Cross-functional Capabilities: Sales & Operations Planning (II).

The One-Plan objective.

The Sales and Operations Planning (S&OP) more than looking for one-plan, is aiming to have several consistents plans, or, in other words, one plan with different views. The secret is that the same numbers and decisions are managed by all functions involved.

How do you get this result? The answer is not easy. First of all, you have to have clear what is the Business Plan for the year. This Business Plan should have clear the monthly (or any other period) requirements in terms of sales and profitability. The Business Plan, after one year of exercise, should be mainly obtained from the S&OP created before the year ends. The Business Plan will be the "north Star" for the whole S&OP process.

Starting with the left side: the Demand Planning process.

Your S&OP planning must start always with the client (customer, consumer, user, etc.) in mind. So, the first step is to create a Demand Plan. We can summarize the Demand Planning components as shown in the following figure:

This diagram does not pretend to be exhaustive, however we can illustrate several aspects of the demand planning process:

- The outcome IS NOT the forecast. The forecast is an input for the whole process. It is located outside the boxes of Sales and Marketing, because it can be generated by them (or not), even it can be generated in another function or organization.
- Both Sales and Marketing should contribute to the Demand Plan. We have to consider at least the building blocks shown in the figure.
- The sales force should collaborate in the final Demand Plan. They should add any local or regional initiative, their own knowledge of the local market, any localized promotion, market sensibility, etc.

At the end of the process, we should have a Demand Plan agreed by both Sales and Marketing, as an input for the Supply Planning process. We should discuss the elements of this process in the next blog...

Cross-functional Capabilities: Sales & Operations Planning (I).

Sales and Operations Planning (known as "S&OP") is one of the key cross-functional capabilities that really make a difference in the market. However, the S&OP capability is like going to the gym: everybody has the membership but few really do exercises frequently. It means, when you ask if you do S&OP, almost invariable everybody responds: "we have a S&OP in place". The reality is that they may have some meetings, but not really a S&OP capability.

The S&OP is the capability (i.e. the right combination of process, people and technology to create a competitive advantage) that transform the Business Plan to the execution, through the balancing of the demand and supply in a profitable way. It involves several functions of the company. In the demand side: sales, marketing, new product development, key account managers, i.e. the part of the company that plan and execute the "generate demand" part of the business. In the supply side: manufacturing, supply chain, logistics, procurement, i.e. the part of the company that plan and execute the "satisfy demand" part of the company. Another key actor is the financial part of the company: they are the ones who will help to decide, based on the numbers: revenues, costs and profitability expected from a S&OP decision.

Based on an Abeerden Group research ("Sales and Operations Planning. Key Enabler for the Supply Chain Officer" August 2011) the top business pressures that leads the company to design and implement this capability are:

- Reduce supply chain costs - 54%
- Improve top line revenue - 46%
- Managament of increasing volatility - 43%
- Customer mandates for faster, more accurate and more unique fulfillment - 37%
- Need for better tighter integration between planning and execution - 34%


The paradigm of the S&OP is to generate "one plan" in the sense described in my previous blog (see http://bauzanotebook.blogspot.mx/2013/05/blog-post.html). The benefits that this capability will bring to the company are very important and tangible, and are tipically in:

- Improvements in on-time in-full delivery to the customers
- Rationalized inventory levels
- Less manufacturing downtime
- Better plant efficiency
- Lower transportation costs

In the soft side, the benefits are:

- Enhanced teamwork
- Better decisions
- Better financial plans
- Greater control
- Better visibility of what can happen in the future

In the following blog, I will explain in more detail how is the S&OP process and how to get these benefits.

Cross-functional capabilities are key to be successful.

There are several cross-functional capabilities that a company must execute to be successful. Companies normally excel in some functional capabilities (i.e. procurement, manufacturing, sales, marketing) but they have challenge difficulties when trying to execute cross-functional capabilities.

What are such cross-functional capabilities? As the name describes, it refers to the combination of processes, organization and technology that add value to the client of the company, but additional, involves several functions in a coordinated and effective way. Some of such capabilities are:

- Strategic Planning
- Product Lifecycle Management (PLM)
- Sales and Operations Planning (S&OP)
- Enterprise Performance Management (EPM)

Why are so difficult to execute properly? These capabilities are difficult to implement in companies where "functional silos" are very strong. It means, the functions are so oriented to their own objectives that forget that its main objective is to satisfy the client needs. For example, a "manufacturing silo" can be devoted to its cost-per-unit KPI that forgets that it can affect the inventories of finished goods or the distribution costs.

