Myths, Misunderstandings and Misinformation about S&OP

1. Myths, Misunderstandings and Misinformation about S&OP Bob Stahl 508-226-0477 www.RAStahlCompany.com www.tfwallace.com

2. 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

3. 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

4. Volume Supply Demand Balance Mix The Four Fundamentals • How Much? • Rates • The Big Picture • Families • Strategy/Policy/Risk • Monthly / 18 - 36 Mos • Executive Resp. Very different, separate, & distinct practices but integrated! • Which Ones? • Timing/Sequence • The Details • Products/SKU’s/Orders • Tactics/Execution • Weekly/Daily 1-3 Mos • Middle Mgt. Resp.

5. Master Scheduling Demand Pull Sales & Operations Planning Executive S&OP Volume Supply Planning DemandPlanning Demand Supply Mix

6. 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 2007 -- 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.

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

8. SoftBenefits 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

9. 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

10. “Strategic Planning . . . forward in reverse” Annual Business Plan Doing The Right Things Strategy Executive S&OP Robert Hayes HBR-Nov/Dec 1985 Strategic Planning - forward in reverse Executive S&OP Tactics Doing The Things Right Master Schedule Execution

11. 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.

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

13. 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 & strategywhile living in the “suicide quadrant,” you’ll not succeed.”

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

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

16. 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

17. 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

18. 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.

19. 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

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

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

22. Coordination is all about:Alignment of Human Energy Accomplishment Accomplishment

23. Myth # 6: “We Can’t Use S&OP Because We’re Totally Outsourced” Reality: Executive S&OP Doesn’t Care Who Owns The Factory. Heavily Outsourced Companies May Need Executive S&OP More Than Others. (i.e., Just Bats) . . . nor do Customers care who owns the resources of production! “Outsourcing” is a vital contributor!

24. 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 “ Dow Chemical ~ $55 “ Homac ~ $40 Million Just Bats ~ $30 Million

25. Myth #8: “Our Forecasts Are Not Accurate Enough For S&OP” Reality: Executive S&OP Does Not Require “Accurate” Forecasts But by working on the process,itoften helps to improve the forecasts

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

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

28. Myth #9: “S&OP Is Simple; All You Need Is A Few Spreadsheets” Reality: Implementing Executive S&OP Is All About Change Management

29. Research finding . . . Lora Ceceri, Altimeter -- Boston, September 2010 The effective use of S&OP is: • 60% Change management • 30% Process improvement • 10% Technology

30. 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!

31. Myth #10: Continued • Who Are THEY? • Top Management? • Sales/Marketing • Manufacturing? • Finance? • New Product Development? • Outsourcing? • All of the above?

32. 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!

33. Gravitational Force Needed . . . Customers Desired Force = Centripetal Natural Force = Centrifugal Executive S&OP Owners Employees (Suppliers, Community, Country, Planet)

34. 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. Pick up your  at the APICS  

35. 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 uncertainty! Myths, Misunderstandings and Misinformation

36. Done Properly . . . Simpler (Not Easier) Better (in 90 Days!!!) • Low Cost • Low Risk • High Impact • Quick Results

37. Book Signing . . . Book Store @ 5:30 today

38. Thanks for Listening Bob Stahl 508-226-0477 RStahlSr@aol.com www.RAStahlCompany.com www.tfwallace.com