The Impact of Forecasting Improvement on Return on Shareholder Value
John T. Mentzer; Journal of Business Forecasting

Improving Salesforce Forecasting
Mark A. Moon and John T. Mentzer; Journal of Business Forecasting

Benchmarking Sales Forecasting Management
John T. Mentzer, Carol C. Bienstock, and Kenneth B. Kahn; Business Horizons

Webcast: Three Keys to Successful S&OP
Wednesday, October 26, 1pm Eastern, 10am Pacific
Principal Speakers
Tim Vaio, Managing VP,
Hitachi Consulting
Seema Phull, Director Process & Technology,
Enterasys Networks
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Conference:
The Dynamic Supply Chain-- Strategies for Implementing Sustainable Competitive Advantage
Nov 17-18, NY
Hear Glen Margolis, Founder & EVP Steelwedge Software, Carol Ptak, Former APICS CEO and Author, Others
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Previous Webcasts--
State-of-the-Art Sales Forecasting Management
September 13, 1pm Eastern, 10am Pacific
Principal Speakers -
Professor J. Tom Mentzer, University of Tennessee
Todd Jones, Sr. Director
Sales Operations, QLogic
Click here to view recording

Forecasting and Consensus Planning in a Rapidly Changing Environment
June 15, 2005, 1pm Eastern, 10am Pacific
Principal Speaker -
Christine Pfefferle, Director of Global Demand & Order Management, Tellabs
Click here to view recording

Extending SAP for Global, Integrated S&OP
May 25, 2005
Stu Reekie, Air Products
Click here to view recording

Change Management and Leadership: A Critical Factor for Sales and Operations Planning in Manufacturing

By Beth Montag Schmalz and David Williams, Senior Managers,
Hitachi Consulting

(Editors Note: This is the first in a series of three articles on management and leadership in conducting effective Sales and Operations Planning [S&OP] as a dynamic business process in manufacturing.)

Executive Summary

Only when leaders have taken ownership and responsibility for the needed changes can the organization assure meeting its objectives. Ultimately, the goal of involving leaders early, and throughout the course of the strategic change, is to mitigate the risk of not achieving ROI and long-term sustainable improvement. It takes effort from both the project team and the leaders themselves. The good news is it does not take extraordinary efforts to achieve extraordinary results if you just know how.

Sales and Operations Planning (S&OP) Overview

Sales and operations planning (S&OP) has been around for almost twenty years as a formal process to link functional areas and drive improved supply chain and financial decision making. Yet, today many years after MRPII first began to tie together manufacturing and sales planning, many companies are revisiting and redeveloping their S&OP approach, supporting technology and processes. A recent survey by AMR found that 50% of companies have a formalized S&OP process and 28% are considering investing to improve S&OP. The surveyed companies indicated the following primary business drivers behind the renewed S&OP interest.

•  Mergers and Acquisitions – 43%

•  Contract Manufacturing – 30%

•  Improved Channel Response – 17%

•  Managing New Constraints – 10%

The first three drivers reflect a need for critical alignment with key organizational strategies. Contract manufacturing, M&A, and delivering improved channel response and customer satisfaction are typically some of the most critical decisions executives face. S&OP is the logical “glue” to translate these higher level strategies into operational planning and delivery.

The same AMR survey identifies five key findings from the survey including three that we will focus on here. First, S&OP is a business imperative that stretches beyond typical functional supply chain functions and should include marketing, sales, product development and so on. Second, the nature of S&OP processes is evolving to reflect industry specific characteristics. Thirdly, S&OP is a “change management journey” where successful companies spend up to 50% of their efforts on change management.

Based on our experiences, the authors strongly concur with AMR on these key findings. We have found that companies typically succeed or fail by how effectively they manage the change issues related to S&OP improvement projects. The surprise challenge for many companies is that while S&OP improvements tend have a critical technology component (Forecasting, ERP, or Enterprise Performance Management), it is typically harder to manage the process development and change implications. Also, given the cross functional nature of S&OP programs, strong executive leadership is almost always a critical requirement to reap the potential benefits available.

S&OP programs by very definition cross and impact functional silos. Many times the ground level teams responsible for the “day to day” implementation have difficulty representing or defending proposed changes to company roles, responsibilities and processes when these changes may affect other executives or key functional business owners. Compounding this difficulty is that overcoming organizational resistance involves “soft skills” like facilitation, communication and consensus building while working in an often ambiguous environment. Conversely, the technical side of the project tends to be clearer and easier to grasp (although by no means easy – especially true for data management) with elements like interfacing, testing, data validation, etc. Thus, many teams charged with improving S&OP naturally gravitate heavily to implementing the technology component, while shying away from the organizational and process change issues.

