Linkage with Strategy Greater Accountability Greater Control Window into the Future

22 Myth #4: Continued Q. What if you’ve implemented Executive S&OP but teamwork hasn’t improved? A. You flat didn’t do it right Gaining teamwork must be one of the objectives of implementing Executive S&OP from the get-go. Harbinger = Teamwork starts in and within the Design Team.

23 Reality: Executive S&OP is all about change. It’s a coordination tool
Myth #5: “S&OP Is Too Rigid; Our Business Changes Too Rapidly For S&OP” Reality: Executive S&OP is all about change. It’s a coordination tool

24 Tools & Techniques X X X Increase Reliability Reduce Waste & Time
Six Sigma, Total Quality, Poka-Yoke, ISO + others Reduce Waste & Time Enhance Coordination X X X Sales & Operations Planning, ERP, Kanban, VMI, + others Lean Mfg., Just-In-Time, Quick Changeover (SMED), Flow + others 24

25 Complexity, Change and Coordination
Complexity and the Rate of Change Need for Effective Coordination Processes Executive S&OP is the Primary Coordination Process

26 Coordination is all about: Alignment of Human Energy
5% versus 50% Sustainable Improvement Accomplishment Accomplishment

27 Myth # 6: “We Can’t Use S&OP Because We’re Totally Outsourced”
Reality: Executive S&OP Doesn’t Care Who Owns The Factory. . . . nor do Customers care who owns the resources of production! “Outsourcing” is a vital contributor! Heavily Outsourced Companies May Need Executive S&OP More Than Others. (i.e., Just Bats) -- Just Bats = Scott Hendrick -- War Story about – “I don’t by your problems; I buy your product”

28 Myth #7: “Our Company Is Too Big (Too Small) for S&OP”
Reality: Executive S&OP operates . . . independently of company size Procter & Gamble ~ $ 80 Billion Microsoft ~ $ 60 Billion Dow Chemical ~ $ 55 Billion Homac ~ $ Billion Just Bats ~ $ Billion

29 Myth #8: “Our Forecasts Are Not Accurate Enough For S&OP”
Reality: Executive S&OP Does Not Require “Accurate” Forecasts Sales Forecasting – A New Approach Accuracy & Forecast not in same sentence But by working on the process, it often helps to improve the forecasts 29

30 Forecasting Inputs -- Process -- Output 1. Reasoned 2. Reasonable
Forecasts that are: Current Customers New Customers Competition Economic Outlook Market Trends New Products Pricing Strategy Promotions Bid Activity Management Directives Intra-Company Demand History (Data) Other 1. Reasoned 2. Reasonable 3. Credible 4. Transparent 5. Reviewed Frequently Process

31 Forecasting . . . A Three-Legged Stool
Customer View Historical Market Reconciliation Process (The “DAM” Meeting) Consensus Forecast Stewart Levine – Getting to Resolution Compare to Annual Business Plan Applying “Puts & Takes” (Actions) Company Forecast

32 Myth #9: “S&OP Is Simple; All You Need Is A Few Spreadsheets”
Reality: The logic of Executive S&OP is SIMPLE Implementing Executive S&OP Is All About Change Management . . . And that is not simple! OWW = The Ultimate Sophistication is Simplicity

33 Research finding . . . Lora Ceceri, Altimeter -- Boston, September 2010
The effective use of S&OP is: 60% Change management 30% Process improvement 10% Technology AMR merged with Gartner Getting to Resolution – Stewarts Levine

34 Myth #10: “We Can’t Do S&OP. THEY Will Never Participate”
Reality: Never Say Never People Can and Do Change – But It doesn’t happen by accident! Self Fulfilling Prophecy

35 Myth #10: Continued Who Are THEY? Top Management? Sales/Marketing
Manufacturing? Finance? New Product Development? Outsourcing? All of the above? You are all Eagles Kindred Spirit Champion Godfather

36 Myth #10: Continued Why not? Are they bad people?
They don’t understand it. They don’t understand it, because they haven’t been taught. It’s “counter-experiential.” That’s why education and “buy-in” from the get-go is important! It’s all about changing mind-sets! It’s not doing what you do better -- it’s doing something different to be better. Like American Express -- Don’t leave home without it.

37 Executive S&OP is . . . APICS Dictionary, 13th Edition, October 2010
The executive portion of the overall sales and operations planning set of processes. It is a decision-making activity involving the leader of the business (president, general manager, COO, managing director), his or her staff, and a number of middle managers and specialists. Its mission is to balance demand and supply at the aggregate level, align operational planning with financial planning, link strategic planning with day-to-day sales and operational activities. It is a multi-step process involving demand planning, supply planning, and middle and top management meetings for decision-making and authorization.

38 With apologies to Charles Dickens . . .
Worst of Times These are perhaps the worst economic conditions in a generation or two and it may get worse. Best of Times For those who choose to use them, we have terrific tools in our hands today to deal with the massive uncertainty! Myths, Misunderstandings and Misinformation Boston S&OP Summit = confusion.

39 “Ultimate Sophistication
Done Properly . . . Implementation approach fits these times: Low Cost No capital investment; no software; just time Low Risk Parallel Pilot Approach Quick Results 90-Days for Complete Pilot Demo High Impact Aligns Human Energy Simpler (Not Easier) Better (in 90 Days!!!) “Ultimate Sophistication Is Simplicity” Oliver Wight Simple does not = EASY!! OWW – Ultimate Sophistication is Simplicity Uncertain & Unpredictable Times

40 The Books . . . - Are you already doing Sales & Operations Planning ??

41 In the Making . . . Planned Publication: 3rd Quarter 2011

42 Making Change The only time that the “logical future” has a chance is if we deny its possibility. “In human affairs, the willed future always prevails over the logical future.” “Change happens one step at a time, by thinking globally, but acting locally.” The logical future will only happen if we ignore its possibility! Rene Dubos -1982 A Celebration of Life An essay

43 Bob Stahl Thanks for Listening 508-226-0477
Thanks for Listening Hope you had a great day yesterday, and a better day today.

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