Caught Between Two Irresistible Forces?

Every business has two irresistible forces:
The financial business plan and customer needs!

by Dave Garwood

Less than three days into the financial quarter and it doesn't look good. "Make the numbers or else," is the implied and sometimes unspoken mandate! The survivors always make the numbers. Those who don't are looking for an opportunity to help another company!

My associate, Dave Biggs, makes an excellent point. Every business has two irresistible forces .... the financial business plan and realities of the market place, aka customer needs! Unfortunately, these conflicts are often opposing forces. Customers aren't reading our forecast. They are buying what they need, which aren't always our most profitable products or the ones we have in inventory. As the month end draws near, the ugly conflict stares us in the face .... meet the numbers or take care of the customer are the two no-win choices. Someone, investors or customers, is going to be surprised!

Avoiding Disaster!

How can this nasty surprise be avoided? The answer is anticipating the conflict before it reaches the 11th hour and avoiding the problem, rather than reacting with month-end heroics. An effective process to integrate the customer requirements, the constrained manufacturing plans, new product launches and the resulting financial plans is the way to bypass this disaster. The name for the process is Sales and Operations Planning (SOP) -- a 20+ year old proven process!

At first glance, every company claims to have a Sales & Operations Plan. And they often do. The issue is how well it functions ... or doesn't function. We have had the opportunity to diagnose "sick" SOP processes in hundreds of companies in many different industries. The root causes of the sicknesses seem to cluster around a combination of these five problems:

Problem #1: The process has degenerated into a top-down directive. The troops on the firing line who are accountable for executing the plans aren't involved in creating the plans. They lack buy-in, which leads to token accountability for executing the plans. The mandate from the top goes down sideways. "It wasn't my plan," becomes the inevitable crutch when reality sets in. CYA, not working to meet the plan, is the tactic of choice.

Solution: Insert a Partnership step into the process prior to senior management meeting to finalize the plans. Bring the front line mangers together to discuss the impact and search for workable alternative compromises.

Problem #2: The focus is primarily on the current month. For all practical purposes, the current month is over. It is now a matter of focusing on and executing the previously established plans. The opportunity for effective replanning is in the future, at or near the time fence. This is where most of the attention and discussion should take place.

Solution: Identify realistic time fences for each product or process family. Educate everyone of the severe consequences of changes inside the time fences, establish expectations on the number of changes and measure the volume of changes. Treat excessive changes as a quality problem and reward people for zero defects, not heroics!

Problem #3: The plans are often stated only in dollars or in product groups that are too general to evaluate the resource and financial impact. Translating the plans into resource requirements becomes impossible. We are forced to try our best and hope for the best! The results are reactive, not proactive, efforts to salvage the inevitable resource shortages or excesses.

Solution: Involve the manufacturing people in creating the product families. Develop tools to translate from manufacturing to sales/marketing families where needed. Develop average sales price to translate the unit plans into financial terms.

Problem #4: Responsibility for the process is delegated too low in the organization and frequently isolated to manufacturing. Sales and Marketing mistakenly see SOP as a "manufacturing job."

Solution: Hold a one-day session, usually facilitated by an unbiased person from outside the company to reach a common, consensus vision of how an effective SOP works, roles and responsibilities and, most important, the benefits to all functions in the organization.

Problem #5: The final SOP plans aren't tied to the master schedules. Most ERP or MRP II software packages start by creating master schedules. The resulting master schedules are "exploded" into detail requirements. Ordering material, planning capacity, scheduling and the resulting inventory and customer service are independent of the SOP plans.

Solution: Identify each product with a code that connects it to a product family. Summarize the master schedules for each product in a time-phased report to compare to the product family plan.

What's Next?

Life in a manufacturing business does not have to be an endless series of month-end fire drills and unpleasant surprises. There is a proven alternative. E-Mail us and we will send you a complimentary copy of our SOP Starter Kit. It is a simple-to-follow road map to help your company avoid the explosive collision of these irresistible forces!