Executive S

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Executive SOPWhat It Is and How to Make It Work
Tom Wallace
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Outline

• Where It Fits
• What It Does
• The Role of Top Management
• Benefits
• Bad Day at Acme Widget
• A Better Way
• Global Executive SOP
• How to Make It Work
• The Future of Executive SOP

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The Many Tools for Improving Effectiveness
Increase Reliability
Total Quality, Six Sigma, Poka-Yoke, ISO others
X
X
X
Sales Operations Planning, ERP, Kanban, VMI,
others
Lean Mfg., Just-In-Time, Quick Changeover
(SMED), Flow others
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Complexity, Change and Coordination
COMPLEXITY AND THE RATE OF CHANGE
NEED FOR EFFECTIVE COORDINATION
PROCESSES SOP is the Primary Coordination Process
Impact of Lean Mfg? Global Businesses?
Lengthy Supply Chains?
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Balancing the Supply Chain
YOUR CUSTOMERS CUSTOMERS
YOUR SUPPLIERS SUPPLIERS
YOUR SUPPLIERS
YOUR COMPANY
YOUR CUSTOMERS
T R A N S P O R T A T I O N
T R A N S P O R T A T I O N
SALES OPERATIONS PLANNING
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Outline

• Where It Fits
• What It Does

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The Four Fundamentals

• How Much?
• Rates
• The Big Picture
• Families
• Strategy/Policy/Risk
• Monthly/out to 36 Mos

• Which Ones?
• Timing/Sequence
• The Details
• Products
• Tactics/Execution
• Weekly/Daily 1-3 Mos

Mix
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Sales Operations Planning
Executive SOP
Volume
Supply (Capacity) Planning
Demand
Supply
Demand Planning/ Forecasting
Mix
Master Scheduling Supplier and Plant
Scheduling Distribution Scheduling
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Executive SOP . . .

• Is an executive decision-making process
• Balances demand and supply
• Deals with volume in both units and
• Ties operational plans to financial plans one
  set of numbers
• Is the forum for setting relevant strategy and
  policy
• Is the same as what used to be Sales Operations
  Planning

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From 5,000 Feet
Sales/Marketing (Units/ by Family)
Finance (Dollars)
Centripetal
Shared view
Executive SOP A process to reconcile, agree
upon, and communicate the company game plan --
Teamwork
Operations (Units/hours/Material)
Product Development (New Product Issues)
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Outline

• Where It Fits
• What It Does
• The Role of Top Management

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Linkage
Strategic Planning
Business Planning
Disconnect!!!
Detailed Planning, Scheduling Execution
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Linkage
Strategic Planning
Business Planning
Executive SOP
Detailed Planning, Scheduling Execution
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Business Plan Characteristics

• Dollars
• 3 to 5 Years
• Annual Budget
• Entire Business
• Ownership

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Levels of Business Planning

• Y E A R S
• 1 2 3 4 5
• Long Range
• Planning
• Annual Plan
• Executive SOP

Rolling monthly check on the Business Plan
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The Role of Top Management

• The Leader of the Business Unit (General
  Manager, President, COO) Needs to be Hands-On
  with Executive SOP
• Stewardship

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Strategic Planning
Business Planning
Disconnect!!!
Disconnect!!!
Detailed Planning, Scheduling Execution
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The Role of Top Management

• The Leader of the Business Unit (General
  Manager, President, COO) Needs to be Hands-On
  with Executive SOP
• Stewardship
• Leadership
• Break ties

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The Role of The President (CEO, COO, GM, MD,
etc.)
Sales/Marketing (Units/ by Family)
Finance (Dollars)
Executive SOP
President
Operations (Units/hours/Material)
Product Development (New Product Issues)
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The Role of Top Management

• The Leader of the Business Unit (General Manager,
  President, COO) Needs to be Hands-On with
  Executive SOP
• Stewardship
• Leadership
• Break ties
• Set high standards
• Motivate

Monthly Time Commitment 1.5
hours
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Outline

• Where It Fits
• What It Does
• The Role of Top Management
• Benefits

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Executive SOP in Make-to-Stock w/ High
Seasonality The Scotts Co.

