Page 367 - Orlicky's Material Requirements Planning

346 PART 3 Managing with the MRP System

is a mistake to assume that when strategies are formulated, they do not change. For
example, there are organizations that are formed from the merger of two companies that,
having promised the stock market reductions in the cost structure, see this drive for effi-
ciency as a necessary foundation for profitable growth. A common problem is that exec-
utives recognize that the strategic thrust has changed; some managers believe that the
business is still following cost reduction as the primary target. S&OP done properly and
aligned with the business strategy is a great tool for ensuring that the strategic and oper-
ations plans are in sync. We do not see the senior business management review as a
forum to develop strategy, but it certainly is the proper forum to review strategy execu-
tion; it is there to ensure that the operational plans and latest view are in line with the
strategic plan. Any major divergences are highlighted and discussed at a separate strate-
gy review. This is an important distinction: S&OP in itself is not strategic, but it is the
bridge between strategy and operations.
Earlier we highlighted the breakthrough of S&OP as the reconciler, but it must be
reconciled to something. The choices are to reconcile to an 18-month business planning
agenda with an emphasis on hitting the budget or, alternatively, seeing the next two years
as a continuum toward future sustainability. The first year would be the budget, and the
second year would be the early part of the strategic plan.
The two questions need to be posed to any business whose S&OP process needs to
be aligned to future sustainability:

1. Of the three most well-known strategies—cost leadership, customer relation-
ships, and product/service differentiation—which is the strategic direction in
your business?
2. How much is new-product introduction part of the future portfolio? How much
is really new as opposed to what is repackaged?

The type of executive leadership and the differing emphases of elements within
S&OP depend on strategic intent and the future product portfolio. Understanding the dif-
ference in emphasis comes from aligning S&OP with the business agenda through right-
to-left thinking.

S&OP Executive Leadership Depends on Strategic Intent

Every business has a strategy; it is either crafted by executives or exists in the organization
by default. The most common strategy default is operational excellence! Operational
excellence, however, is not really a strategy; it is a necessary discipline and is a very impor-
tant element of cost leadership, but the discipline is equally needed in any organization
following strategies such as customer relationships and product/service differentiation.
As an example, there were some businesses in the early twenty-first century that followed
customer intimacy blindly and even called their S&OP process demand-driven, and
became very responsive, but they ignored the discipline of operational excellence (some-
times called operational effectiveness). These businesses grew revenue by being responsive