* Source: http://behindbricks.wordpress.com/2011/01/11/a-new-silo-a-new-obstacle/

Working for generating results in the cross-functional capabilities implies to accept that, in some cases, its functional KPI will be lower than expected but the end-to-end KPI will be better, and that the company as a whole will win.

One way to make these key cross-functional capabilities to work in the proper way is to take in account the following aspects during the implementation:

- Transparency. Make the data available to all participants. Have a single version of the data, and avoid that each participant comes with his own version of the truth.

- Common goals. Define KPIs that will be shared by all participants. Define lagging and leading KPIs. For example, in S&OP all participants should be responsible of the OTIF (On Time-In Full compliance of customer orders). Define a rule of "degree of responsability" over the KPI.

- Clear governance. Define who makes decision and when. Define decision rights using a RACI.

- Scope. It must be clear where the capability begins and where it ends. I have heard complaints about the S&OP capability, when it is really clear that is a PLM problem.

- Do not improvise. Prepare throughly commitee and meetings. Make the neccesary analytics beforehand. Create a real-time "what-if" capability, to test any new solution that arises during the meetings.


Any thoughts?

When an EPMO is required? (I)

In the companies, typically there is a "universe of initiatives" which aim, directly or indirectly, to transform the company. However, there is a huge amount of energy and resources employed in such initiatives than then become projects. However, only a small part (the Pareto principle) of such universe generates most of the impacts to the organization.

 

 

Such projects should be the focus of the organization. These initiatives, seldom called "Strategic Projects" or "Strategic Portfolio" can be selected based in a criteria like: provides the biggest benefits, change the way the company operates, they have the relative bigger investments, realize synergies with other organizations among others. In any case, these initiatives must be managed using a Portfolio Management capability in order to select which of them will become projects (i.e. we will asign resources, a leader, and a start and end date). Then, the project will be executed.

However, how can we guarantee that the project will be executed as planed and will bring the benefits commited to the company? We recommend to have an EPMO.

The EPMO (Enterprise Programme Management Office) is the logical evolution of traditional PMO attacks the traditional model following disadvantages: *

• It is positioned at the top of the company and covers all program and project activities that occur in the company
• It becomes a permanent organizational structure, responsible for developing the program management capability at the company
• It is led by a Program Director (or equivalent) which is part of the top leadership of the organization and responsible to the CEO for the implementation of the strategy of the company through programs and projects
• Supports the development of business strategy and the strategic portfolio of programs and projects
• Coordinates the development of key organizational functions for program and project activity
• Establishes systems and project management programs, policies, methodologies and standards for the company as a whole
• Develop a "pool of talent" with deep expertise in the delivery of programs and projects

The problem is that you should not devote the same amount of "EPMO energy" to all projects. It is logical that Strategic Projects will need more dedication, because will generate a greater impact. With this in mind, you can have a structure that distributes the attention to the portfolio depending on the program and project importante, as shown:

* From "Enterprise Programme Management: Delivering Value" by David Williams and Tim Parr, Palgrave McMillan 2004.

Understand first the "why" of your Process Mapping Effort.

 "I have no special talent. I am only passionately curious"

Albert Eistein.


It can sound obvious, but the purpose of the process mapping effort should be defined clearly from the beggining. If not, all the construct can be useless and the organization may feel dissapointed with the results of the effort. I have seen several mapping efforts that at the end didn´t fit with what the company expected from it.

I suggest to use techniques, like 5 Whys, to understand the roots of the process mapping effort in order to select what is the best approach. "5 Whys" is a simple technique for problem solving, typically used in the phase of "analysis" of the Six Sigma methodology, Kaizen and Lean Manufacturing, but also can be used in isolation. This technique was originally developed by Sakichi Toyoda and was built by Toyota in its "Toyota Production System".

