To help your company to execute its strategy, executives need to aspire to implement advanced S&OP. The ultimate goal of S&OP is to plan ahead and provide visibility and support to execute the company strategy. In our busy day to day life we might forget, but communication is an important part of both S&OP and strategy execution. Therefore communication needs to be integrated in an S&OP process.
Communication is mentioned by McKinsey as a top three impact on business transformations, resulting in a four to eight times higher transformation success rate. And research in 200 Polish high performing companies, shows a direct correlation between poor communication, poor strategy execution and lower profits. In short, communication is of vital importance to execute a strategy.
To support a strategy, S&OP needs to move beyond the traditional demand, supply and inventory balancing. S&OP needs at least de following three capabilities
Rolling forecast: The first year of the strategy is the budget. With a well-run S&OP process, you can create a periodic rolling forecast. A rolling forecast provides the opportunity for leaders to reviews gaps versus budget, so they can make the appropriate decisions and actions in the first year of the strategy and communicate these to their employees
Strategy integration: To support strategy execution you need a strategy implementation plan. Advanced S&OP can provide visibility in the strategy plan progress, through the periodic review of strategic projects within the budget year and beyond the budget year. My research, suggest that companies who are very experienced in S&OP, are 50% more likely to have strategy alignment as key activity in S&OP.
Enterprise resource re-allocation: over 90% of companies allocates their resources only once a year, during the budget. S&OP is the ideal process to support more dynamic resource allocation. S&OP can re-prioritize time, money, people, machines, projects in and beyond the budget horizon. Research from McKinsey shows that companies who reallocate their resources more often on average have 30% higher revenue. Be one of those companies.
If a company controls these three aspects with their S&OP process, it is on track to support a company strategy. S&OP outcomes, decisions and actions then can be used to periodically communicate with employees.
Horizontal communication is not enough
Practitioners intuitively feel that communication is an important part of S&OP. In my yearly recurring on-line questionnaire, the S&OP pulse check, practitioners suggest that the main reason to implement S&OP is to ‘improve cross functional communication’ and the main cultural change driven by S&OP is ‘improved understanding and communication between business functions’. This makes sense in a classic, operationally focused S&OP environment, where demand, supply and inventory are kept in balance and different functions need to communicate and coordinate to fix issues. To fix an inventory problem, within S&OP we can agree that a sales promotion or a product introduction will be delayed while operation gets its machines up and running and procurement looks for alternative sources.
However, to support strategy execution, S&OP communication needs more than fixing issues and horizontal communication is not enough. There is a clear need for vertical communication plan to create alignment across the organization in support of a strategy. With formal and informal vertical communication executives can inform, engage, energize and re-focus employees on topics like budget status, outlook and strategy progress.
The S&OP communication plan
An S&OP communication plan is part of the corporate communication plan and helps to structure the messages and conversations a business wants to have with different echelons and groups of employees. The message type and communication channel have to be chosen to reflect those different groups. Information shared with higher echelons might contains more sensitive information and use different language than communication with lower echelons. Generation Y prefers a short 140 character newsbite rather than a presentation or newsletter, which older employees might prefer. Different types of communication channels can be used to share messages as an output from S&OP. There are many possible communication channels; a newsletter, roadshows, round-tables, a video message or blog form the CEO, or a Q&A on the internal messaging system.
Through these channels, a company can communicate important outcomes from an S&OP cycle. Employees can be informed if the company is on track to meet its budget or what the status is from a strategic project. Employees can be motivated and energized by communicating successful projects, a new product launch or celebrating other company successes. Employees can be re-focused based on new priorities and resources and a call to action can made to close budget gaps.
A final step in the S&OP communication plan is to facilitate how and when the leadership team is going to listen to employee feedback. To develop a two-way conversation, executives must be open to receive feedback, listen to employees and show they do something with the feedback. The communication plan can support feedback and conversation through organized round-tables or Q&A sessions with a small group of employees. The S&OP cycle itself can also support feedback and conversation. After every product review, demand review and supply review, the leading chair can ask meeting participants for an open round of feedback on meeting effectiveness and displayed behaviours. But in the end, it is up to executives to listen to feedback and act on it.
The times of one-way, formal communication are behind us. They have been proven to have a negative effect on engagement and strategy execution. With an S&OP communication plan in place and through the facilitation of feedback and conversation, advanced S&OP provides support for the right and timely, horizontal and vertical, formal and informal, one way and two-way communication, in support of a company strategy.
A Dutch version of this article appeared first in www.supplychainmagazine.nl
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