The 7 Habits of Highly Effective S&OP

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1 The 7 Habits of Highly Effective S&OP Dr. Mark Moon Associate Professor of Marketing Head, Department of Marketing & Logistics Director, Forecasting and Demand Management Forum University of Tennessee, Knoxville 1

2 Today s Agenda 1. Tribute to Dr. Steven R. Covey (who developed the 7 Habits ) (So I don t get sued) 2. Our vision of the ideal state of S&OP 3. The 7 Habits of Highly Effective S&OP 1. Be Proactive 2. Begin with the End in Mind 3. Put First Things First 4. Think Win/Win 5. Seek First To Understand, Then to Be Understood 6. Synergize 7. Sharpen the Saw 2

3 The 7 Habits of Highly Webinar July 21, 2011 Effective People First published in 1989 Regarded as one of the most impactful self-help books ever written. 15 million copies sold, translated in 38 languages 7 Habits framework has been adapted to different contexts: Happy kids Effective families Effective leaders Can it be a useful framework for S&OP Implementation? 3

4 Before We Get Into the 7 Habits It might be a good idea to articulate our vision of S&OP (Sales and Operations Planning) Which we like to think of as Demand/Supply Integration 4

5 Demand/Supply Integration (otherwise known as S&OP) Webinar July 21, 2011 What is it? The process by which a company makes strategic decisions based upon market demand, supply capabilities, financial objectives, and the strategic direction of the firm Why do companies do it? So that marketing will create demand for products that can be produced So that operations will supply products for which there is demand Bottom line so all sides of a company will be singing out of the same hymnal 5

6 Demand/Supply Integration (DSI): The Ideal State Webinar July 21, 2011 Senior Leadership Alignment To Strategy Financial Goal Finance Strategic Direction Financial Plan DEMAND Sales and Marketing, Downstream Channel Partners Demand Forecast Demand Plan Demand/Supply Integration (S&OP) Capacity Forecast (Including inventory) Operational Plan (supply and inventory) SUPPLY Production, Logistics, etc., and Upstream Suppliers 6

7 So Now Let s Look At The 7 Habits 7

8 Habit # 1 Be Proactive Your life doesn't just "happen." Whether you know it or not, it is carefully designed by you. The choices, after all, are yours. Just remember that every moment, every situation, provides a new choice. And in doing so, it gives you a perfect opportunity to do things differently to produce more positive results. 8

9 Be Proactive Demand/Supply Integration doesn t just happen. Many organizations have ingrained cultures that promote siloed thinking. Moving an organization toward a DSI orientation requires proactive planning and execution. Studies have shown that DSI success is determined by: Process = 40% Tools = 10% Culture = 50% Culture change requires proactive change management to overcome cultural barriers. 9

10 The Levers of Change Management Webinar July 21, 2011 Culture & Values Everybody committed to success through openness and honesty Information and Systems Clean data and common IT platforms Business Processes One, standardised set of processes, understood across the business Organization The right structure with people who have the right responsibilities and accountabilities Metrics & Competencies Doing the right things and measuring results in the right way Process = 40% Tools = 10% Culture = 50% 10

11 Habit # 2 Begin with the End in Mind Habit 2 is based on imagination--the ability to envision in your mind what you cannot at present see with your eyes. It is based on the principle that all things are created twice. There is a mental (first) creation, and a physical (second) creation. The physical creation follows the mental, just as a building follows a blueprint. If you don't make a conscious effort to visualize who you are and what you want in life, then you empower other people and circumstances to shape you and your life by default. 11

12 Begin With The End in Mind Successful S&OP (or DSI) implementations require a vision of what the process is trying to achieve This vision must be clearly articulated and endorsed by senior leadership This is a strategy for planning the business, not just for planning the supply chain. 12

13 An Example of One Company s Vision 5 Executive DSI SIOP Meeting Meeting (Wk4) A continuous cycle of events 4 DS SIOP Reconciliation I (Wk3) Integrated reconciliation & financial appraisal 1 Portfolio & Product Review (Wk1) 3 Supply Review (Wk3) 2 Demand & Inventory Review (Wk2) 13

14 Habit # 3 Put First Things First Habit 3 is about life management as well--your purpose, values, roles, and priorities. What are "first things?" First things are those things you, personally, find of most worth. If you put first things first, you are organizing and managing time and events according to the personal priorities you established in Habit 2. 14

15 Put First Things First Urgent Not Urgent Important Quadrant 1 Quadrant 2 Not Important Quadrant 3 Quadrant 4

16 The Challenge Eliminate Quadrants 3 and 4 Minimize time spent in Quadrant 1 by investing in Quadrant 2 The key: Don t prioritize what s on your schedule Rather, schedule your priorities 16

