executive S&OP
Supply Chain Author Paul Dittmann Responds to Your Questions
Note: On Tuesday, June 22, the University of Tennessee and Steelwedge were pleased to feature author and educator Dr. Paul Dittmann in a webinar entitled, “Transforming the Supply Chain Into a Competitive Advantage.” Dittmann is 30-year supply chain veteran and co-author of the recently published book The New Supply Chain Agenda.
Paul’s fascinating presentation is a must-watch for business people wanting to learn the finer points of supply chain strategy and sales & operations planning. Click here to view the session on-demand.
Following the live event, Paul was kind enough to respond to audience questions and you can find his answers below.
(To learn more about Paul Dittmann and the University of Tennessee Knoxville’s Demand and Supply Integration Forums, click here.)
What are the key metrics to measure supply chain performance?
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We currently we have an issue related to forecast accuracy. The sales team creates a forecast based on the budget, even when they know the number that they put in forecast is not achievable. Is there a way to solve or accommodate this issue?
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Is there a way to unleash a company’s potential when the budget for technology is limited?
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With supply chain being one of the heaviest users of technology within a company, how is it best to balance a single provider versus best of breed for information systems?
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Your survey indicated that in only 48% of companies sales is heavily involved in SIOP. This means that in 52% of companies, sales is not heavily involved. I would be interested to see how successful a “Sales” and Operations Planning Process can be without sales involvement?
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How do you suggest incorporating customers and suppliers into the supply chain strategy?
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Three Key Steps in Effective S&OP Change Management
Implementing an effective S&OP process requires effective management of personnel, systems, and process issues. Of these three areas, the change management aspects of personnel issues are often the most challenging. Organizational change strategies fail most frequently due to the inability of management to lead their teams through the transition process. Are supply planners and demand planners communicating? Is sales operations providing timely input? Are issues being resolved in a timely manner? How will disagreements be resolved?
As a corporate process, S&OP requires strong leadership and a keen understanding of change management.
Understand Change
There are two elements to organizational change: Personal transitions and Organizational transitions.
An old paradigm in change management was that it was only the organizational that was going through the change, de-emphasizing the personal aspect. But an organization is made up of a triad of people, process and technology. We understand that the only part of that triad that might have resistance to change is the personal. As a result, an organizational change strategy must focus not only on organizational transitions; it must also focus on personal transitions. From a leadership perspective, this means proactively understanding the affect on various stakeholders and leaders, for example looking at:
• Who in the organization is going to gain and lose power – S&OP team? Supply team? Demand Team? Sales. Has a fully powered S&OP team been created?
• Who in the organization might experience a positive or a negative careers move
• Who might be exposed when the changes show how poorly things were done in the past
• Who has the most to risk by making these changing and why
In order to understand, from each of their perspectives the perceived risk, time should be spent conducting interviews as well as a leader and stakeholder analysis. The reason this is critical to building sustainable change is that you will then know what the objections are and how best to be proactive in handling those.
From this process one can gain buy-in with the people who can give or decline support for the project. If the stakeholder or leader feels as though you have their best interest in mind, they are more likely to support suggested changes down the road. If they do not feel included, they can block the project altogether, even if the changes make good business sense. The leader interviews and analysis is a process that needs special attention, unique planning and tailored action to ensure that more resistance is not created
Next, leaders need to understand the three phases of personal transition, none of which can be skipped or discounted if they want a positive return on the investment. The three phases include:
• Endings
• The Neutral Zone
• New Beginnings
Many leaders ignore the first two, expecting employees to be in the new beginnings stage right after a change is announced. However, this means ignoring how humans process change. Since all humans go through this process, it needs to be acknowledged as part of the leadership activities.
The financial impact (business performance/productivity and project time line) to the transition phases can be significant. The depth (loss of productivity) and width (increased time line) of the transition phases is directly proportional to how well the change is handled by leaders. If leaders do a poor job of leading change, the Valley of Despair will widen and deepen, meaning that the project will run over budget, over schedule and the scope will creep. However, if leaders have been trained in change management, research shows they can skillfully lead employees through the transition phases with the least amount of impact to the project.
The stages of managing the personal transitions include employee:
• Awareness and Understanding
• Buy-in
• Ownership.