• Important Questions
• When start Pre-Build?
• At what rates?
• Which SKUs?
• When ramp up how much?
• When ramp down?
• SOP helps answer these others

Pre-Build
Pre-Build
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The Scotts Company

• During the last four years, almost half of the
  companys increase in earnings has come from
  Supply Chain savings inventory down,
  manufacturing efficiency up, purchase and
  transportation costs down. All of these are due
  to improved planning.
• Ken Reiff
• Vice President, Product Planning

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SOP in Make-to-Orderw/ Extreme Cyclicality
Cast-Fab

• Cast-Fab Technologies Year-to-Year Sales Change

Chg 15 38 6 12 14 25 14 1 32 25 18 46
Acquired from Cinti Milacron
up up down down up down down down down down up up

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
2003 2004
Implemented SOP
Some competitors go out of business
!!!!!!!
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Cast-Fab Technologies

• During 2004, we posted sales increases of over
  40, which meant employee call-backs, retraining,
  new hires, initial training, getting up the
  learning curve and so forth.
• During the same year, we had productivity gains
  of up to 3! We never would have believed this
  was possible if we hadnt done it.
• SOP played a key role in this it gave us the
  forward visibility to make the right decisions on
  a timely basis.
• Ross Bushman
• President and COO

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Eli Lilly and Company

• New Product Launch in the Pharmaceutical Industry
• Multiple stages of testing
• Multiple approvals by FDA (U.S. Food
  Drug Adminn)
• Multiple years
• Multiple millions/billions of dollars

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Eli Lilly and Company

• New Product Launch Performance
• Industry
• Average Lilly
• 2001-04 1.8
• Years Required
• (avg per product) gt14

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lt11
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Eli Lilly Company

• In the past three years we have launched 9 new
  products and met all demand despite 2 products
  that sold significantly above the high-side
  forecast.
• Without Global Sales Operations Planning, we
  would have been driven to reaction mode, which
  could have resulted in an increase in investment
  in new assets, a slow down in our launch plans,
  and/or missed demand opportunities.
• Ron Bohl
• Supply Chain Coordinator

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A Consistent Theme

• These and other best practice companies are using
  SOP most effectively in those areas of their
  business that are
• very difficult to manage
• mission critical

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Hard Benefits

• Customer Service UP
• Inventory DOWN
• Obsolescence DOWN
• Freight Costs DOWN
• Order Lead Times DOWN
• Supplier Lead Times DOWN
• Time to Launch New Products DOWN
• Plant Productivity UP

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Soft Benefits

• Enhanced Teamwork
• Better Decisions with Less Effort and Time
• Better Plans with Less Effort and Time
• Greater Accountability
• Greater Control
• Window into the Future
• Top Managements Handle on the Business

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Outline

• Where It Fits
• What It Does
• The Role of Top Management
• Benefits
• Bad Day at Acme Widget

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Bad Day at Acme Widget
Product Manager, reviewing forecast for 1st time
in 3 mos.
Product Manager revises the forecast downward.
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Production Plan
Current Production Plan.
Plant Manager gets bad news adjusts Production
Plan.
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Inventory Review
CFO observes the high inventories.
Average Standard Cost 100 per unit April
Ending Inventory 13,200,000
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Inventory Review
CFO gets new Forecast and Production Plan.
Current Inventory 132
152
162
172
New Inv. Plan
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Questions

• How is Mondays executive staff meeting likely to
  be?
• Whats wrong with this picture?
• What are the root causes of the problems?

