Excerpted with permission from The Market-Driven Supply Chain: A Revolutionary Model for Sales and Operations Planning in the New On-Demand Economy, by Robert P. Burrows III © 2012 Robert P. Burrows III all rights reserved. Published by Amacom Books, a division of The American Management Association.
Numbers are frightening. Working outside the comfort of your functional organization is frightening. So asking individuals to come together, use numbers to communicate, and achieve complete alignment of their plans with all other departments is very frightening.
Analytics resolve differences of opinion but are often seen as dispassionate. A behavior change is required to make analytics less frightening and even sought after. I have found that people will change their behavior if a consistent and well-reasoned approach is designed. One essential element in the process of accomplishing the behavioral change is to make the analytics standard and familiar month to month. Albert Einstein once said, "It is easy to make things complex; complex to make things simple." Simplicity is the key to familiarity and understanding.
In a collegial sales and operations planning (S&OP) team, the numbers are discussed, rather than personalities or opinions. Everyone's opinion is sought initially, but opinions must be supported by the numbers in the end. To have a collegial team, some basic team protocol is required. We define the elements of this protocol as we discuss the arduous monthly planning process design.
The 7 characteristics of strong teams
Great productivity and effective innovation emanate from teams if they are structured according to some disciplined rules. There are seven characteristics of a strong team for use in the month-to-month processes of market-savvy S&OP. A strong team is:
Well founded in analytics
Teams work best when analytics rule the discussion. In keeping with our management by analytics principle, teams are a natural part of the market-savvy S&OP design. So often we find S&OP run by one department or dominated by sales lore or historical conventions that go unchallenged but drive decision making almost unwittingly. As an example, at almost all the medical technology companies I have worked with, the sales representatives insist that for every one set of devices delivered to an operating room, you actually need two sets just in case a nurse drops something. This doubles the inventory, of course, and causes all sorts of profit and cash-flow problems throughout the supply chain, but the notion goes unchallenged for the most part. If a cross-functional team studies the issue by asking the customer if two sets of everything are needed, the team is surprised to find the answer is almost always no.
When a meeting relies on subjectivity and the opinions of the most articulate, when the less-demonstrative participants are not encouraged to have a voice, when bias and prejudices dominate, it is not a team meeting. The meeting is a power struggle, and the power of the team is lost. A strong team culture calls out these issues and insists on analytics. A meeting that relies on facts presented in a way that encourages understanding and participation becomes a team meeting. In market-savvy S&OP, the team should have a standard set of analytics designed for communication and alignment, as detailed later in this chapter. S&OP is, at its core, all about alignment of each functional area's work to accomplish the strategy. The analytics must focus on alignment. For instance, a basic dashboard showing historical and future sales, production, and inventory is a display of whether or not the work of many functions is in alignment. If sales are going up and production is not following, plans are not aligned.
Given a standard set of analytics used each month, the team becomes comfortable with the information flow and gains an in-depth understanding of the information and its impact on accomplishing the team's purpose. Without a standard set of analytics, the individual members would normally present different numbers from a different set of starting points and assumptions each month, thus greatly reducing the communicative values. The analytics must be generated from a known base of data so everyone is comfortable with the accuracy. The team can then bypass the time-consuming and counterproductive discussions about whether the data are of value to instead focus on meaning and trends in the information.
The market-savvy S&OP team needs to have as senior a representation as possible from each functional area, including legal, finance, operations, logistics, marketing, sales, research and development (R&D), and planning. The cross-functional team, over time, becomes capable of looking at problem solving in a way that has strong potential for success because everyone's requirements are being addressed. Of importance is the fact no one is left out, so finger-pointing is minimized. The primary goal of market-savvy S&OP is alignment of each functional area to the customer's planning and operations. No one can be left out of the alignment process if a complete strategic implementation is to be achieved.
