White paper S&OP a Hoshin Kanri Approach Executive S&OP and Japan s legacy old Hoshin Kanri s principles align each other on the ability to translate the high-level, executive-level goals into quantitative, achievable actions through policy deployment that encourages employees to analyze situations, create plans for improvement, conduct performance checks, and take appropriate action. Sales and Operations Planning (S&OP) a very popular process in today s business world is all about coordination, communication, sharing the goals, transparency, evaluation and accountability. When we relate and apply this in the world of manufacturing with extended supply chains by selling, producing and sourcing products and components from around the world, all we need is a more robust process to coordinate these global activities and to manage the growing rate of complexity and change. This actually means following the process with discipline, addressing issues by being transparent, increased level of team work between multiple business functions, communicating the information without any silos for consistency. Needless to say for understanding the need of having a common plan both annual and monthly to sell and produce, measuring how we are performing with respect to the common plan, adjusting the deviations and making course corrections to stay on track. Really simple is in it? Well the answer is Yes and No. Why would any organization need these coordination activities? Very realistically to improve the customer service by balancing the demand and supply, proactively make changes to supply rates much earlier and in smaller increments, introducing new products to the market for competitive advantage much faster than ever before. It facilitates better decisions and improved financial plans with less effort and time resulting in greater accountability for the results. All these are achievable because the people involved in this process are from top level executives to the middle management and also the supervisors and team leaders involved in the tactical execution month over month. This is why this process has now morphed itself
to be called as Executive S&OP process. In principle many of you might agree to say that this is like a policy deployment in an organization i.e. defining goals and objectives, communicating it, following it, and measuring it for being responsible and accountable to improve the efficiency and effectiveness. This involves month over month tactical analysis and monitoring of the processes and aligning with the annual strategic objectives of the organization and change directions as needed. This Executive S&OP process enables the organization to come out with a Game Plan for execution with the typical process elements as shown in the figure-1 Annual Sales Plan Quantity Revenue New Products Executive Staff Next Level Plan Demand Plan Supply Plan Financial Plan Manager / Supervisor Do and Align Execute Plan & Balance Demand- Supply-Financial Plans Work Team Check Result & Correct Demand-Supply- Financial Attainment & Corrections All 3 Levels Figure - 1 Lean manufacturing can be of great help as it is to simplify, speed up, coordinate, eliminate waste and improve efficiency thru continuous improvement initiatives however there are subtle differences. This is because Lean thrives on linearity and stability and dislikes variability. In practice the leverage over the customers are very weak and since the demand is highly variable and so Lean struggles much in this area. The counter measures are to build up the Inventory to manage the variations but the question becomes how much, where and how much ahead of time should a company build excess inventory which usually holds up the cash flow. Many companies implement Lean manufacturing but do not have the luxury of having large finished goods inventory either in house or in the channel. So many Lean consultants work towards optimizing and reducing this inventory to be Lean through continuous improvement initiatives, but the question always come would it not be nice to know the demand variations well ahead of time so we can be better prepared with our supplies?. Well this is called balancing the demand and supply and that s where Executive S&OP lives. In other words we can say Lean manufacturing complements S&OP. Management in industry today operates in an extremely harsh business climate and many industries are engaged in structural improvement simply to survive. They are making strategic long-term and medium-term plans, and implementing related policy deployment and controls. In Japan, such structural improvement has been called Hoshin Kanri. Wouldn t it be useful to periodically review the strategic progress rather than wait for an annual meeting to do so? The discipline of Hoshin Kanri is intended to help an organization to: Focus on a shared, dynamic, goal. Communicate that goal to all employees. Involve all employees in planning to achieve the goal. Hold participants accountable (through multiple feedback loops) for achieving their part of the plan. Periodically evaluate whether the system is performing to expectations
