2015 Shanghai S&OP Conference November 13, 2015 Guofeng Hotel Shanghai, China November 13, 2015 Guofeng Hotel Shanghai, China Bob Stahl Bob Stahl Sales & Operations Planning: The Cultural Challenges of Best Practice

Bob Stahl Bob Stahl Desired Outcome : Gain an informed understanding of some of the “cultural changes” that are required to have S&OP operate as “best practice,” enabling maximum potential benefits to be experienced!

Bob Stahl Bob Stahl A Few Things... English as a second language –Your English is a lot better than my Chinese I may ask Alice & Liz to help with communication Questions at any time – they are NOT an interruption – it’s part of learning

Bob Stahl Bob Stahl Introduction “Refresher” on authentic S&OP Cultural Challenges: –Top Management’s Role –Conflict Resolution –‘Catch 22’ of Implementation –Characteristics of Success –Sure Footed Implementation Approach How to get started?

Bob Stahl Bob Stahl Bob Stahl’s Background 40+ years in manufacturing companies Started as Schedules Coordinator (1970) With help of Oliver Wight, achieved Class A success (1979) Became an associate of Oliver Wight – 1981 (passed in 1983) Have worked with some of the best companies in the world Today = S&OP Coach, Educator, Author Has written six books with Tom Wallace – –three used for APICS Certification S&OP Editor and Columnist – –Inaugural for the IIF’s Journal of Forecasting - Foresight Heads up consulting services for TFWallace & Company “Retired” = choices

Fundamentals of Authentic eS&OP

Bob Stahl Bob Stahl The Mission High Quality (High Conformance) Low Cost (Low Inventory) Customer Service Quick Response Reliability Wide Variety Meeting World Class Standards In Getting to AND... Diminishing OR

Bob Stahl Bob Stahl Historical Evolution... Plant Scheduling/Pull MS Exec. S&OP / Rough Cut PTF 24 Months Time Most DetailAggregate Only Exac Config...Precise Mat’l...# People...Capital Equip...Factory Space Detailed Forecasting & Master Scheduling Lost in the woods- Detail Engage Top Management? Added Little Value outside the Planning Time Fence Super MS SalesMarketingMIXVOLUME

Bob Stahl Bob Stahl Routinely Re Active Behavior Volume Mix How Much? Rates Mkt Facing Families The Big Picture Strategy/Policy/Risk Monthly / Mos Executive Resp. Which Ones? Timing/Sequence The Details Products/SKU’s/Orders Tactics/Execution Weekly/Daily 1-3 Mos Middle Mgt. Resp. Demand Supply Balance Different & separate practices, but integrated! Different & separate practices, but integrated! Sales & Operations Planning Pro Active Behavior Planning Scheduling

Bob Stahl Bob Stahl ERP Enterprise Resource Planning Business Planning Strategic Planning Forecasting & Demand Management Volume Executive S&OP Sales Plan Operations Plan Capacity Planning SupplyDemand Mix Master Scheduling Mix Master Scheduling Detailed Planning & Execution Systems: MRP, Plant Scheduling, Supplier Scheduling, etc. Detailed Planning & Execution Systems: MRP, Plant Scheduling, Supplier Scheduling, etc. Transactional Software

Bob Stahl Bob Stahl Sales & Operations Planning (A word about terminology) DemandSupply Volume Mix Executive S&OP (eS&OP) (eS&OP) Demand Planning Supply Planning Master Scheduling Demand Pull Inside & Outside

Bob Stahl Bob Stahl Executive S&OP is... APICS Dictionary, 13th Edition, October 2010 The executive portion of the overall sales and operations planning set of processes. It is a decision-making activity involving the leader of the business (president, general manager, COO, managing director), his or her staff, and a number of middle managers and specialists. Its mission is to: 1.balance demand and supply at the aggregate level, 2.align operational planning with financial planning, 3.link strategic planning with day-to-day sales and operational activities. 4.Disciplined forum for the setting of policy, strategy, access and assume risk It is a multi-step process involving demand planning, supply planning, and middle and top management meetings for decision-making and authorization Top Management’s Handle on the Business eS&OP – does the proper prior planning to allow the routine things to be done routinely!!