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Outline

• Where It Fits
• What It Does
• The Role of Top Management
• Benefits
• Bad Day at Acme Widget
• A Better Way

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A Better Way

• Display of Information
• Defined Process forDecision-Making

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Figure 2-1 THE ACME WIDGET COMPANY
SALES OPERATIONS PLAN FOR OCT1999FAMILY
MEDIUM WIDGETS (MAKE-T0-STOCK) UNIT OF
MEASURE 1000 UNITSTARGET LINE FILL
99 TARGET FIN INV 10 DAYS ON HAND
Make-to-Stock

• H I S T O R Y
  3rd 4th NEXT 12 F I S C A L Y E
  A R
• SALES J A S O N D
  J J M 3 MOS 3 MOS MOS LATEST CALL
  BUS PLAN
• FORECAST 200 200 200 210 210 220 220
  220 220 690 690 2670
  25,540 25,400
• ACT SALES 222 195 227
• DIFF MO 22 -5 27
• CUM 17 44
• OPERATIONS
• PLAN 200 200 200 210 220 230 230 230 230
  690 690 2735
• ACTUAL 200 206 199
• DIFF MO 0 6 -1
• CUM 6 5
• INVENTORY (F.G.)
• PLAN 100 100 100 61 71 81
  91 101 111 111 111
• ACTUAL 78 89 61

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Make-To-Stock
Planning Time Fence
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A Better Way

• Display of Information
• Defined Process forDecision-Making

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The Executive SOP Process
Step 1 Data Gathering
Sales Actuals, Statistical Forecasts Supply
Actuals
End of Month
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Pre-Meeting
Participants middle managers from Finance,
Marketing, New Products, Operations, Sales

• Consensus requires that everyone1. Has had
  their say2. Feels they had opportunity to
  influence the outcome3. Can live with the
  outcome
• (Eli Lilly Compromise Meeting)

Conflict Confrontation Consensus
Harmony Get the Moose on the Table
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Executive Meeting

• Review of Total Business Performance ()
• Review of Customer Service Performance (fill,
  CSL)
• Review of Action Items from Last Meeting
• Decisions on Each Product Family, and on
  Resources as necessary
• Agenda Driven Discussion pertaining to
• Decisions of major consequence or risk
• Changes to existing Policy /or Strategy
• Review of critical performance difficulties
• Resolution of conflict with Clear Decisions
• Change Business Plan as appropriate
• Recap of Decisions Made
• Critique the Process

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Executive SOP MeetingParticipants

• Essential
• SBU Leader (Pres./GM)
• VP Sales
• VP Marketing
• VP Operations/Logistics
• VP Product Development
• VP Finance
• Probable
• Executive SOP Process Owner
• Pre-Meeting Facilitator
• Demand Manager
• Supply Chain Manager

• Possible
• Customer Service Manager
• Forecast Analyst
• Product Manager
• Plant Manager
• Master Scheduler
• Purchasing Manager
• Product Development Manager
• Controller
• ????

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The Executive SOP Process
Step 1 Data Gathering
Sales Actuals, Statistical Forecasts Supply
Actuals
End of Month
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Outline

• Where It Fits
• What It Does
• The Role of Top Management
• Benefits
• Bad Day at Acme Widget
• A Better Way
• Global Executive SOP

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The Global Challenge

• To coordinate an organization doing business in
  many different countries, on many different
  continents . . .
• . . . without inhibiting accountability, and
  stifling local initiatives and ways of doing
  business.

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Global Executive SOP
How One Company Does It

• Entities areas (regions) where demand and supply
  align

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Regions Entities Example

• Regions Plants Entities
• North America Mexico, US
• South America
• Europe Belgium
• Middle East/Africa
• Asia/Pacific China, Australia

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Regions Entities Example

• Regions Plants Entities
• North America Mexico, US Y
• South America
• Europe Belgium Y
• Middle East/Africa
• Asia/Pacific China, Australia Y

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Global Executive SOP
How One Company Does It

• Entities areas (regions) where demand and supply
  align
• Executive SOP occurs within each Entity up to
  and including the Exec SOP meeting

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Global Executive SOP
Step 5 Executive Meeting
E n t i t y A
Step 4 Pre-SOP Meeting
Step 3 Supply Planning
Step 2 Demand Planning
Step 1 Data Gathering
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Global Executive SOP
How One Company Does It

