Here’s a typical process I have seen in many companies – still, in 2013! [since I work primarily in the Pharmaceutical industry, these are Pharmaceutical manufacturers]
– At the beginning of the month, Forecasts are refreshed
– Then, an MRP process ripples through and a supply plan comes out (planned orders, process orders, purchase orders, etc.)
– Capacity planning follows – this may involve one Plant or multiple Plants
– Finally, an S&OP meeting takes place, involving several or many top executives, where people look at the balance between forecast (i.e., Sales), supply, capacity and inventory and, presumably, everyone comes to a consensus (this is actually a funny concept; most such meetings I’ve attended to, there is no such consensus. More likely, people discuss all sorts of issues and then make decisions which often entail more homework to be done to explore the issues further… Until the following month).
There is an important problem with this process: it’s way too slow. Let’s see: it is done once a month and, most of the time, the entire cycle takes 3 weeks – thus, the data that is used for the S&OP meeting is 3 weeks old. If there was a problem at the beginning of the month, 3 weeks later that problem is already obsolete and new problems have already surfaced. Inventory at the end of last month is probably very different from inventory 3 weeks later.
There is another problem: so much waste! If a company is producing 1,000 sku’s, it probably has problems with somewhere from 20 sku’s (if it’s doing well) to 200 sku’s (if it’s doing poorly). Yet, the cycle is reprocessing the whole 1,000 sku’s. Forecast revises the projections for 1,000 sku’s, then MRP is run for 1,000 sku’s, then capacity is checked for all materials and machines, etc. – do you see what I mean? It’s a bulky, heavy process that is carrying a huge chunk of data from one big step to the next, when only a few sku’s really need to be re-planned.
This whole thing is so 1990’s and yet so many people are still doing it. I’ve actually been in places that when I propose a completely different approach, I’m told “well that’s not proper supply chain management”.
What happens when this is done in a Global organization with centralized control? Oh, then, it’s really bad! Then, it could be 10,000 sku’s going through this massive pipe, converging on an S&OP meeting for all the Plants at the same time; or one Plant after another.
It’s almost as if a whole lot of people – senior Executives no less – believe that the world is on ‘pause’ while all this data is being processed. That, of course, isn’t the case and I am sure these Executives don’t think so either. And yet, they still think this is a good way to manage supply chains.
Is there a better way? Yes, of course there is. After all, this is 2013. If you’re still doing this classical S&OP thing, you’re acting as if the last 10 years didn’t happen. This is the age of Facebook, LinkedIn, Google +, Lynk, Skype and Yammer. This is the age of Gen Y, multitasking and Real Time Organizations (RTO). There are such organizations.
So, let’s think for a second: if you’re managing supply chains in real-time, what’s the benefit and how do you do it? This is a really critical question! If you are competing with an RTO and you’re managing through classical S&OP, you are at a serious competitive disadvantage and you can’t hope to survive in the long term.
NOW Management – Manage Event by Event, Instance by Instance, Moment by Moment
The core concept of NOW Management, as I call it, is that things change because specific disruptive events occur. If you made a plan, the plan continues to be good for a while until there is a disruptive event. When an event occurs, you have to do the following in a very quick, short cycle:
– Detect the Event
– Measure it’s impact throughout the supply chain (which materials, which Plants, etc.)
– Decide what to do
– Re-plan if needed
– Push the action plan to the supply chain
In NOW mode, you don’t trigger this short cycle once a month, once a week or once anything. It happens now, you do it now!
Which leads us to do these things instance by instance. If one or two sku’s are affected, then revise the supply chain for two sku’s. By working only on the affected materials, the cycle can be very fast since the amount of data and people involved is fairly limited.
Let’s consider forecasts and demand planning in general. There are two major components in demand planning: statistics and events. Stats are used to measure trends. Trends don’t change once a day or even once a month. Trends take a long time to change. A the same time, if Demand is changing, it can only be because of disruptive events – current events or future events. Thus, a better approach than once a month revisions of forecasts is to adjust demand projections instance by instance, event by event. Do it when something changes and do it for the scope of materials affected by the change.
Supply Chain Management in NOW mode can best be done (and I suggest that it can only be done) using social networking. I have written extensively about the power of Spontaneous Association to react to unexpected events at great speed, using the skills of qualified individuals in a dynamic, virtual network. To go through a short cycle, moment by moment, the process needs to go through several skills who are often located in different sections of the organization (and diverse locations). Hence, if everybody needed is in a social space, this is how it goes:
– Whoever detects the disruptive event, posts it. This might be someone in Sales, in Manufacturing, Quality Control, Finite Planning, Finance, whatever.
– Spontaneously, other people start reacting through comments against the posting.