Although most executives are smart and understand the importance to have and follow a game plan, they often get caught up in the stress and turmoil of daily business. Goals and accountabilities aren t necessarily linked or cascaded. Hoshin Kanri assumes that daily controls and performance measures are in place. Hoshin planning aligns an organization toward accomplishing a dynamic goal. Hoshin Kanri requires a rigid implementation so as Executive S&OP process, which may be difficult in some cultures, and a long-term commitment with objectives being stable over a period of years. However, Hoshin Kanri s strengths of focusing the entire organization on vital objectives, communicating a shared vision, participative alignment toward breakthrough objectives, and careful monitoring indicate that it s a robust tool. It allows for smart management by objectives. Implementing Hoshin Kanri is by clarifying strategy, communicating strategic objectives, planning and setting meaningful targets, aligning strategic initiatives across all levels, and building in a feedback loop for continual improvement and learning. This is also sometimes called as Policy deployment which is the process of cascading the objectives from the top of the company down to the work group level. The figure-2 shows how this process cascades down throughout the organization and follows the Plan-Do-Check-Act PDCA process. Yearly Target Quantity Quality Cost Time Innovation Executive Staff High Level Plan Who? Method? Target? Time? Improvement? Manager / Supervisor Plan - Do Work Plan Action Measurement Countermeasure Work Team Check Method? Result? Countermeasure? Target & Time? Improvement? All 3 Levels Figure - 2 Executive S&OP process is a company-wide, multi-level, collaborative decision-making process aligning people and helping them move and march in the same direction and enabling stronger alignment with Finance and financial plans by providing major assistance in making the quarterly earnings calls. Let s see how this Executive S&OP process closely resembles and relates to the Hoshin Kanri s principles, Focus on a shared, dynamic, goal: This principle refers to common shared strategic multi-year goal and the year over year changing Annual Operating Plan (AOP). The AOP plan is dynamic and changes relative to the business and market conditions. Communicate that goal to all employees: Communication of this AOP plan (vis-à-vis the goal) is the first step that a company does during every final quarter of a year. This plan is the rolling 12 month sales and revenue plan i.e. how much are we going to produce and sell. This is created and communicated thru the S&OP process which also is the marching order for a company for next 12 months. Involve all employees in planning to achieve the goal: This yearly AOP sales and revenue plan is created by the people who belong to Sales, Marketing, Operations, Finance, and Product development to agree on a final number through the consensus approach. Hold participants accountable (through multiple feedback loops) for achieving their part of the plan: As these plans are created and achieved through the consensus approach, the people who created the plan are accountable for these plans indeed. Periodically evaluate whether the system is performing to expectations: Root cause analysis and continuous monitoring of the execution of the agreed plan occurs every month through pre-defined calendar meetings where all the people who created the AOP are involved to compare what was planned vs. the actual results. Depending on the deviations, corrective actions are taken to stay course and align with the AOP
In summary, as you can see, both the Executive S&OP and Hoshin Kanri s principles align each other in terms of the ability to translate the high-level, executive-level goals into quantitative, achievable actions through policy deployment that encourages employees to analyze situations, create plans for improvement, conduct performance checks, and take appropriate action. This is very helpful in creating a learning organization by moving people from fire-fighting and short-term fixes to long-term improvements through relentless reflection and continuous improvement. References 1. Sales & Operations Planning Beyond the Basics by Thomas F Wallace & Robert A. Stahl, 2011 2. The Toyota Way by Jeffrey K. Liker 2003 Author Bharani Ranganathan Green Belt in Lean Six Sigma, Advanced Lean Mfg, CS&OP, CSCP, CPF, PMP is an Industry Principal (MFG Vertical Solutions HCL America) He may be contacted at iscm@hcl.com
ABOUT HCL About HCL Technologies HCL Technologies is a leading global IT services company working with clients in the areas that impact and redefine the core of their businesses. Since its emergence on the global landscape, and after its IPO in 1999, HCL has focused on transformational outsourcing, underlined by innovation and value creation, offering an integrated portfolio of services including software-led IT solutions, remote infrastructure management, engineering and R&D services and business services. HCL leverages its extensive global offshore infrastructure and network of offices in 31 countries to provide holistic, multi-service delivery in key industry verticals including Financial Services, Manufacturing, Consumer Services, Public Services and Healthcare & Life sciences. HCL takes pride in its philosophy of Employees First, Customers Second which empowers its 91,691 transformers to create real value for customers. HCL Technologies, along with its subsidiaries, had consolidated revenues of US$ 5.4 billion, for the Financial Year ended as on 30th June 2014 (on LTM basis). For more information, please visit www.hcltech.com About HCL Enterprise HCL is a $6.5 billion leading global technology and IT enterprise comprising two companies listed in India HCL Technologies and HCL Infosystems. Founded in 1976, HCL is one of India s original IT garage start-ups. A pioneer of modern computing, HCL is a global transformational enterprise today. Its range of offerings includes product engineering, custom & package applications, BPO, IT infrastructure services, IT hardware, systems integration, and distribution of information and communications technology (ICT) products across a wide range of focused industry verticals. The HCL team consists of over 95,000 professionals of diverse nationalities, who operate from 31 countries including over 505 points of presence in India. HCL has partnerships with several leading global 1000 firms, including leading IT and technology firms.