Unfortunately, the result is that many good ideas for improved S&OP management are discarded or left at the design stage. Or perhaps even worse from a cost-benefit perspective, such efforts may result in implementing a technology component yet ends with less than expected business benefit. This perceived failure can then further propagate organizational resistance by creating the perception of a failed effort (many times underpinned by a “tried that before and it did not work” attitude) when in fact it was just not properly implemented.

The good news is that there are proven, systematic approaches to handling organizational S&OP challenges. This paper addresses some general S&OP design and organizational challenges, presents high level Organizational Change Management approaches for addressing organizational resistance and then focuses on more detailed recommendations for engaging and helping company leadership to drive successful S&OP improvement.

S&OP and Organizational Change Definitions

Before discussing approaches for managing the organizational change element of S&OP, a common definition provides a baseline for solid understanding. Below are definitions of both Organizational Change Management and S&OP as discussed in this paper.

S&OP - A cross functional planning and decision making process that results in a common single financial and operational plan that uses projections of sales balanced by an organization's production and distribution capability to support service levels and financial objectives. Note, S&OP improvement plans can range from developing completely new processes and roles to making incremental improvements via minor process or technology modifications.

Organizational Change Management – The process, strategies and activities that support organizational and personal transitions from the current state to the desired future state in order to achieve and ultimately sustain the desired business vision and strategy.

It is important to understand that improving S&OP can result in a range in impact from high to low on a change continuum. A low impact example might be replacing a forecasting system with a new, improved system with little to no change in roles, responsibilities or the basic decision making structure and approach. In this low impact example, most change effort would focus on user adoption, training and communication. A high impact example might be a new formal S&OP process in an organization with multiple, siloed plans that will involve both top down and bottoms up input from multiple functional areas, the creation of new roles and responsibilities to enable a new integrated forecasting and supply planning system. Each circumstance requires a different approach.

The Intersection of Process Design and Change Management

Although this paper primarily focuses on managing change associated with S&OP improvement programs, a critical link exists between process design and Organizational Change Management. This is where many organizations make first mistakes that impede overall success or cause later failure. Early in a project many team members responsible for S&OP improvements run into challenges with the relationship between process improvement and change management. These include:

•  Inability to conceptualize the specific process change needed to achieve the objectives

•  Inability to adequately communicate the real impact of process change to affected groups

•  Failure to address all sub-processes and activities that will feed into the desired end state

•  Uncertainty of approach to identify current processes that should change and opportunities for improvement

•  Assuming technology (APS and optimization tools, for example) will perfectly fit all S&OP stakeholder requirements and provide all functionality needed

•  Inability to think outside of technology tools pending implementation and develop a holistic solution involving other systems, offline processes and people

•  Inability to project impact to roles and jobs

•  Resistance to sharing information due to political concerns

•  Reliance on using systems flow charting or informal decisions alone to develop new processes

One key to success is to use a variety of tools to address these issues. For example, if designing a new S&OP process that will impact the processes of inventory planning, sales forecasting, financial forecasting, and communication flows to contract manufacturers, it is critical to identify the high level current state attributes including: sub-processes, key activities, KPIs used, formal or informal approaches to make decisions, people involved, systems involved, unique features and gaps in the for each of these process areas. Flow charting can be very useful but this is the wrong time to put swim lane diagrams together. It is much better to use a facilitative technique that involves highly knowledgeable participants. The session is usually held with one to two facilitators that use a structured approach to uncover the attributes described earlier. During and after the session, the S&OP team can distill out gaps against best practices, identify non or limited value adding steps, and envision new features to the process.

After envisioning and documenting the “end to end” approach of the desired process, the new ideas can be presented back to the original workshop participants for discussion, debate and consensus. This is more productive than trying to flowchart out new processes before understanding all the nuances of the current process. It will also engage most people more than trying to place symbols on a flowchart or whiteboard. This technique should be used to ensure that all people have a common understanding and can begin to identify areas of potential trouble or conflict. The outcome is a common vision for an overall approach for key areas affected by new S&OP, new KPIs, key sub-process ideas and identification of key parts of the old process that will be changed. Then once everyone is on the same page, begin the more detailed process and technology design steps.

