It’s no secret that there exists a disconnect between developing business strategies and actually implementing those strategies. Niels sites a study by Kaplan and Norton (2005) which showed that implementation failure rates range from 60-90%. As he further points out, the whole purpose of S&OP is to generate a plan that assists an organization in executing strategy. (After all, S&OP is meant to improve communication across functional silos.)
The problem is that the nature of supply chains, technology and business as a whole are rapidly changing. There is a “need for vertical communication to create alignment throughout the organization in support of a strategy,” says Niels. Otherwise, companies have no business context for the decisions they’re making.
Top-down communication is out — the traditional corporate communication must give way to a process that is more dynamic and sophisticated. To address this need for improved communication and strategy execution, Niels suggests incorporating three elements into the overall S&OP process.
Expand Your S&OP Process to Include these Three Elements
An Integrated Strategy Plan
By periodically reviewing strategic projects within the budget year and beyond, S&OP can help provide visibility into a company’s strategic plan. It’s also important to incorporate strategic goals, targets and measurements into the cycle. By better understanding the strategic plan and the business objectives / goals, S&OP leaders (and the workforce in general) are better able to execute on those goals and objectives.
A Rolling Forecast
By incorporating a rolling forecast into the S&OP process, leaders have the opportunity to review gaps in the budget. The S&OP communication plan helps executives communicate gaps to employees and helps employees understand how to close those gaps in the budget. S&OP should take part in developing the annual plans and budgets, capital investment decisions, cash flow management and so forth.
Lastly, because resource relocation is so closely linked to the execution of strategy, it’s crucial for S&OP to focus on all enterprise resources, not just production resources. Niels argues that by incorporating both a rolling forecast and strategy planning into S&OP, S&OP managers are better able to handle resource allocation on a holistic, enterprise-wide level.
If these three elements are incorporated into the standard S&OP process, S&OP will play an increasingly important role in strategy execution in addition to playing a primarily role in developing plans. Lastly, to make S&OP as effective as possible in executing business strategy, Niels outlines a corporate S&OP Communication Plan.
The S&OP Communication Plan
Personally, I found this to be the most compelling piece of Niels’ Foresight article. Because advanced S&OP provides an opportunity for company-wide discussion on topics like budget, supplier / vendor relationships, strategic initiatives, etc., developing an S&OP communication plan works to bring multiple verticals within a company together on a regular basis.
After briefly discussing some popular communication channels (email, Intranet, messaging systems, newsletter, blogs, face-to-face meetings, etc.) and the importance of outlining which channels should be used to communicate what type of information, Niels presents a sample S&OP communication plan (below).
Back to his previous point on the outdated nature of top-down communication, Niels suggests developing a communication plan that supports two-way conversations and opportunities for employee feedback. He stresses the importance of executives attentively listening to feedback, engaging employees and entering such conversations with open minds.
In summary, Niels argues that by incorporating a rolling forecast, strategic planning and enterprise-wise resource reallocation, S&OP will be able to provide useful input that can be communicated via a company-wide communication plan. Through the development of an S&OP communication plan that spans verticals and incorporates appropriate feedback mechanisms, S&OP can begin to bridge the gap between strategy planning and strategy execution, thereby drastically increasing its company-wide value.