Bob Stahl Bob Stahl Executive S&OP = Keystone If supply chain management can be compared to a stone arch, Executive S&OP is the Keystone: –The Keystone alone does not make an arch, but –Without the Keystone, nothing else can stand

Bob Stahl Bob Stahl Data Dump (Warehouse) Information (Org Data) Knowledge Understanding Two Parts of eS&OP The mechanics: âDisplay of Info (Holistic View) âDefined Process For Decision Making

Bob Stahl Bob Stahl Holistic Display

Bob Stahl Bob Stahl The eS&OP Process Step #1 Data Gathering End of Month Decisions & Game Plan Step #5 Executive Meeting Conflict Resolution, Recommendations & Agenda for Exec. Mtg. Sales Actuals, Statistical Forecasts & Production Actuals Step #2 Demand Planning Step #4 Pre-S&OP Meeting Capacity constraints 2nd-pass spreadsheets Management Forecast 1st-pass spreadsheets Step #3 Supply Planning Heavy Lifting Financial Involvement New Product Involvement Creates a Disciplined Rhythm It is a multi-step process involving demand planning, supply planning, and middle and top management meetings for decision-making and authorization

Bob Stahl Bob Stahl eS&OP Ref Material

Bob Stahl Bob Stahl Where does eS&OP Fit? Strategic Planning Detailed Planning, Scheduling & Execution Detailed Planning, Scheduling & Execution Business Planning Disconnect!!! Executive S&OP Turning Disconnected Knobs? Where Executives Live Where Executives Live Where Mid-Mgt. Lives Where Mid-Mgt. Lives

Bob Stahl Bob Stahl “Strategic Planning... forward in reverse” Robert Hayes HBR-Nov/Dec 1985 Strategic Planning - forward in reverse Executive S&OP Strategic Imperatives Tactical Planning Execution Executive S&OP Annual Business Plan Master Schedule Doing The Right Things Doing The Things Right Linking Strategic Imperatives to Day-To-Day Tactical Planning

Bob Stahl Bob Stahl Levels of Business Planning

Bob Stahl Bob Stahl Levels of Business Planning

Bob Stahl Bob Stahl Acid Test... If the Annual Business Planning process does not substantively change, eS&OP is not working. If eS&OP is not sufficient to set the ABP from, it is not sufficient to run the business every month!

Bob Stahl Bob Stahl Done Properly... Simpler (Not Easier) Better

What’s Top Management’s Role

Bob Stahl Bob Stahl Research Reports *... Success with Executive S&OP is: 60% = Culture/Behavior Change 30% = Process Definition & Discipline 10% = Technology Altimiter/AMR Boston, Sept 2010

Bob Stahl Bob Stahl Making Change... The Hard Stuff (tools, techniques, processes) is EASY The Soft Stuff (relationships, behavior, culture) is HARD

Bob Stahl Bob Stahl An Important Point... Success with eS&OP is more Cultural than Technical

Bob Stahl Bob Stahl Culture... a “fuzzy” word Here’s a more focused understanding : Interpersonal relationships reflect the culture of an organization. The sum of those relationships is the culture! These relationships reflect a network of implicit and explicit agreements that are the organization (process).

Bob Stahl Bob Stahl Raising Disagreement... Executive S&OP A process to raise and reconcile disagreement/conflict, agree upon, & communicate THE company game plan Executive S&OP A process to raise and reconcile disagreement/conflict, agree upon, & communicate THE company game plan Sales/Marketing (Units or $ by Family) Operations (Units/hours/ Material) Finance (Revenue) Product Dev. (New Product Issues) President

Bob Stahl Bob Stahl Holistic Display

Bob Stahl Bob Stahl eS&OP Success... not only allows disagreement, to work it promotes and requires disagreement Learning how to disagree without being disagreeable is paramount to success Gaining collaborative consensus from this disagreement makes for best decisions & aligns human energy Without a comfortable process to resolve disagreement/conflict, organizations will avoid it – “put the moose under the table”

Bob Stahl Bob Stahl Top Management’s Role... (among other things) Create an environment (culture) that allows the Ugly Moose to be put on the table -- so that...

