S&OP Psych 101

Each functional area needs to contribute its own expertise to make the sales and operations planning process a success

By Larry Lapide -- 4/1/2007

The noblest goal (and real purpose in life) of any supply chain organization is to optimally match supply and demand over time. I define this as optimized demand management (DM). “Optimized” is the key adjective in the definition. As I like to remind people, in the long run, supply and demand will always match—though not necessarily in the best manner. For example, a lack of short-term supply will lead to customers just going away, thus reducing demand to match supply. Similarly, a surplus of inventories will eventually be disposed of (often at distressed prices) to reduce supply to match demand. Larry Lapide Achieving optimized supply-demand decision making requires the successful implementation of “bridging” processes among customer-facing managers from sales, marketing, and customer services, and supply-facing managers from manufacturing, operations, logistics, supply chain, and procurement. This is not an easy task. My career experiences on both sides of supply and demand have taught me how difficult it is to align the goals and views of demand- and supply-facing managers so that they can really collaborate. This challenge is evident in the crucial and most prevalent DM process, sales and operations planning (S&OP). The S&OP process is always a “work-in-process” since the personalities of the participants frequently get in the way of developing consensus-based plans. When this happens, the S&OP “bridge” runs the risk of getting blown up. Color Coding I had no good ideas on how to avoid such a blowup from happening until I met Dr. Shalom Saada Saar, who teaches leadership to our graduate students in MIT's Master's of Engineering in Logistics (MLOG) Program. Dr. Saar ran a session titled “Critical Success Factors for Bridge Building in Demand Management” at a Demand Management Symposium held at MIT last fall. He described corporate research from the 1970s that had identified 220 different mindsets among managers and explained how these had been distilled down to the following three color-coded types of people: Blue Mindset: These people are very focused on doing what is right. They tend to be decisive because they inherently know what is the right thing to do, based largely on their historical perspective. Of course, they also tend to be judgmental and have little patience for people who don't get it as readily as they do. Red Mindset: Red-minded people aim for doing what is true. They are the analytical types who rely on facts and figures. They don't want to make decisions until they can get the most recent and complete set of data available. Green Mindset: These people believe in doing what is new. They are futuristic thinkers and can imagine all of the possibilities and opportunities down the road. Green-minded people are creative types (though often loosely connected to reality) who think that members of the other mindsets are too rigid in their thinking. While most managers have mindsets that are multi-colored, they usually have a dominant orientation that draws them to a functional discipline. Basically, that's what makes them good at what they do. However, when you have a cross-functional process such as S&OP, things can get muddy as the colors collide. Varied thinking and perceptions can make for a dysfunctional team if people don't recognize, value, and leverage the strengths of each member. A Meeting of the Mindsets In order for an S&OP process to be successful, it must leverage all three mindsets. If it is driven only by “blue” managers, the resulting plans will be totally rooted in the past. In fact, chaos could result if team members differ on the right things to do. Similarly, domination of the “red” mindset will lead to plans based only on today's realities. It could further result in indecisiveness if all the facts and figures are not readily available. Lastly, if the “green” mindset wins the day, the plans will be linked mainly to possibilities and dreams—with little relation to reality. Recognizing that all functions have something to contribute, I recommend the following S&OP roles based on the mindsets typically found in each functional area: Operations and Logistics: Managers in these functions tend to be red as they are analytic and focused on getting the data. Their responsibility and role is to develop supply plans that are predicated on demand plans and forecasts developed by others. Once they have these forecasts, these managers are very comfortable systematically planning out manufacturing, inventory, logistics, and procurement plans. Supply Chain: Managers in this function tend to be a combination of red and blue; they are analytical but also recognize that the right thing to do is to coordinate all planning activities for the good of the company. These managers are good at moderating a disciplined and collaborative S&OP process. Marketing: Marketing managers tend to be a combination of red and green. They are analytic when using information gleaned from marketing and sales research to develop plans designed to shape and create demand. They rely on their green side when developing creative and competitive programs. Sales: Managers in this area tend to be green as they are optimistic about sales prospects. They are best at developing sales plans that deal with sales possibilities and for positing future market conditions. (A mistake often made is expecting them to be analytic and to quantify these possibilities.) Finance: With their highly analytic training and background, finance managers tend to be red. Their role in the S&OP process is to monetize the demand and supply plans so that everyone can see the future financial picture, especially in the context of Wall Street expectations and the budgets. If team members are given the roles I've recommended above, the S&OP process stands a good chance of working well. Having each S&OP team member aware of the roles played by others, in the context of their own roles, will leverage everyone's strengths to the max. And this will keep you from having a dysfunctional S&OP team that, in turn, will lead to dysfunctional, inaccurate supply-demand plans. These are certainly not the types of plans you want to rely on for competing in the market today. Author's note: The article “Bridge the Gaps That Fracture Sales and Operations Planning,” by Ken Cottrill in the MIT Supply Chain Strategy Newsletter, December 2006, was used as a reference for this column. Author Information Larry Lapide is Research Director at the MIT Center for Transportation & Logistics. little patience for people who don't get it as readily as they do.