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WORDS FROM WALLACE - June/July 2007
Risk is an important topic in business today, and supply chain management is right in the middle of discussions about risk. Potential disruptions -
of moderate to major consequence - are more likely today than 20 or even ten years ago, for reasons that include supply chains lengthening and becoming less robust,
natural disasters occurring at an increasing frequency, terrorism rising, and who knows what's coming next.
These factors can lead to significant disruptions of the demand/supply balance, and they often come with little or no warning. They're "surprises."
And, actually, surprises can be not only bad surprises but also good ones - provided they're managed effectively.
Can Executive S&OP help with this? Well, it can't make the surprises go away but it can perhaps help you to either anticipate them a bit and/or
recover
when they occur. For the time being, let's focus on recovery and see how an effective Executive S&OP process helps to deal with surprises of both the
good and bad variety. First, the good:
Demand Spikes
One of your biggest customers - one of the "800 pound gorilla" variety - sends in a very large order, out of the blue, calling for three times more
widgets than they've been taking in recent months. This may cause some problems, certainly, but on balance it's good news: they want to buy more of
your product. How does a company deal with that? In other words, how does it recover?
Let's say that your monthly Executive S&OP cycle ended just a week before this very large order arrived. Well, you certainly can't afford to wait
several weeks for the next planning cycle to address this problem. What do companies do in this situation?
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Answer: they immediately conduct a "mini Executive S&OP cycle."
This is an accelerated version of the standard 5-step Executive
S&OP process shown in
the diagram, dealing only with those parts of the business affected by
the demand spike: the
related
materials, capacity, other resources, and perhaps other customers. Click here for more on the 5-step process.
The "Mini" Executive S&OP Cycle
They conduct, quickly, a
Demand Planning step, a Supply Planning step, and hold an abbreviated
Pre-Meeting and Exec Meeting if necessary. Decisions
are made and the issue is resolved at the lowest level possible. If the
folks in the Demand Planning step can solve the problem by shifting
customer
commitments around somewhat, fine. Case closed. Or perhaps the Supply
Planning team can pull a rabbit out of the hat: excellent. Problem met
and
resolved.
But if not, the issue gets
elevated to a mini Pre-Meeting for resolution and then to a mini Exec
Meeting if the situation warrants. These meetings
are typically much shorter than those in the monthly cycle; they focus
on the issue at hand and related factors, with probably more than a few
of the
participants attending via telephone.
Throughout the abbreviated
process, they try to keep the steps, the report formats, and the
decision-making process the same as in the standard monthly cycle -- because the people
are familiar with those processes and know they're solid. And of course
the information is in dollars as well as units; the Finance folks are
involved in this process, remember? The dollar view, obviously, is
necessary to make decisions that are in the best financial interests of
the
company.
Thus there is a coordinated
and rapid response to the demand spike. At worst, and hardly ever
likely, the
company may conclude that it can do
nothing. Or perhaps it can supply some but not all of the order when
the customer wants it, with the balance later. Or just maybe it can
meet all of
this customer's demand and still keep its commitments to the other
customers, who may be only "600 pound gorillas," not 800 pounders.
A few years ago, I co-authored a book - ERP: Making It Happen - with
Mike Kremzar, formerly Vice President of Product Supply at Procter
& Gamble.
Mike was the "force" behind the implementation of Executive S&OP at
the company. He identified one of S&OP's big benefits as the
creation of a
common, agreed-upon game plan throughout each business.
This makes mid-period
corrections, of the type we're talking about here, much easier than
before. Mike
indicated that they no longer had to spend the
first X days debating whose numbers were right; there was only one set
of numbers. They could get to work quickly, and develop the recovery
plans.
Coming up next month: how to deal with "bad surprises" - supply crashes.
Thanks for listening,
Tom
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When Is Learning
Not Learning?
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A question: if a tree falls in the
forest and nobody hears it, did it really make a noise?
A similar question about learning
is: if someone learns something new, but does nothing differently as a result,
did they learn anything at all?
I think the answer to both might
be a big NO!
Executive S&OP is a process
that leads top management to better decisions with regard to balancing demand
and supply. The process does this by taking raw data and organizing it into
information. This enables top management to see things differently and farther
into the future, so that they can make better decisions.
Many years ago, W. Edwards Deming
did the same thing: he took raw data used in Statistical Process Control (SPC),
and organized and simplified it into pictures so that people could determine
root causes for process non-conformance. It revolutionized the entire Quality
Assurance world and has made a huge positive impact on industry.
In a somewhat similar way,
Executive S&OP today is giving people far better visibility:
- It organizes data and
synthesizes it into information.
- It displays that
information in a manner most suitable for top management decision making -
largely via graphs not tabular spreadsheets.
- This is coupled with
defined and disciplined processes through which better decisions get made.
Having a spreadsheet without
coupling it to a top management decision-making process does not qualify as
Executive S&OP. Learning about this process is necessary but not
sufficient; a company must use it at
the executive level. When this
happens, enormous benefits can result.
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The S&OP Benchmarking
Consortium
Recently I spent two days at a very interesting session: a meeting of
the S&OP Benchmarking Consortium at Penn State
University.
Actually the meeting wasn't held at Penn State but rather was hosted,
most graciously, by Kraft Foods in New Jersey. They handed out many
samples of
their products, including Planter's Peanuts, Oreos, and Balance Bars.
Yummy.
Also attending the session were people from companies in consumer
packaged goods, spirits, chemicals, lubricants, pharmaceuticals, and
building
materials.
We heard two fine presentations from Kraft Foods and S.C. Johnson.
Following that, I briefed the group on what Bob and I see as the state
of the art
for Executive S&OP and also its future outlook. I couldn't stick
around for the next day, which was devoted to working on the "S&OP
Best Practices
Survey," which is certainly an important activity; we need to know a
lot more about what companies are doing with this powerful process.
This is a very good group, ably led by Professor Doug Thomas from Penn
State. It may be beneficial to your company. To learn more about
it, check our related websites page
at
www.tfwallace.com.
Exploring the "Great
Divide"
For years I've been
intrigued by gap between the commercial side of the house - Sales and
Marketing - and the operations group: Supply Chain,
Manufacturing, Purchasing and so on.
A logical theory is that the greater the gap - the larger degree of
disconnect between those two groups - then the poorer will be the
company's
performance. Make sense? Does to us.
Well, now someone is trying to get a handle on this, not anecdotal but
instead rigorous and fact-based. Dr. Simon Croom and Pat Lupica of the
University of San Diego have a research project underway evaluating
this disconnect and its effects.
Preliminary results are in and guess what? Companies using S&OP are
reporting far better communications and teamwork than those not. This
of course
is no surprise, but it's good the see our feelings confirmed.
The survey is continuing and it's not too late to participate. To do so, click on: www.zoomerang.com
Participants will receive a copy of the final report of the survey. We
hope you do this; the more companies that participate, the better the
survey,
and the more knowledge we all have on how to use Executive S&OP
even more effectively.
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