When leaders have mastered leading personal transitions, they can lead the overall organizational transition. When they have mastered organizational change leadership, they will be able to reduce the time and productivity dip as seen in Figure 2. The goal with teaching leaders to lead change is to reduce the personal transition dip and thereby reduce the organizational transition dip.
Pursue Transformational Leadership Skills
In order to be successful with transformational scale change, leaders must deploy different skills, some of which they may need to add to their current skill set. Some leaders may also need to evaluate their attitude and beliefs about how to handle change. Through an edification process, leaders can begin that shift.
We have found that the leadership skills required for leading large-scale change versus day-to-day management are in fact very different. One of the first aspects of leading change is to understand that 80 percent of any group will resist change. The other 20 percent are those that will get behind the change and pull the other 80 percent along. In order to motivate those 20 percent and eventually enroll the other 80 percent, a leader may need new leadership skills. What you don’t want is to create resistance in the 80 percent group, because no matter how excited the 20 percent group is, negative group-think is nearly impossible to overcome.
Research also shows that one of the primary reasons that so few programs produce the expected results is that change leaders don’t understand the distinction between asking versus telling, when they lead. The traditional methodology used for leading change projects requires these steps:
1. Identify the problem
2. Tell people how to do their jobs differently
3. Spend huge amounts of time, energy and money trying to overcome resistance and recover from decreased morale
Many leaders tell people what they need to do differently, versus spending the time to enroll and engage the employees in an interactive dialogue where they are asked what they think. The telling is part of what puts people in a threatened mode I it is easier when someone else, especially an expert, gives us the answer. The problems come later when resistance develops and someone else’s approach does not work for us. Asking versus telling is one of the keys to reducing the resistance to change.
An effective leader of change also understands that change naturally creates conflict. A leader’s ability to handle conflict will directly impact their effectiveness in leading change. As agents of change, a leader’s responsibility is to take the change, which is normally thought of as crisis, and communicate it as an opportunity. In order to do that, they need to have an understanding of what makes the conflict improve and what makes it worse.
3. Develop an Leadership Engagement Action Plan
With an understanding of how change works and the skills necessary for effective transformation, Project leaders and executives can assess their own change leadership skills and create an engagement action plan for the lifecycle of the initiative. This plan should deal with clearing organizational resistance, participating in early visioning sessions, supporting the project delivery team, communicating clearly and repeatedly on the reason for change, articulating and supporting the business case and truly being engaged in the transformation effort.
Experience has shown that leaders get actively involved when there is a crisis in an S&OP project are able to quickly resolve issues. A reflective and pro-active leader in this situation should recognize that earlier involvement – real involvement and engagement many times can prevent serious issues. However, a formal change management process properly initiated early is the best way to prevent such issues from occurring.
Constrained vs Unconstrained Demand and S&OP
Through the S&OP process, the organization sets a projected business level that balances expected sales and production capabilities with financial and inventory implications. The constrained demand plan reflects a demand plan aligned with the supply plan.
Do we need both?
Many companies find it useful to distinguish and track the gap between unconstrained and constrained demand plans. An increasing gap may indicate lost opportunity to realize sales that exceed current capacity. Companies should scrutinize unconstrained demand signals to verify demand is real versus “pie-in-the-sky”. Long term capital improvements aimed at increasing capacity need to be aligned with realistic projections of future demand.
Finally, the constrained demand plan feeds a consensus plan to which the organization agrees to execute. Our Sales and Operations VPs need to stop fighting and starting aligning. S&OP facilitates this necessary collaboration.
Reduce Surprises. Reduce Inventory. Improve Operational Efficiency. Increase Sales.
Steelwedge Successfully Completes SAS70 Audit
SAS70 has become the gold standard for the auditing of service organizations, especially for providers of Software as a Services (SaaS). Steelwedge, the leading provider of Cloud based Sales and Operations Planning (S&OP) Services, has successfully completed the SAS70 Type II audit.
The SAS70 Audit is performed in two steps, each resulting in a report that’s issued by an independent and certified auditor.
The Type I Report describes the control objectives and controls that have been put in pace by the SaaS provider. The auditor renders an opinion on whether these objectives and controls are suitable for the type of operation the SaaA provider is offering. As Steelwedge’s controls and objective have been based on relevant ISO and COBIT guidelines, a positive SAS70 Type I report was easily issued in August 2009.