• Entities areas (regions) where demand and supply
  align
• Executive SOP occurs within each Entity up to
  and including the Exec SOP meeting
• Inter-entity Coordination primarily within the
  Demand Planning and Supply Planning phases

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Global Executive SOP
Step 5 Executive Meeting
E n t i t y A
Step 4 Pre-SOP Meeting
Step 3 Supply Planning
Step 2 Demand Planning
Step 1 Data Gathering
E n t i t y D
E n t i t y B
E n t i t y C
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Global Executive SOP
How One Company Does It

• Entities areas (regions) where demand and supply
  align
• Executive SOP occurs within each Entity up to
  and including the Exec SOP meeting
• Inter-entity Coordination primarily within the
  Demand Planning and Supply Planning phases
• Global Consolidation at world HQ, following
  Exec meetings in the Entities
• Global Exec Meeting primarily, but not
  exclusively, financial

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Global Executive SOP
Step 7 Global Exec Meeting
Step 6 Global Consolidation
Step 5 Executive Meeting
E n t i t y A
Step 4 Pre-SOP Meeting
Step 3 Supply Planning
Step 2 Demand Planning
Step 1 Data Gathering
E n t i t y D
E n t i t y B
E n t i t y C
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The Global Challenge

• We are a series of organizations doing business
  locally, with intense global coordination.
  Percy Barnevik
• Former CEO
• ABB
• Executive SOP should support
• these dual objectives.

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Outline

• Where It Fits
• What It Does
• The Role of Top Management
• Benefits
• Bad Day at Acme Widget
• A Better Way
• Global Executive SOP
• How to Make It Work

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Implementing Executive SOP

• Bad News
• Change
• 8-12 Months

• Good News
• Few People (several dozen)
• Early Results ( 2-3 Months)
• Low Cost (lt 100K)

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The ABCs of Implementation

• C - Computer
• B - Data
• A - People

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A Item People

• The challenge is not understanding Executive
  SOP.
• Its simple
• The difficult part is
• Organizational Behavior Change
• . . . changing how we collectively manage the
  business.
• Potential Problems
• Discipline/Self-discipline
• Accountability
• Conflict Management

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Implementing Executive SOP Is Different

• The leader of the business (president,
• COO, CEO, general manager) must provide
• Support
• Funding
• Commitment
• Leadership

So whats new?
Active, Hands-on Participation by the Leader and
Staff
Each and Every Month
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Implementing Executive SOP Is Different

• Highly focused on Top Management
• Relatively few people
• Low cost but high impact

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Implementation Principles

• Implementation begins and ends
• with the Leader of the business
• Hold the high ground
• and success will almost always follow
• Build it and they will come
• carries a low probability for success

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Implementation Path
Executive Briefing Go/No-Go 1
Live Pilot Go/No-Go 2
Phase III Integration
Kickoff Session
Phase II Expansion
Business Improvement
Phase I Preparation
1 2 3 4 5 6 7
8 9 Months
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Outline

• Where It Fits
• What It Does
• The Role of Top Management
• Benefits
• Bad Day at Acme Widget
• A Better Way
• Global Executive SOP
• How to Make It Work
• The Future of Executive SOP

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The Future of SOP Growth Factors

• Lean Manufacturing and SOP
• Success breeds success
• Globalization
• New users outside traditional manufacturing
• - Users of contract manufacturing only
• - Engineering/design organizations
• - Retail
• - Banks
• SOP specific software
• Greater financial integration, power, and utility
• A growing presence in the executive suite

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Toyota The Lean Poster Child

• At Toyota, production is
• pushed into ? Fin Goods Inv
• ( 2-3 Billion)
• In many companies, production is
• pulled by ? Customer Demand

In balancing demand and supply, many companies
have a tougher job than Toyota. Their solution
Executive SOP.
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Implementing It
Operating It
Step 1 Data Gathering
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