Bob Stahl Bob Stahl The Ugly Moose... Big ugly animal All companies have them (under the table) Difficult & Contentious Good companies know how to disagree without being disagreeable Thrive on conflict, not chaos Moose is a symbol of agreement to do so Getting the Moose on the Table

Bob Stahl Bob Stahl

Bob Stahl Bob Stahl Top Management’s Role... (among other things) Create an environment (culture) that allows the Ugly Moose to be put on the table -- so that... They can completely and effectively resolve disagreement/conflict and set proper: –Policy –Strategy –Risk Assessment –Performance Measurements Before it’s in the MIX Space!

Bob Stahl Bob Stahl Cultural Changes * Pre-S&OP Culture Lack of involvement by Top Mgt. Acceptance of poor data Silo mentalities that inhibit interdepart- mental collaboration Reactive instead of proactive decision making Post-S&OP Culture Inter-fuctional collaboration, with open trust between departments (+TM) Data-driven decisions Higher levels of accountability Proactive approaches to demand & supply issues * How S&OP Changes Corporate Culture: Results from Interviews with Seven Companies Stahl/Mello; Column: Winter 2010

Bob Stahl Bob Stahl Process versus Personality Driven Organization Sales & Marketing Sales & Marketing Operations R&D New Prod R&D New Prod Finance Logistics & Warehouse Logistics & Warehouse President/General Manager Supply Chain Management Executive S&OP Managing the White Space

Bob Stahl Bob Stahl A CEO’S Perspective on S&OP “We spent a lot of time gathering and validating data, which was time well-spent. But that challenge was nothing compared to the people side of things.” “The most difficult part was driving... constructive conflict in the demand alignment meetings.” An Interview* with Phil Dolci, President and CEO Jarden Branded Consumables *In Foresight: The International Journal of Applied Forecasting, Winter 2012 (

Bob Stahl Bob Stahl “The measureable benefits are easy... –Service levels are up and inventory is down. –For example, the two largest businesses in my portfolio today each have service levels above 99.5% with inventory that is 20% less than 3 years ago.”

Bob Stahl Bob Stahl “I could argue, however, that the intangible benefits are just as valuable. We have much better teamwork because of the engagement and constructive conflicts that are natural components of S&OP. This approach has extended to almost every process and function within the business...” “Moreover, I feel much more in touch with the business without micro-managing it.”

Energy Alignment Accomplishment Before S&OP After successful S&OP

Bob Stahl Bob Stahl A Truth... If you align human energy an organization can do things not before possible.

Conflict Resolution

Bob Stahl Bob Stahl Conflict Resolution *... Disagreement has two parts: –Substantive issue –Emotion behind that issue Disagreement becomes Conflict when both parts are not completely addressed Lasting Conflict Resolution must deal with BOTH elements of disagreement Doing that effectively can be learned: –With a motive to do so & –A framework on which to work * “Getting to Resolution” – Stewart Levine

Bob Stahl Bob Stahl Top Management and Executive S&OP Need to be Hands-On with the Executive S&OP Process Stewardship & Leadership (Manager/Trustee & Guide/Command) President VP Operations VP Operations VP Sales/Mktg VP Sales/Mktg VP Finance VP Finance VP R&D VP R&D DemandSupply$$$Tech Authorative Decider Done Properly... It takes Top Management between 1 & 2 Hours per Month Done Properly... It takes Top Management between 1 & 2 Hours per Month

The ‘Catch 22” Of Implementation

Bob Stahl Bob Stahl The Challenge... Success with eS&OP is NOT: Doing what you do better, but rather from Doing things differently to be better! That translates to RISK... particularly to Top Management...