The Type II Report investigates actual compliance with Type I controls. In the Type II Report, issued to Steelwedge in January 2010, the auditor confirms Steelwedge’s adherence to established and documented industry standard processes. The auditor’s opinion was formed over a five month period through on-site visits, investigations and reviews.
The SAS70 audit offers piece of mind for our customers, knowing that their data is secure with Steelwedge. Our data center, our applications and our processes conform to the highest level of industry standards, and will continue to do so as Steelwedge continues to undergo Type II Audits in regular six month intervals.
Steelwedge customers and prospects alike can rely on the opinion of a certified and independent auditor to ensure compliance with their internal data and security needs. This eliminates the need to conduct individual custom audits, saving both time and money.
Steelwedge’s regular SAS70 Audits do more than simply check the box on the currently popular topic. As the business world evolves and security requirements continue to increase, Steelwedge empowers its customers to stay ahead of the curve.
Also, Business Continuity Planning (BCP) and Disaster Recovery Process (DRP) have increasingly gained significance over the last six to twelve months in the SaaS world. Companies continue to trust Steelwedge with their S&OP needs due to our ability to provide a rapid fail-over solution in the unlikely event of disaster, enabling them to continue to run their business on Steelwedge.
How to Ensure that your S&OP Process Succeeds – Drive Change Management!
Chomping on the last bagel in the breakfast laid out on the conference room table, the CEO stands up, stretches, and comments “Excellent presentation, S&OP really drives change… cutting edge ideas…this will definitely work.” The scene has been set. Following lots of nods, another three million in cash is headed down the drain.
Does this sound familiar? The launch of yet another change initiative triggered by a compelling presentation from external consultants, software vendor or even the latest best selling business book. However, after years of initiatives being unleashed on organizations, senior managers should understand that certain success factors must be in place to enable successful change.
1. Provide Strong Leadership
Sales and Operations Planning (S&OP) transformation initiatives are rarely sustainable unless they are led from the top. There is a direct linkage between the success of a change management program and leadership capabilities. An effective leader must demonstrate vision, courage & conviction
- A willingness to take both personal and business risks.
- A demonstrated commitment to change, not simply demanding it of others.
- Organizations such as Motorola and GE that have implemented exceptionally successful change programs include the development of key elements in their leadership training.
2. Develop a Compelling Vision
Developing a clear vision is important in making a culture change a reality. With an inspiring vision, people can visualize exciting possibilities and begin to act in accordance with them. Keeping the vision in the forefront of an organization’s thinking will ensure that energy and focus are sustained.
- What will the organization look like during and after the change program?
- Why should individuals and teams be engaged?
- What’s in it for them?
- What are the concerns that will emerge and how can they be addressed?
These are all critical questions that a powerful vision can address.
3. Ensure Team Commitment
- Whether it’s the CEO or department heads, committed managers are a key to successful change programs.
- Managers who only pay lip service to change are one of the swiftest ways to undermine transformation.
- Building a supportive team is an essential part of the early stages of any effort to restructure, re-design, retool or improve. John Kotter, in his best-selling book Leading Change, refers to such a group as a “Guiding Coalition.”
John Kotter chose his terminology carefully. The word “guiding” defines the group as one that will not actually be implementing change, but rather removing barriers and creating an environment where responsibility is spread throughout the business. Any change program that will be sustainable must involve the full organization.
4. Build a Coalition
A “coalition” (from the Latin coalitus, meaning to grow together) is an alliance. It is a group that has completely aligned objectives. Putting in place a credible group that acts as one and drives change relentlessly is critical.
- Unfortunately, many senior teams struggle to act as a coalition, often pulling in different directions. The biggest threat to any change initiative is when this is done underhandedly, with leaders saying one thing in the boardroom but really challenging the decisions in the corridors. In a true coalition, there is not only unity of thought on the overall objective, but also an environment where differences of opinion on lesser issues can be aired constructively.
- Real change can be particularly threatening to managers. After all, they reached their positions by doing things in a certain way. At a fundamental level, senior people have to review their roles, responsibilities, attitudes, behaviors, personal leadership styles and above all – their relationships with each other.
