Would you go on a holiday without a plan in place?

No? Then why would you run your business without a plan?

9 ways your business could fail (despite planning)

With the festive season fast approaching, many of us are looking forward to the annual migration from the hustle and bustle of work life, to some R&R at our holiday destinations. You have made the plans, including accommodation, and planned the trip there and back. A road trip would include planning rest stops, and having some contingencies built in for waiting at toll gates and traffic congestion.Much like you would not go on the road without knowing where you want to end up, your business should not proceed into the festive season without a plan. Not just the annual plan, aka the budget, but a detailed monthly plan of what needs to be bought and made, to meet the customer demand. This plan is referred to as the sales and operations plan (S&OP). S&OP is a monthly process with the aim of balancing demand (what the customer wants) with supply (what can be bought and made).And as the saying goes: if you fail to plan, your plan is to fail. Other than not planning at all, what else could you do wrong when it comes to S&OP?

1.      Having only one department involved

As mentioned above, S&OP is about balancing demand and supply. Demand is an input into this process, so it means that sales and marketing need to be involved. The sales and marketing teams can add valuable information, such as new stores opening, specials being run and, unfortunately, also cancelled orders. The new product development team, or Research and Development (R & D), should also be involved for any new products being developed and/or launched.

To cover the supply side of the equation, you will need the procurement and manufacturing teams. Procurement to provide information about goods availability and delivery delays. They can also be asked to expedite orders, as needed. Manufacturing information would include production constraints and related issues.

Finance and logistics also need to be involved. Finance need to understand why budgets have not been met or, hopefully, exceeded. Logistics can provide information regarding transportation issues, and warehousing constraints. They would also need to know the planned output, to plan for storage and shipping.

2.      Hoping technology will do it for you

Road trips used to be planned using paper maps, remember those? The route and stops were plotted out and referred to during the drive. Now we have clever apps on our phones, which do essentially the same, and so much more. These apps let us know about traffic, alternative routes, and where speed traps are.Unfortunately, planning software is not as easy as installing an app and, relying purely on technology, is a recipe for disaster. Even the best technology that is fully integrated with your ERP system, cannot do it all. While the complex algorithms can create a masterful statistical forecast, the intelligence from sales and marketing and R&D (as discussed above) is integral and must be added to the machine-generated forecast.And, while the calculations can show how much to order, and when, it won’t know about shipping delays, potential strikes, or special circumstances, such as Chinese New Year.

3.      Garbage in; garbage out

You have heard it before, but it bears repeating: if the data you input into the systems is garbage, the information you are going to get out will also be garbage. This means that the information must be good, clean data, from reliable, consistent sources. This information should include:

• Sales data, such as invoiced volumes, lost sales and promotions
• Procurement data, such as open orders and expected receipt dates
• Manufacturing data, such as available machine hours and yields
• Logistics data, such as stock-on-hand of raw materials, as well as finished goods

While the above data should be made available by the ERP system, other information can only be given by the individuals from the various departments. But, like the data from the ERP system, the data given by the various people must be good quality information.

4.     Not entrenching the process

Even when having all the right people involved – and having the technology set-up correctly – the S&OP must be an entrenched process. This means the process must be on a repeated monthly cycle. The process must be documented (for more on this please see this article), and have deadlines for submitting data, and when and how plans must be made available.The departments involved need to understand that this is the road map for the business, and that they are integral to getting the plan completed on time. One of the best ways to ensure this happens, is by having a champion.

5.     Not having a champion

The champion of the S&OP process does not necessarily own the process but, instead, ensures that all departments are represented and present at all the required meetings. They also follow up with individuals to ensure that each department provides their information on time. Finally, they are also in the perfect position to share the completed plan across the business.This person needs to ensure that the S&OP process happens each month and that each step is completed on time. Due to what is required of them, the champion must have credibility in the organisation, and have great communication skills. 

6.     Focus on volume, not value

Most organisation have seasons where the demand across their product portfolio is more than what can be supplied. This is why manufacturing would start producing stock in advance to meet the surge in demand. Unfortunately, sometimes even that is not enough.Other incidents may also constrain supply, such as hold-ups at the port. When these occur, the focus should shift to making the products that will not only sell, but will also have the highest positive impact on the bottom line, given the constraints. 

7.      Measuring the wrong things

While measuring the forecast accuracy and adherence to plan by manufacturing are extremely important, these are meaningless if the plan is always late. By all means, measure both the forecast accuracy of the statistical forecast, as well as the consensus forecast accuracy, but it is also important to measure that the data has been made available on time. For more information about KPIs see this article.

1.      Not using the KPIs for performance management

All of the KPIs used to measure the process, as well as the results, must form part of the regular performance reviews for each of the individuals involved in the S&OP process. This will ensure that the process is adhered to, and continuously improved.S&OP is one of the most important aspects of running a successful business, and should not be ignored or performed half-heartedly. This means:1.       Ensuring that departments across the business are involved in the process

2.       Making sure that people manage the process, and do not rely only on technology

3.       Guaranteeing that the information used is good, clean, and consistent

4.       Making sure the process is entrenched

5.       Having a strong and credible champion to drive the monthly cycle

6.       Maintaining focus on the bottom line

7.       Implementing KPIs to manage not just the results, but the process as well

8.       Ensuring the KPIs are part of overall performance management