Or are KPIs the real problem?
Once upon a time, the person who made something was the same person who sold it. If you were a farmer you took your animals to market, if you were a blacksmith you made the shoes, shod the horses and collected the money. And everything was simple and you prioritised and balanced your efforts depending on what was more important at the time.
However as populations grew and industrialisation became the norm, the gap between the people who produced something and the consumer began to grow. Instead of ‘jacks of all trades’, specialist roles developed utilising individuals’ skills for the tasks they were best suited to: production operatives started making stuff in big factories and distribution teams started moving product around, leaving sales people to the selling.
And that’s where the great disconnect happened.
No longer was the operations team as close to the customer or consumer, whilst sales people grew ever further away from production and distribution, scattered all over the country and potentially losing any understanding of the people and processes that get product to market. Thus for one, the sales team became this over-accommodating bunch whose stock answer is yes to customers’ outrageous, costly and sometimes undeliverable demands (and whom apparently ‘is always right’); for the other the supply chain became this difficult bunch that don’t seem to understand that they have to meet the service promises that have been given or they will get an earful (even if they never checked whether the promises were deliverable).
Then almost inevitably, one day you end up in the situation where even though the customer only realised they needed something today, they want it delivered yesterday. Not only that, they need four times as many as in the forecast due to the promotion sales no one in Ops knew about, and by the way, to avoid an argument, sales have assured them that the lorries are already on their way. Of course the product doesn’t arrive, all hell breaks loose with the customer and the recriminations reverberate around the business.
Why didn’t our Sales and Operational Planning (S&OP) process work? Isn’t it supposed to be where the sales and operational colleagues meet to ensure that this doesn’t happen?
In my experience, even when a business has an S&OP process in place, it often makes little difference. It is often the case that sales simply can’t be bothered to forecast or plan properly, logistics aren’t really that interested in the service requirements of customers (because they always cost money), and actually the monthly planning meeting is a monumental waste of time attended by those who didn’t duck quickly enough, leaving the demand planning team in the middle taking the pain from both sides whenever things go wrong.
People are motivated by what they are measured on
So if S&OP is the supposed cure-all sold to you by consultants and gurus everywhere, why isn’t it working for you? Well its simple - people are motivated by what they are measured on.
If sales are measured and incentivised only on top line growth and gross margin, all they are interested in is ensuring they get the customer order as much as possible. Cost of service or the part they play in forecasting often isn’t something they are held accountable for, and therefore pay no attention to.
Equally, if your operations team are only measured on OEE, Yield, manufactured cost per unit, stock holding (cash) and delivery cost, why would they have any interest in customer needs which might drive these upwards? And even if they have a customer fulfilment KPI, are they going to prioritise that over cost and efficiency measures when they can blame the sales team for their poor forecasting /customer management and poor communication?
Having a shiny new S&OP process will do nothing at all if this silo mentality prevails through your business. And these are often problems which start at board level.
If your Sales Director is measured and rewarded solely for sales and your Ops Director only on operations, don’t be surprised if they focus on their own targets and make little effort in helping others’ achieve theirs. It’s no difference to when your Finance Director is pulling his hair out about late payment and debtor days, when the Sales Director sees sales in his P&L when the invoice is triggered, not when the customer pays.
The key to S&OP
Collective ownership for the entire process from raw ingredients to receiving payment at the most senior levels cascade down through the teams fostering cooperation - that is the key to S&OP, not just a once a month meeting that no one wants to go to.
Make one of your Sales Director’s targets order fulfilment. Or stock holding. Set them a target on sales and promotional forecast accuracy, debtor days or delivery costs and set up processes where they can collaborate cross functionally with their colleagues to foster the team work to drive your business forward to improve your offer and service whilst at the same time reducing costs. Even better, measure them on a fully costed basis rather than Gross Margin.
Set your Ops Director service targets. Makes sure that operational targets take into account availability and customer service needs. Put in place customer satisfaction surveys, and make them part of bonusable objectives.
All of these will cascade down through the layers, with subsets of objectives arriving in managers’ targets right through the business, making cost and customer service the centre of everyone’s jobs rather than parts to be split up amongst functions.
Sales and Operational Planning is more than just a monthly meeting, it's a philosophy designed to encourage collaboration across the business - don’t fall into the trap of thinking because you have a meeting you’ve got it done.
About the author:
Peter Tichbon is a Food and Drink industry Consultant and Interim Senior Manager, with over 15 years senior and board level experience in FMCG in a variety of functions from operations and logistics to sales, field sales, business transformation and General Management.