- Some of this is uncomfortable. Experience shows that a true coalition will learn how to work through conflict to get a shared view as to the best way forward. Training and development play a critical role in facilitating this “growing together” of the coalition prior to launching any initiative.
- Middle managers need to be on board early. Directors have a key role to play in leading from the top, but the attitudes and behaviors of middle managers also are vitally important. During the initial stages of a change program, there can be a great deal of excitement and activity. Keeping middle managers fully informed can ensure there isn’t a feeling of being marginalized.
- An ignored manager can end up undermining and blocking the change progress. Process improvement teams with good local management support tend to go from strength to strength. Conversely, such teams fizzle out and have to be rekindled when managers aren’t interested or see teams as a threat to their role.
5. Identify and Train Change Facilitators
Engaging people throughout the organization in change activities is a departure from the old directive style of leadership. The best way to enable broad-based action through teamwork and securing the success of change teams is by trained facilitators. (The word facilitator comes from the Latin facere, meaning to make easy or simple.) Armed with powerful tools of problem-solving and an ability to inject energy and enthusiasm, these individuals can be the catalyst of any change initiative. By seeking volunteers from the organization who, with training, can be capable and credible agents of change, the backbone of change will be in place.
Meanwhile back in the boardroom, the coffee has been cleared away and the meeting is beginning to wrap up. Then, one by one, board members begin asking questions:
- “How will we communicate this to the business?”
- “How can we engage our middle managers?”
- “Has anyone thought about how we can resource it with trained facilitators?”
- “What exactly do we expect this will achieve – what will the business be like in two to three years as a result?”
- “What capabilities will I need to develop to make this change program a success?”
6. Communicate and then Communicate Again
All organizations know that communication takes time and effort – but the investment is worthwhile.
It is critical for people to be reminded of the vision but also how far they have come. This helps maintain morale and belief in the change process. Positive evidence that things are changing will combat any cynics.
Communicate ten times more frequently than you think is necessary.
- Recent research shows that on average the total amount of communication going to an employee during a three-month period is 2.3 million words or numbers, transmitted in meetings, notice boards, bulletins, etc.
- The typical communication of a change vision during a period of three months is approximately 13,400 words or numbers.
- So on average the vision communication captured only 0.58 percent of the company communication market share – nowhere near enough.
Communication is not through words alone – it’s the dance and it’s music too. Clear messages are sent through actions. It never ceases to amaze that companies struggle to re-launch an improvement program after just having concluded a downsizing where change facilitators were first on the list to go.
7. Measure Performance, Track Process, and Ensure Accountability
Ownership and Accountability is the key to any successful initiative. While ownership requires empowerment, accountability requires the development and use of key performance metrics that enable everyone to monitor progress and identify bottlenecks.
So what’s next? Time to finish breakfast and get to work on building your world class Sales and Operations Planning (S&OP) Process (S&OP Process)!
Note: This article was created based on work by Steelwedge (www.steelwedge.com), John Kotter, the Kaizan Group, the Six Sigma Institute and others.
S&OP: What can we learn from Martin Luther King, Jr.?
Last week, we celebrated the birth of Martin Luther King, Jr. MLK was a brilliant man with an amazing talent for delivering the spoken and written word. As I pondered several quotes from MLK, there was one that struck me as having a strong relevance within the business world.
“We must learn to live together as brothers or perish together as fools.”
Now don’t get me wrong. The words of MLK go much deeper than business relationships. Still, I can’t help but think that the teachings of MLK can offer us some helpful insights into how we manage our businesses. Effective S&OP requires individuals from varied backgrounds, functional responsibilities and positions within the organization work together for the benefit of the overall organization.
All too often, companies struggle with functional silos, poor communication and a misalignment of effort. If you are a leader in your organization, collaboration and consensus building should be your goal. Be engaged in the S&OP process and encourage all participants to contribute their insights. A dictatorship is not S&OP. Likewise, a free-for-all democracy where each participant has an equal vote is not S&OP either. An effective process leverages bottom-up inputs from distributed resources as well as top-down market and business insights from company leaders.
MLK on leadership:
“A genuine leader is not a searcher for consensus but a molder of consensus.”
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