17 As an Example -- Demand Planning Process Flow at one company Webinar July 21, 2011 Day -6 Day -5 Day -2 Day 0 Sales History Market/ Product risks opportunities and assumptions Sales / Marketing input by exception, with risks opportunities and assumptions Statistical Forecast Input Data Consolidation Demand Planner Initial forecast Validation of plan, assumptions and changes Gap analysis & Demand Review Prep Demand Review Review / Change forecast Model Customer Forecasts Comparison with AOP & STRAP Forecast performance Approved Demand Plan & Action Plan Business Leader Accountability Important Tasks Are Identified, Priorities are Scheduled, and Everyone s Responsibility and Timeline is Clear 17

18 Habit #4 Think Win/Win Win-win sees life as a cooperative arena, not a competitive one. Win-win is a frame of mind and heart that constantly seeks mutual benefit in all human interactions. Win-win means agreements or solutions are mutually beneficial and satisfying. A person or organization that approaches conflicts with a win-win attitude possesses three vital character traits: Integrity: sticking with your true feelings, values, and commitments Maturity: expressing your ideas and feelings with courage and consideration for the ideas and feelings of others Abundance Mentality: believing there is plenty for everyone 18

19 Think Win-Win Many times, Demand Planning processes break down because there is a lack of trust between developers and users of forecasts Are any of these situations true in your companies? 19

20 Think Win-Win Does manufacturing complain that sales overstates demand forecasts, doesn t sell the product and then supply chain gets blamed for too much inventory? Does the sales team complain that manufacturing can t deliver on its production commitments and it s hurting sales? Does manufacturing complain that the sales team doesn t let them know when new product introductions should be scheduled, and then they complain about missed customer commitments? 20

21 If those sound familiar to you Then you might have the Demand and Supply sides of the organization following different agendas. Your incentive systems might be discouraging a Win-Win atmosphere! Remember that People Do That For Which They Are Rewarded! Remember that Culture drives 50% of success! Eliminating siloed thinking is a cultural challenge 21

22 Habit #5 Seek First To Understand, Then To Be Understood Webinar July 21, 2011 If you're like most people, you probably seek first to be understood; you want to get your point across. And in doing so, you may ignore the other person completely, pretend that you're listening, selectively hear only certain parts of the conversation or attentively focus on only the words being said, but miss the meaning entirely. 22

23 Seek First To Understand, Then To Be Understood Webinar July 21, 2011 The essence of DSI, or S&OP, is to provide a forum where the primary business functions can articulate their opportunities and constraints, and then make forward-looking plans that benefit the organization as a whole. This requires understanding, and openness, of the realities that each function faces. 23

24 An Example from One Company of How this Reconciliation Can Take Place DSI Reconciliation Meeting Chaired by CFO Attendees: Lines of Business Leaders Integrated Supply Chain Leaders Others appropriate to issues under discussion Agenda: Latest financial view Review unresolved issues arising from Demand review & Supply review meetings Issues arising through this cycle & proposed resolution Agree issues to be raised at Exec-DSI meeting Output: Financial Plan Issues to be taken to the Exec-DSI meeting Risks & Opportunities documented Solution Scenarios, including new commercial/supply initiatives Recommendations 24

25 The Important Take-Away Here The DSI Process provides a forum for different functions to come together and make decisions that benefit the organization as a whole. This process will not work if turf protection is the order of the day! This process will work if participants seek first to understand, then to be understood. 25

26 Habit #6 Synergize So put it simply, synergy means "two heads are better than one." Synergize is the habit of creative cooperation. It is teamwork, open-mindedness, and the adventure of finding new solutions to old problems. But it doesn't just happen on its own. It's a process, and through that process, people bring all their personal experience and expertise to the table. Together, they can produce far better results that they could individually. Valuing differences is what really drives synergy. 26

27 Synergize Webinar July 21, 2011 For an effective DSI process, all the supporting processes have to be working Resource Management Sales Management Supply Chain Management Project Management Supplier Management Procurement Logistics Portfolio Management Demand Management Market Management Each function brings critical insights to the process, and when each function values the insights of the others, the whole is greater than the sum of the parts. 27

28 Habit #7 Sharpen The Saw Sharpen the Saw means preserving and enhancing the greatest asset you have--you. It means having a balanced program for self-renewal. 28

29 Sharpen the Saw In this context, renewal means continuous enhancement of attitude, knowledge and skills through education and training on various elements of S&OP or Demand/Supply Integration Everyone involved in an S&OP process, from Demand Planners, to Sales, to Product Managers, to Supply Chain people, to Senior Executives, needs education on the goals, strategies, and tactics of the S&OP process. 29

30 An Example of How One Company has Invested in Sharpening the Saw Level 4 Level 4 Level 3 Level 3 Level 2 - Practitioners Level 2 - Practitioners Level 1 - Foundation Level Level 1 - Foundation Level Demand Planning Supply Planning

31 In Summary Dr. Covey and his 7 Habits have helped millions of people move from dependence, to independence, to interdependence. There is wisdom there that can help you to think clearly about your S&OP or DSI processes, and to achieve the goals of Integrated Business Planning 31

32 Our Next Webinar Improving Your Forecasting Process by Focusing on What Matters Most October 20, :30 p.m. EDT Presented by James Berry, Forecast Pro Senior Consultant Visit to sign up! 32

33 Final Questions or Comments? 33

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