Bob Stahl Bob Stahl The Top Management ‘Catch 22’... Getting Top Management involved from the start: If you DON’T – you won’t address the cultural or behavioral changes If you DO – they realize that success does not come from doing what they do better, but from doing things differently to be better That translates to personal and/or organizational discomfort and risk for those in charge * Overcoming the "Catch 22" of Implementation by Robert A. Stahl and Joseph F. Shedlawski Foresight Journal Spring 2012

Characteristics of Success

Bob Stahl Bob Stahl The Executive S&OP Process Step #1 Data Gathering End of Month Decisions & Game Plan Step #5 Executive Meeting Conflict Resolution, Recommendations & Agenda for Exec. Mtg. Sales Actuals, Statistical Forecasts & Production Actuals Step #2 Demand Planning Step #4 Pre-S&OP Meeting Capacity constraints 2nd-pass spreadsheets Management Forecast 1st-pass spreadsheets Step #3 Supply Planning Heavy Lifting Creates a Disciplined Rhythm

Bob Stahl Bob Stahl Characteristics that make eS&OP Operate at it’s Best Cross-functional, collegial, collaborative, consensus building mindset, and a disciplined process that aligns human energy – Step #1 - #4 Holistic ownership (leadership) of demand, supply, and fiduciary responsibilities, with authoritative decision making power, creating ONE set of numbers – Step #5 View the implementation of eS&OP as a Strategic Imperative

Bob Stahl Bob Stahl “The Big Lie of Strategic Planning” HBR – Jan/Feb 2014 by Roger Martin The Problem : “Executives know that strategy is important. But almost all find it scary, because it forces them to confront a future they can only guess at.”... “Strategy making is uncomfortable.” The Solution : “Reconcile yourself to feeling uncomfortable, and follow three rules: 1.Keep it Simple 2.Don’t Look for Perfection 3.Make the Logic Explicit” “A detailed plan may be comforting, but it’s not a strategy.”

Bob Stahl Bob Stahl Characteristics that make eS&OP Operate at it’s Best Cross-functional, collegial, collaborative, consensus building mindset, and a disciplined process that aligns human energy – Step #1-#4 Holistic ownership (leadership) of demand, supply, and fiduciary responsibilities, with authoritative decision making power, creating ONE set of numbers – Step #5 View the implementation of eS&OP as a Strategic Imperative Integrated performance measurements that align with desired performance – Including Compensation Incentives

Bob Stahl Bob Stahl Corporate Role... Mandate only the fundamental concepts and principles of eS&OP * Establish a priority to make eS&OP implementation & use a Strategic Imperative Demonstrate a willingness to “put the moose” the table Assure sufficient resources to develop necessary and appropriate tools – which may vary Measure progress – development and process discipline Help address cultural and performance measurement issues Reward success * S&OP Principles: The Foundation for Success Robert A. Stahl and Thomas F. Wallace Fall 2012

Implementation Approach

Bob Stahl Bob Stahl Implementation Alternatives “Build it and they will come” Design it first, get the mechanics working, and then attempt to sell it to top management. = Low probability for success (because you can’t address the cultural issues without Top Management) “Hold the high ground” Involve top management at the very outset of the implementation, and throughout. = High probability for success

Bob Stahl Bob Stahl Uninformed (before Go/No-go #1) Boss: “Okay, let’s do an Executive Briefing.” Semi-informed (after Briefing: Go/No-go #1) Staff: “Okay, let’s do a Live Pilot Demonstration” Fully informed (after Pilot: Go/No-go #2) Staff: “Okay, let’s go to full cutover.” Low Risk Low Risk How to do that... Mitigate RISK

Bob Stahl Bob Stahl Implementation Path Months Business Improvement Phase I Pilot Demo Phase II Expansion Live Pilot Demonstration Go/No-Go #2 Phase III Financial Integration Executive Briefing Go/No-Go #1 Kickoff Session Low Cost Low Risk High Impact Quick Results Low Cost Low Risk High Impact Quick Results

Bob Stahl Bob Stahl How to Engage Top Management? Identify and enlist an Executive Champion ; someone with executive influence, willing to put skin in the game, confidence of CEO Connect the hard benefits of executive S&OP to successful implementation Mitigate risk – path of low risk/low cost Quick results to build confidence – 90 Days Feedback on progress/success Generate local ownership and enthusiasm