Capable at problem solving
The team will not be successful if it is always looking outside itself for creative ideas. Many companies find they need to change personnel to satisfy this requirement. In almost all of our engagements, this has been the case. The employees who have become dependent upon their own functional area exclusively for promotion prospects, increased status, comfort, and camaraderie are not good team players. Employees who are basically good businesspersons work well in teams because they seek perspective and insight. Problem solving requires looking for solutions that may be contrary to the accepted methods and policies. Problem-solving skills can be taught; the best approach is the long-proven scientific method. We use this rather than the techniques taught in Lean or Six Sigma (such as the cause-and-effect fishbone charting) because the issues in market-savvy S&OP are normally more complex than the ones for which these techniques are best suited.
We apply the standard method of problem solving using the simple progression DHSSD, which stands for Discover, Hypothesize, Simulate, Select, and Deploy. Simply stated, the Discover step is the current-state definition. Hypothesize is the examination of solution alternatives through a highly participative, cross-functional set of discussions. Simulate is where each alternative is reduced to numbers, and Select is the step in which risk of implementation is balanced with benefit potential. Finally, Deploy is when a final decision is made and action is taken. DHSSD is a technique that is attractive to senior managers because it requires financial analysis as well as creative thinking.
Composed of role players
A team must have at least one person capable of filling each of the following four roles: a decisive person, a salesperson, a quality-control person, and a loyal worker person. These roles are commonly found in a group of people but may not be found in a smaller unit of assigned team members. We actually use personality testing to determine who on the team fits each of the required roles. We then teach how each role works for the betterment of the team as a whole.
A team needs a very clear charter or purpose. The purpose statement should be a formal one with a good deal of joint thought going into its development at the very early stages of the team's life, such as days one and two. In market-savvy S&OP, each team has sole responsibility for one market segment. The purpose is defined by looking to the go-to-market strategy and the specific benefits defined in the strategy. Each team member should have one page that has the purpose statement written at the top, followed by the quantified goals/benefits, the names of the team members, the team's sponsor or responsible executive, the basic approach to be taken to do the business of the team, and a timeline to establish the monthly processes and to accomplish near-term and longer-term goals.
The team should be seen as a cohesive unit with each member accountable in tangible ways. In many cases, compensation systems need to be changed to fully realize this aspect of the team. Certainly, the team makes joint presentations to senior management and jointly defends recommendations. Team members cannot sit back and say, "Well, I don't agree, but you guys go ahead anyway." There also needs to be accountability between team members. Each person must be willing to submit to the authority of the team and become a team member in good standing.
Disciplined in approach
Discipline is composed of time commitment, meeting protocol, structure, and an ordered approach.
The first condition, time commitment, requires a generic structure. I have worked with the High Performance Management System (HPMS) developed by Richard C. Palermo Sr. in the 1970s and 1980s while he led Xerox Corporation to success in earning the Malcolm Baldrige National Quality Award. I have seen Palermo's system used very effectively in several major companies, with spectacular results. (You can pick up a book about HPMS for a thorough reading and understanding. I recommend Leadership ... A Return to Common Sense, by Richard C. Palermo Sr., published by Strategic Triangle Inc.) In essence, the practice starts with setting a vision, selecting a destination for the overall business, then selecting high-impact, revolutionizing things to implement. You can look at these revolutionizing things as the "vital few." Palermo points out that for a business to be successful, it must have excellence in three areas, as follows:
A Successful Business = Satisfied Customers + Motivated Employees + Satisfied Shareholders
One right thing or revolutionary idea needs to be defined for each of the three areas of a successful business stated in the equation above. A job ticket is then written for each of those ideas. The job ticket has eight major steps—always the same steps for each thing you choose to be one of the vital few things you do. The eight steps are as follows:
These eight steps are always in the plan of work; some specific substeps will likely be needed as well. The first six steps should be completed in about six weeks, or at most nine weeks. Team members should be asked to devote a minimum of 25 percent of their time to the project during steps one through six, and very likely 50 percent or more.
The team approach is always founded on analytics. In HPMS, full participation by team members is required, and analytics are the rule. Teams, whether they are ongoing S&OP teams or project teams, work best when they have a foundation in facts rather than opinions. The effective team has an abundance of proper analytics upon which to draw conclusions and make decisions.
Editor's Note: The Market-Drive Supply Chain: A Revolutionary Model for Sales and Operations Planning in the New On-Demand Economy is available in both hardcover and electronic editions from Amazon.com, Barnes & Noble, and other booksellers.