– Short term actions are identified to cope with the event.
– Then, other actions are taken to re-plan activities affected by the disruption.
– From drawing action plans, people naturally evolve to executing those actions until the situation stabilizes.
This very practical pattern will happen hundreds of times a day when you work in NOW mode as issues are tackled as they occur, without unnecessary meetings, without waiting for everybody to be available in their calendars.
Whenever I talk about this, at some point somebody asks me – so, what happens to the S&OP process? Does it disappear?
Yes, it disappears. It’s gone, dead! But something else takes its place. When an operation functions in NOW mode, a lot of things are decided and actions are taken every day, at a fast pace. Once in a while, some people need to step back and see if everything is moving in the right direction, if everything is on the right track. Once in a while, some people will have to analyze the operation, detect trends and take preemptive action.
For instance, if the same problem keeps coming back and being re-resolved, it is worth looking at its route causes and identify improvements in practices, processes and methods to stop these things from happening. Trends in demand behaviour, inventory, costs, customer service, etc. – need to be analyzed, evaluated and new strategies need to be thought out. This kind of analysis and insight can’t be developed moment by moment. It needs many weeks and months of data and it needs time to perform all that analytical work. It is in this space that the intervention of strategists or Executives is valuable. It is then pertinent to do this once or twice a month or some other intermittent frequency.
And so this is how I like to manage Operations and Supply Chains:
– Create virtual spaces of discussion for employees with the right skill mix and let those employees deal with events, moment by moment, in NOW mode. Eliminate all the routine cycles and meetings that tend to accumulate problems and thwart spontaneity. Let Spontaneous Association rip and do it’s ‘magic’.
– In parallel (this is key) kill the sequential-ness of the classical S&OP process, have a background process of analysis of trends and strategy management whereby Executives can observe changes in the environment and adjust strategies.
– Don’t let the Real Time layer of activity in NOW mode ever wait for the layer of strategic management – let them run in parallel. New strategies, new directions – are taken by the Real Time process as just another event. It comes when it comes, it doesn’t matter – it can be the 3rd week of the month, the first week, twice in the same month, it doesn’t matter. The Real Time layer is prepared to deal with any surprises and has no expectations of routine intervention.
So, now that you read all this, think about it: if you are still operating in the old S&OP mode, do you think you can compete with a company that operates in NOW mode?…
Great piece Tony. I agree 100%. Not long ago we were poerforming S&OP once a quarter, now it is more frequent to run S&OP once a month, with a few – very few – companies having moved to one a week. Why not once a day? Why now when ever necessary?
I call this ‘Continuous S&OP’.
Sorry for all the typos. I wrote the reply on my BB 😦
Very refreshing article Tony.
This is quite a paradigm shift that represent a drastic change in the habits of the entire organization. Aside from the virtual space mentionned above, what are the key elements that needs to be present within the company organization and culture to successfully implement this process?
Any organization that ‘grew up’ in the age of mass production – and that includes the Baby Boomer generation who probably hold most Executive jobs in this continent – was conditioned to think in “batch mode”. It is considered normal that issues are accumulated and then resolved. Even the classical Functional Org Chart is designed to work this way: the flow of work is decomposed into functional responsibilities and then redistributed by functional groupings. As a result, nothing ever gets done as it occurs, there are always waiting times. Think about a monthly meeting with an agenda – what does the agenda typically look like? – a list of issues which, presumably, accumulated throughout the month. Any such meeting starts with “let’s review the minutes and action items from the last meeting”. This mindset is extremely typical and considered “good management” but the reality is that the waiting times caused by such approaches are a killer to today’s business environment. Most importantly, it entails an enormous waste of time and penalizes companies, societies and economies.
The NOW culture is pure Lean Thinking, i.e. – no batch and queue. The world is just too fast, changes too quickly and waiting is a risky proposition. More importantly, with today’s technology it’s easy to move quickly, to resolve issues and take action rapidly as things happen. So, the cultural change that is needed is to abandon the tolerance to wait for things to get resolved and move towards “waiting is unacceptable”. It’s a difficult change, not too dissimilar from going from being overweight to being an athlete. Really difficult. But it’s possible. The bad news, of course, is that the young organizations of today, born in countries without these paradigms – like China, India or Brazil – and/or started by people from Gen Y, don’t suffer from the legacy of Functional structures and vertical Corporate environments. The risk to older companies is to become quickly obsolete and lost in time.
Several elements need to be in place within a organization and culture to implement this process which would include a culture where risk taking is encouraged, strong experts and highly skilled employees, teams focused on exception based events, good exception based reporting, and one of the most important being clear accountability to make the necessary decisions at the appropriate levels within a organization.
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