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S&OP a Hoshin Kanri ApproachExecutive S&OP and Japan’s legacy old Hoshin Kanri’s principles align each other on the ability to translate the high-level, executive-level goals into quantitative, achievable actions through policy deployment that encourages employees to analyze situations, create plans for improvement, conduct performance checks, and take appropriate action.

Sales and Operations Planning (S&OP) a very popular process in today’s business world is all about coordination, communication, sharing the goals, transparency, evaluation and accountability. When we relate and apply this in the world of manufacturing with extended supply chains by selling, producing and sourcing products and components from around the world, all we need is a more robust process to coordinate these global activities and to manage the growing rate of complexity and change.

This actually means following the process with discipline, addressing issues by being transparent, increased level of team work between multiple business functions, communicating the information without any silos for consistency. Needless to say for understanding the need of having a common plan both annual and monthly to sell and produce, measuring how we are performing with respect to the common plan, adjusting the deviations and making course corrections to stay on track. Really simple is in it?

Well the answer is Yes and No. Why would any organization need these coordination activities? Very realistically to improve the customer service by balancing the demand and supply, proactively make changes to supply rates much earlier and in smaller increments, introducing new products to the market for competitive advantage much faster than ever before. It facilitates better decisions and improved financial plans with less effort and time resulting in greater accountability for the results. All these are achievable because the people involved in this process are from top level executives to the middle management and also the supervisors and team leaders involved in the tactical execution month over month. This is why this process has now morphed itself

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to be called as “Executive S&OP” process. In principle many of you might agree to say that this is like a policy deployment in an organization i.e. defining goals and objectives, communicating it, following it, and measuring it for being responsible and accountable to improve the efficiency and effectiveness. This involves month over month tactical analysis and monitoring of the processes and aligning with the annual strategic objectives of the organization and change directions as needed.

This Executive S&OP process enables the organization to come out with a “Game Plan” for execution with the typical process elements as shown in the figure-1

Lean manufacturing can be of great help as it is to simplify, speed up, coordinate, eliminate waste and improve efficiency thru continuous improvement initiatives however there are subtle differences. This is because Lean thrives on linearity and stability and dislikes variability. In practice the leverage over the customers are very weak and since the demand is highly variable and so Lean struggles much in this area. The counter measures are to build up the Inventory to manage the variations but the question becomes how much, where and how much ahead of time should a company build excess inventory which usually holds up the cash flow. Many companies implement Lean manufacturing but do not have the luxury of having large finished goods inventory either in house or in the channel. So many Lean consultants work towards optimizing and reducing this inventory to be Lean through continuous improvement initiatives, but the question always come “ would it not be nice to know the demand variations well ahead of time so we can be better prepared with our supplies?”. Well this is called balancing the demand and supply and that’s where Executive S&OP lives. In other words we can say Lean manufacturing complements S&OP.

Management in industry today operates in an extremely harsh business climate and many industries are engaged in structural improvement simply to survive. They are making strategic long-term and medium-term plans, and implementing related policy deployment and controls. In Japan, such structural improvement has been called ‘Hoshin Kanri’. Wouldn’t it be useful to periodically review the strategic progress rather than wait for an annual meeting to do so? The discipline of Hoshin Kanri is intended to help an organization to:

• Focus on a shared, dynamic, goal.• Communicate that goal to all employees.• Involve all employees in planning to achieve the goal.• Hold participants accountable (through multiple feedback loops) for achieving their

part of the plan.• Periodically evaluate whether the system is performing to expectations

Figure - 1

Annual Sales Plan

Executive Staff

QuantityRevenue

New Products

Next Level Plan

Manager /Supervisor

Demand PlanSupply Plan

Financial Plan

Do and Align

Work Team

Execute Plan &Balance Demand-Supply-Financial

Plans

Check Result &Correct

All 3 Levels

Demand-Supply-Financial

Attainment &Corrections

Although most executives are smart and understand the importance to have and follow a game plan, they often get caught up in the stress and turmoil of daily business. Goals and accountabilities aren’t necessarily linked or cascaded. Hoshin Kanri assumes that daily controls and performance measures are in place. Hoshin planning aligns an organization toward accomplishing a dynamic goal.

Hoshin Kanri requires a rigid implementation so as Executive S&OP process, which may be difficult in some cultures, and a long-term commitment with objectives being stable over a period of years. However, Hoshin Kanri’s strengths of focusing the entire organization on vital objectives, communicating a shared vision, participative alignment toward breakthrough objectives, and careful monitoring indicate that it’s a robust tool. It allows for smart “management by objectives.” Implementing Hoshin Kanri is by clarifying strategy, communicating strategic objectives, planning and setting meaningful targets, aligning strategic initiatives across all levels, and building in a feedback loop for continual improvement and learning. This is also sometimes called as “Policy deployment” which is the process of cascading the objectives from the top of the company down to the work group level. The figure-2 shows how this process cascades down throughout the organization and follows the Plan-Do-Check-Act PDCA process.

Executive S&OP process is a company-wide, multi-level, collaborative decision-making process aligning people and helping them move and march in the same direction and enabling stronger alignment with Finance and financial plans by providing major assistance in making the quarterly earnings calls. Let’s see how this Executive S&OP process closely resembles and relates to the Hoshin Kanri’s principles, • Focus on a shared, dynamic, goal: This principle refers to common shared strategic

multi-year goal and the year over year changing Annual Operating Plan (AOP). The AOP plan is dynamic and changes relative to the business and market conditions.

• Communicate that goal to all employees: Communication of this AOP plan (vis-à-vis the goal) is the first step that a company does during every final quarter of a year. This plan is the rolling 12 month sales and revenue plan i.e. how much are we going to produce and sell. This is created and communicated thru the S&OP process which also is the marching order for a company for next 12 months.

• Involve all employees in planning to achieve the goal: This yearly AOP sales and revenue plan is created by the people who belong to Sales, Marketing, Operations, Finance, and Product development to agree on a final number through the consensus approach.

• Hold participants accountable (through multiple feedback loops) for achieving their part of the plan: As these plans are created and achieved through the consensus approach, the people who created the plan are accountable for these plans indeed.

• Periodically evaluate whether the system is performing to expectations: Root cause analysis and continuous monitoring of the execution of the agreed plan occurs every month through pre-defined calendar meetings where all the people who created the AOP are involved to compare what was planned vs. the actual results. Depending on the deviations, corrective actions are taken to stay course and align with the AOP

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Figure - 2

Yearly Target

Executive Staff

QuantityQualityCostTime

Innovation

High Level Plan

Manager /Supervisor

Who?Method?Target?Time?

Improvement?

Plan - Do

Work Team

Work PlanAction

MeasurementCountermeasure

Check

All 3 Levels

Method?Result?

Countermeasure?Target & Time?Improvement?

In summary, as you can see, both the Executive S&OP and Hoshin Kanri’s principles align each other in terms of the ability to translate the high-level, executive-level goals into quantitative, achievable actions through policy deployment that encourages employees to analyze situations, create plans for improvement, conduct performance checks, and take appropriate action. This is very helpful in creating a learning organization by moving people from fire-fighting and short-term fixes to long-term improvements through relentless reflection and continuous improvement.

References1. Sales & Operations Planning Beyond the Basics by Thomas F Wallace & Robert A.

Stahl, 20112. The Toyota Way by Jeffrey K. Liker 2003

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AuthorBharani RanganathanGreen Belt in Lean Six Sigma, Advanced Lean Mfg, CS&OP, CSCP, CPF, PMP is an Industry Principal (MFG Vertical Solutions – HCL America) He may be contacted at iSCM@hcl.com

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