This technique consists in asking questions iteratively in order to find the root cause of a problem. For example, let´s use this technique to understand the root cause analysis of an initiative of business process mapping:

You can use this technique or any other that help you understand the "why" and the expectations for the process mapping initiative. When you agree with your client what is the purpose, select the best approach for process mapping, in order to guarantee that you will have the proper tools to get the expected outcomes. For example, you can select the tool depending on the business situations as illustrated in the following table:

As you can see, you should select the right approach from the beggining. If there are several issues you want to solve, use a more general approach (like swim lanes or BPMN). For solving specific business situations, you may need to select a specialized technique (like VSM for improving processes).

How to define Key Performance Indicators (II)

The KPIs definitions by themselves will not solve a problem. We have to create an enterprise performance management capability to achieve the expected outcomes, using the KPIs as a key tool. This capability is comprised of processes, organization and tools that guarantee the cycle which starts with the business strategy,  clear and measurable goals, and the execution measured with by the KPIs.

 

It implies that the business strategy has been defined in measurable terms, i.e. EVA growth, market share growth, talent retention, etc. You can use a methodology for the strategic management of the company like Balanced Scorecard, Value Management, or any other and use them to define the KPI and the KPI tree. Then, you should establish goals to those KPIs. There are several techniques to establish such goals but at the end, they will be linked to the expected business outcomes for the year.

Then, the KPIs and goals defined must be "cascaded" to the tactical and operational levels of the company in order to make them consistent. In such way, every employee will know how he/she will contribute to the overall goals of the company.

As a result of the Operation, the KPIs will be affected and we measure their variations and how close they are to the established goal. Then, we take decisions to improve them. Eventually, the KPIs will help to reshape the business strategy.

In the following diagram, we illustrate how the KPIs cascade from the Strategy to the Operation. As you can see, you can have:

- Functional KPIs, related to measuring the outcomes of a specific function.
- Process or Cross-functional KPIs, which involves the collaboration of two or more functions.

When architecting the KPIs tree, make sure that your definition will help to:

- Implement the business strategy
- Align function and processes to the business strategy
- Identify if the KPI will be lagging or leading and why
- Establish the frequency of KPI measurement
- Define who are accountable(s) for the KPI results

Process Leaders: is the solution? (II)

The quality of the process will depend greately upon the process leadership and the process team. But, how to select a good Process Leader that improves our chance of a good business process management? Well, the Process Leader selection should be like the hiring process. It implies:

• - To define the competencies required for the job
• - To have a clear job and role description
• - To link process KPIs and targets to their rewards and compensation
• - To have candidates for the job, and go through a selection process

Let´s discuss about the competencies. Competencies are understood as the measurable or observable knowledge, skills, abilities, and behaviors (KSABs) critical to successful job performance. There are several classification of competencies, but we can use this one for our purpose:

Knowledge competencies - practical or theoretical understanding of subjects.

Skill and abilities competencies - natural or learned capacities to perform acts.

Behavorial competencies - patterns of action or conduct.

After that, you should define the level of competency the Process Leader (PL) should have, based on the following scale proposed by Dreyfus and Dreyfus:

1. Novice: Rule-based behaviour, strongly limited and inflexible
2. Experienced Beginner: Incorporates aspects of the situation
3. Practitioner: Acting consciously from long-term goals and plans
4. Knowledgeable practitioner: Sees the situation as a whole and acts from personal conviction
5. Expert: Has an intuitive understanding of the situation and zooms in on the central aspects

I would not like to elaborate about Competency-based management, so let´s start with these basic definitions. From my expertise, the core competencies a PL must have and he/she should be between the "Knowledgeable practitioner" and "Expert" are:

- Knowlege Competencies

• Process theory and concepts. It is critical. If not, will lose his/her leadership. PL main role is to "teach" these concepts to the team.
• Process methods and tools (like Lead Six Sigma, BPMN)
• Process repository basics. It means, where and how the processes will be documented and maintaned.
• Deep knowledge of the end-to-end process that will be under his/her leadership. PL must suggest improvement based on this knowledge.
• Process measurement and control (KPI, targets, actions, etc.).

- Skill and abilities competencies

• Leadership, and be recognized in the organization as a leader
• Team work, good at working in a team and getting the most from it.
• Excellent communicator. Presentation skills. 
• Change  management skills.
• Program and project management skills.

- Behavorial competencies

• Customer focus
• Alignment to the business strategy
• Focus on service, cost and effectiveness/efficiency
• Thinking in process, instead of function or silos
• Looking for a holistic view of the benefits (look for a greater good)
• Looking for consensus