Page 380 - Orlicky's Material Requirements Planning

CHAPTER 20 Sales and Operations Planning 359

2. Importance of finance. Volume and value must be integrated in the medium- to
long-term views. Many businesses have separate processes for volume and
financial forecasts.
3. Roughly right versus precisely wrong. Obsession with extrapolation of detailed
forecasts is unhealthy and will turn off business management. Roughly right,
not precisely wrong is the recommended approach. There must be an under-
standing of different ways of reducing and coping with uncertainty.
4. New activities. New activities must be integrated into demand/supply discus-
sions from the outset.
5. Knowledge versus data. The key to success is to get a shared understanding of
what the numbers in the latest view mean rather than just debating the num-
bers. Achieving this insight requires a focus on assumption changes, risks and
opportunities to understand different views, and why there has been a change.
Drowning in data but starved of knowledge is a very important concept.
6. Cross-functional behavior. The process must clearly join up functions. There must
be recognition that different views add value and provide a richer understand-
ing of trends and where the business is going. Cross-functional behavior and
executive leadership are of paramount importance. Corrective action must be
identified because flawless execution in all functions is demanded. A functional
silo culture where the person who shouts loudest wins is detrimental to S&OP
success; such organizations get stuck on a single set of numbers.
7. Benefits in six months. Successful implementation is achieved by setting an
aggressive schedule, focusing on fast results (in six months), and a commitment
to learning by doing. Right-to-left implementation means that the first step is
alignment with the executive management agenda. The second step is recogni-
tion that different views add value, leading to a reconciliation process. An
agreed-on latest view comes from reconciling these different views to the strate-
gic intent and a valid operational plan.
8. S&OP aligned with strategic intent. S&OP as the umbrella for operational excel-
lence is a flawed premise. Some think that operational excellence is a strategy,
whereas it is a mandatory discipline for any business regardless of strategy.
Operational excellence has a high impact in a business that is following cost
leadership as a strategy, and a single set of numbers is more appropriate as an
outcome of S&OP. However, many fast-moving consumer goods, pharmaceuti-
cal, and hi-tech companies often follow different strategies, such as customer
relationships or product and service differentiation. These businesses have dif-
ficulty with the tenet of a single set of numbers because their rationale is high
risk, innovation, and uncertainty, and they have a high incidence of new-prod-
uct introduction. These businesses need an S&OP process that copes with these
issues. Scenario planning with ranges and documented assumptions are main
agenda items, and the ability to cope with ambiguity is critical.