about trust. If the mindset is good, it cre- ates an atmosphere in which people have the courage to challenge one another and actually want to work together,” explains Willemsen.
Another danger is that, despite the long- term planning horizon, companies give in to the temptation to discuss the short- term perspective. “Once seated around the table, it can be very tempting to first quickly cover a pressing issue, such as next week’s rush delivery,” continues Wil- lemsen. “In that case, senior management will soon lose interest. It’s a question of ignoring the side issues to focus on the key issues.”
Automatic behavioural reactions
Many pitfalls are the result of biases, a term from behavioural science that is used to describe tendencies, deviations or dispositions. Biases are in fact automatic behavioural reactions to certain occur- rences. Since the person in question is not consciously aware of how they react, their behaviour risks being unfavourable or even counter-productive. Prof. Steef van de Velde from the Rotter- dam School of Management at Erasmus University has conducted research into biases in relation to S&OP. He makes the distinction between two kinds of biases: functional biases and unconscious biases. “For an example of functional biases, one can think of operations managers who want to have manufacturing equipment up and running as long as possible, or of financial managers who constantly bang on about lowering the working capital. In the case of unconscious biases, we usually see people who subconsciously interpret, collate or process data incorrectly or who unintentionally react inappropriately to feedback on developments.” Van de Velde has plenty of examples of unconscious biases. Being optimistic by nature, for instance, people always have the tendency to overestimate new products’ sales levels. The amount of time needed to reach such levels, on the other hand, is usually underestimated. And people tend to place a greater or lesser focus on stock levels, depending on the circumstances.
Biases can be very strong, as Van de Velde knows from experience. “Many software systems provide suggestions for stock lev- els, often based on a forecast which is in itself an assumption. Nevertheless, the suggestions are often overruled, no matter how good they are.”
An important key to solving this is to make people aware of their biases. “If people can learn to recognise situations in which biases occur, that provides them with a very powerful line of defence,” claims Van de Velde. If that does not go far enough, it may be necessary for man- agers to intervene – by introducing a checklist or a model, for example. Ask which assumptions they have made, for instance, or which arguments they have used. “People often don’t spend enough time on these aspects, or they don’t dare to challenge the opinion of someone with more authority than themselves. That’s why it’s always advisable to ask someone neutral to chair the sessions, who will allow everyone to have their say.” One possible intervention is to assess the personal traits of the people involved, in order to determine their biases. That might lead to some people not being allowed to become involved in certain decisions because of their biases. “But those are extreme measures,” says Van de Velde.
Another aspect that contributes to the smooth-running of the S&OP process is creating the right teams. “But beware of ‘group thinking’, the tendency of teams to adopt extreme standpoints. People think that a team evens out extreme stand- points, but that is often not the case.”
Budgeting
When it comes to implementing S&OP, Oliver Wight makes the distinction between three categories. Some compa- nies do not use S&OP at all, while others use an outdated and inefficient form of it. “Those are the companies that are at risk of succumbing to the pitfalls. Thankfully, increasing numbers of companies are tak- ing the right approach,” says Manning. In 2010, Involvation conducted an S&OP maturity scan among 20 companies. It
Supply Chain Processes of Hitachi.
revealed that companies overrate them- selves when it comes to S&OP: on a scale of 1 to 4, companies award themselves an average of 3. “In practice, it would appear that many companies are nowhere near as far as they think,” suggests Willemsen. But it should come as no surprise that not all companies have reached the same level of S&OP implementation, according to Willemsen, since its relevance differs from one company to another. “For companies where production is generally running at only 20 to 30 percent of capacity, the issue of S&OP is less pressing than for compa- nies that are at nearly full capacity. And for companies who source everything exter- nally rather than manufacturing their own goods, there is perhaps also less pressure to use S&OP to align supply and demand.” S&OP offers one extra advantage, at the end of the day. Those companies that have got the process up and running will find that they need to spend less time on budgeting for the financial year ahead. Instead of financial planning being a one- off period of time-consuming budget dis- cussions each year, it is simply the result of the S&OP sessions from the previous ten months. “The disadvantage of rounds of budgets is that the outcomes have no sooner been finalised than they are no lon- ger correct,” says Manning. “Things are constantly changing, which is why it’s bet- ter to look ahead all year round.”
Excel and ERP
IT tools can help in the S&OP process, especially tools that are good at present- ing information and supporting decision-
27
SUPPLY CHAIN MOVEMENT, No. 1, Q1 2012
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40