Bob Stahl Bob Stahl Parallel Paths Run the Business today A A Business Excellence B B Projects to support ‘A’ Executive S&OP X X Top Management’s Job : 1.Assuring resources for all 2.Use Pilot for learning, not benefits 3.Gain focus - application of principles Top Management’s Job : 1.Assuring resources for all 2.Use Pilot for learning, not benefits 3.Gain focus - application of principles

Bob Stahl Bob Stahl Leadership’s Role During Change Lead educational process Manage cultural changes Assure proper resources Immerse themselves in the detail Approve procedures Insist on clear targets (goals) Participate Measure Progress

Bob Stahl Bob Stahl Leadership’s Role (Continued) Ongoing Insist on meaningful participation Insist proper homework be done Remove themselves from the detail Clearly raise & resolve conflict Make clear decisions Hold people accountable (process & results) Encourage & expect realistic improvement Lead management development Measure performance

Bob Stahl Bob Stahl Implementation Roles Champion Design Team Leader Design Team Members (6 to 10 Cross-functional)

Bob Stahl Bob Stahl Champion’s Role Role: THE Executive with ‘skin in the game’ CEO’s Representative (if not CEO) Mentor to Design Team Leader Sell Executive Staff (as required) Demonstrate & support the discipline / behavior that is required ‘Listen’ to Design Team & the coach Qualifications: CEO or member of Executive Staff Courage to talk about the tough issues 5-10% of time

Bob Stahl Bob Stahl The Real Challenge... Understanding eS&OP is simple. The hard part is... Behavioral/Cultural Change changing the way everyone does their jobs. Keys: - Full cross functional buy-in - Counter- experiential/intuitive - Comfort vs Change - Path of low risk

Bob Stahl Bob Stahl Implementation Pitfalls Middle Mgt. only It’s a Supply Chain thing Top Mgt. but not President (SBU Ldr) No Education (‘Build It’) Supply based Families Too much granularity No consensus on ‘end game’ No discipline – mixed messages Inadequate Pre-eS&OP Conflict Aversion eS&OP Meetings: –Show & Tell –Unfocused –Short Term –Too Much Detail (MS) –Meeting Too Long –Finger Pointing Ongoing Data Problems Lack of Progress

Bob Stahl Bob Stahl Success Requires Design Team’s Job: Defined set of practices (What, How, & Who) Accurate, timely, & believed data Valid, simplifying assumptions (Dem/Sup/$$) (Getting out of ‘Suicide Quadrant’) Leadership’s Job: High discipline clear process accountability Constant improvement Changed performance measures Culture/Behavior change (Moose on table)

Bob Stahl Bob Stahl Gravitational Force Needed... (The definition of eS&OP Success) Customers Employees (Suppliers, Community, Country, Planet) Owners Executive S&OP Executive S&OP Desired Force = Centripetal Natural Force = Centrifugal Executive eS&OP: Top Management’s Handle on the Business ! (Muting the Ugly Trade-offs)

Bob Stahl Bob Stahl Done Properly... Simpler (Not Easier) Better

Bob Stahl Bob Stahl Closing Thoughts 1.DISAGREE WITHOUT BEING DISAGREEABLE 2.ONE SET OF NUMBERS 3.HARD BENEFITS : CUSTOMER SERVICE, PLANT PRODUCTIVITY, INVENTORY, CUSTOMER ORDER LEAD TIMES, TIME TO LAUNCH NEW PRODUCT, ETC. 4.SOFT BENEFITS : ENHANCED TEAMWORK, IMPROVED COMMUNICATIONS, BETTER DECISIONS & FINANCIAL PLANS, GREATER ACCOUNTABILITY, WINDOW INTO THE FUTURE, AND ONE MORE... 5.ENERGY ALIGNMENT 6.TRANSFORMATIONAL THE BEST BENEFIT? Accomplishment

Bob Stahl Bob Stahl Thanks for Listening Questions/Comments