In the wise words of G.I. Joe, “Knowing is half the battle.” And in the battle for sales and operations planning (S&OP) success, knowing where the potential pitfalls lie will serve every company well. Some of those pitfalls were recently outlined by Steelwedge Vice President of Industries Danny Smith in a Manufacturing Business Technology article entitled “The 5 Most Common S&OP Mistakes And How To Avoid Them.”
Recognizing that knowing what not to do is just as important as knowing what one should do, Danny described the following mistakes that companies frequently make in their sales and operations planning initiatives:
1) Lack of executive ownership. The biggest problem I see is the executive leadership team not owning the S&OP process. If executive leadership isn’t fully engaged, the process won’t be as successful. If they aren’t engaged, find out why. Maybe you aren’t giving them the things they need to run the company: forward-looking, global visibility; timely, concise information that is digestible to them (e.g. their KPIs) and that is actionable; the ability to ask “what-if” questions so they can put boundaries around their risk. A good technology platform can help tremendously here. After all, the best people and process can only take you so far. Technology serves as a lever to speed up the process and shift the focus from calculations to analysis.
2) No cross-functional engagement. The whole point of S&OP is getting the entire organization moving in the same direction. That’s hard to do without the involvement of all the key stakeholders in the process. Research around S&OP failures right after the global downturn showed that a third of the respondents didn’t have Sales engaged in the S&OP process. That was the good news! Almost half didn’t have Operations or Finance engaged. Lack of a way to translate between different functional views of information tended to leave one or more participants out of the process. Sales would input revenues by account, Operations would need demand in units by product, and Finance wanted to see net margin. To really make S&OP work, you need to have the same information, but expose it to each stakeholder in the form they need and understand. Even if you start with a quick win/small project, extend the scope to just across the functional boundaries to provide the needed translation.
3) Focusing only on one consensus number. An S&OP mantra for years has been getting to a “one number plan,” but this simplifies things too much. And worse, it limits the value of S&OP for executives. Executives are paid for predictability. It’s their job to identify and proactively mitigate risk – to avoid the danger before it’s a reality. S&OP can be a great tool to help (i.e. GPS telling you to avoid a route due to traffic) but only if you don’t fall into the “one number” trap. Instead, you need to plan in ranges – worst case, best case and expected – all along the S&OP process. The ability to identify the impact of things not going to plan is priceless. As Eisenhower once said, “Plans are nothing; planning is everything.”
4) Complexity! Follow the “keep it simple” principle, especially with metrics. I’ve seen companies become paralyzed trying to make the right decision when they have to evaluate hundreds of metrics; the complexity prevents them from being able to ask the right questions. Pick your big 10-15 metrics (see Figure 1) and go with them. Track them, make performance transparent so everyone understands where they are, and learn from them.
5) Lack of documentation. How do you learn from your mistakes? You have to capture all the institutional knowledge and assumptions that go into your plans. Provide a mechanism to capture this information from every participant, and make it easy for them to contribute. For example, if you collaborate as a group using social media, automatically capture those chats and the context and embed it into the plan assumptions so you can understand the context of decisions or changes six months later. Remember, those who don’t learn from history are doomed to repeat it.
Do you agree with Danny’s top five S&OP mistakes? What lessons have you learned in your journey to sales and operations planning success? Weigh in with your “war stories” in the comments.