Other handy future state process design tools include (applicable but not limited to S&OP design):

•  Influence / driver maps*

•  Level two and three process flows

•  Responsibility, Accountability, Consult and Inform (RACI) organizational matrixes

•  Best practices and research where applicable

•  Interviewing

•  Surveys

•  Benchmarking other organizations performance and approach

* A technique to identify the influencing factors (external and internal) on a key process that has many influences like inventory management

Process design should not be done in a vacuum and is usually best done with formal approaches to uncover all nuances of the current state prior to defining the future state. Some key steps to starting an S&OP process design include:

•  Understand the general level of change to the current process and organization (see sample Change Impact Matrix)

•  Identify formal tools / techniques appropriate based on the level of expected change to the S&OP process to help decompose and then redevelop new processes

•  Be as inclusive as possible with a good representation of extended stakeholders

•  If similar efforts have failed in the past, use “lessons learned” sessions with a variety of stakeholders (affinity analysis techniques work well and get everyone hands on involved)

•  Be cognizant of each stakeholder groups understanding of the processes they are and are not involved in day to day

•  Make sure the case for change is clear or begin to identify the case for change

•  Understand and employ tools to help translate process, technology and organizational change into a change management framework

During the early process design phase it is critical to link process development directly to the appropriate change management planning and approach. It is absolutely critical that the team members designing the new S&OP processes, organizational roles and supporting technologies be fully integrated into the change management effort. This is where we have seen many organizations make mistakes. Organizational Change Management is left to be dealt with later in a technology implementation phase or is viewed as only encompassing communications and training – where in fact it is important very early on and requires excellent leadership.

ne of the first steps is to understand the complexity of process change and the likely resistance and map that directly to a customized Organizational Change Management approach that includes the proper level of tools, resources and relationship between the process and organizational impact elements. On the right is an example of a simplified Change Impact Matrix to help assess the right level of process and change effort.

There are four key dimensions that most companies should evaluate in planning S&OP or any other business transformation initiative. These components include the Organizational Landscape, Learning, Leadership and Stakeholder Commitment and Communication dimensions. With each dimension you need to plan for tools and techniques appropriate for the complexity of the effort. One last note, we have found that many companies do pretty well generally planning for and understanding organizational change. However, the hard part is the actual execution of change management. That is why it is important to use formal techniques and tools to focus the team and not allow it to lose focus on the execution. An IT focused analogy can be gleaned from the use of common tools like unit and integration tests (and the whole toolbox of well known and used IT approaches) to thoroughly make sure the system touch points and functionality works as needed. In the same light, process and organizational touch points and functional integration need to work as properly as well and require the right tools and techniques to succeed.

Typical Change Tools Used in Conjunction with Process Design in S&OP Change Efforts:

•  Business Case for Change

•  Organization Change Assessment

•  Stakeholder Analysis

•  Job Impact Analysis

•  Change Management Plan

•  Leadership Involvement and Champion Framework

In November, Part Two: The Challenge—Leadership Engagement in S&OP Initiatives discusses effective leadership in greater depth including: (1) involved v. engaged leadership; (2) Best Practice: A Combination of Project Leadership and Change Leadership; and (3) The Plan for Project Leaders: How to Actively Engage Leaders

Beth Montag Schmaltz ( bmontag@hitachiconsulting.com ) is a Senior Manager and Organizational Change Competency Leader with Hitachi Consulting.

David Williams ( dbwilliams@hitachiconsulting.com ) is a Senior Manager and Supply Chain Planning Competency Leader with Hitachi Consulting.

As Hitachi, Ltd.'s (NYSE: HIT) global consulting company, Hitachi
Consulting is a recognized leader in delivering proven business and IT
solutions. From business strategy development through application
deployment, we leverage decades of business process, vertical industry,
and technology experience to understand each company's unique needs and
to achieve sustainable ROI.

References

Sales and Operations Planning, A Cornerstone of DDSN Leadership, AMR Research, July 2005

The Heart of Change, John Kotter and Dan Cohen, Harvard Business School Publishing, 2002

 Articles

“Software disasters are often people problems”, CNN

“Crisis Leadership:  What Dr. Martin Luther King Can Teach Us About Business Change”, IBM Global Services

“Keith Yamashita Wants to Reinvent Your Company”, Fast Company

“ Helping Employees Embrace Change ”, The McKinsey Quarterly

Dr. Darrol Stanley, The Impact of Empowered Employees on Corporate Value

© 2005 Hitachi Consulting Corporation. All rights reserved. "Inspiring your next success", "Knowledge-Driven Consulting", "Information Velocity" and “Dove Consulting” are registered service marks of Hitachi Consulting Corporation.