2015 Shanghai S&OP Conference

1. 2015 Shanghai S&OP Conference Sales & Operations Planning: The Cultural Challenges of Best Practice • November 13, 2015 • Guofeng Hotel • Shanghai, China Bob Stahl 508-226-0477 RStahlSr@aol.com www.RAStahlCompany.com

2. Objective Desired Outcome: Gain an informed understanding of some of the “cultural changes” that are required to have S&OP operate as “best practice,” enabling maximum potential benefits to be experienced!

3. Agenda • Introduction • “Refresher” on authentic S&OP • Cultural Challenges: • Top Management’s Role • Conflict Resolution • ‘Catch 22’ of Implementation • Characteristics of Success • Sure Footed Implementation Approach • How to get started?

4. Fundamentals of Authentic eS&OP

5. Volume Supply Demand Balance Mix Sales & Operations Planning • How Much? • Rates • Mkt Facing Families • The Big Picture • Strategy/Policy/Risk • Monthly / 18 - 36 Mos • Executive Resp. ProActive Behavior Planning • Which Ones? • Timing/Sequence • The Details • Products/SKU’s/Orders • Tactics/Execution • Weekly/Daily 1-3 Mos • Middle Mgt. Resp. ReActiveBehavior Different& separate practices, but integrated! Scheduling Routinely

6. What’s Top Management’s Role

7. Research Reports * . . . Success with Executive S&OP is: • 60% = Culture/Behavior Change • 30% = Process Definition & Discipline • 10% = Technology Altimiter/AMR Boston, Sept 2010

8. Making Change . . . The Hard Stuff (tools, techniques, processes) is EASY The Soft Stuff (relationships, behavior, culture) is HARD

9. An Important Point . . . Success with eS&OPis more Cultural than Technical

10. Culture . . . a “fuzzy” word Here’s a more focused understanding: • Interpersonal relationships reflect the culture of an organization. • The sum of those relationships is the culture! • These relationships reflect a network of implicit and explicit agreements that are the organization (process).

11. Raising Disagreement . . . Sales/Marketing (Units or $ by Family) Finance (Revenue) Executive S&OP A process to raise and reconcile disagreement/conflict, agree upon, & communicate THE company game plan President Product Dev. (New Product Issues) Operations (Units/hours/ Material)

12. Holistic Display

13. eS&OP Success . . . • not only allows disagreement, to work it promotes and requires disagreement • Learning how to disagree without being disagreeable is paramount to success • Gaining collaborative consensus from this disagreement makes for best decisions & aligns human energy • Without a comfortable process to resolve disagreement/conflict, organizations will avoid it – “put the moose under the table”

14. Top Management’s Role . . .(among other things) • Create an environment (culture) that allows the Ugly Mooseto be put on the table -- so that . . .

15. The Ugly Moose . . . • Big ugly animal • All companies have them (under the table) • Difficult & Contentious • Good companies know how to disagree without being disagreeable • Thrive on conflict, not chaos • Moose is a symbol of agreement to do so Getting the Moose on the Table

17. Top Management’s Role . . .(among other things) • Create an environment (culture) that allows the Ugly Mooseto be put on the table -- so that . . . • They can completely and effectively resolve disagreement/conflict and set proper: • Policy • Strategy • Risk Assessment • Performance MeasurementsBefore it’s in the MIX Space!

18. Cultural Changes * Pre-S&OP Culture • Lack of involvement by Top Mgt. • Acceptance of poor data • Silo mentalities that inhibit interdepart-mental collaboration • Reactive instead of proactive decision making Post-S&OP Culture • Inter-fuctional collaboration, with open trust between departments (+TM) • Data-driven decisions • Higher levels of accountability • Proactive approaches to demand & supply issues * How S&OP Changes Corporate Culture: Results from Interviews with Seven Companies Stahl/Mello; Column: Winter 2010

19. President/General Manager Sales & Marketing Operations R&D New Prod Finance Logistics & Warehouse Process versus Personality Driven Organization Executive S&OP Supply Chain Management Managing the White Space

20. A CEO’S Perspective on S&OP • “We spent a lot of time gathering and validating data, which was time well-spent. But that challenge was nothing compared to the people side of things.” • “The most difficult part was driving . . . constructive conflict in the demand alignment meetings.” An Interview* with Phil Dolci, President and CEO Jarden Branded Consumables *In Foresight: The International Journal of Applied Forecasting, Winter 2012 (www.forecasters.org/foresight)

21. Continued “The measureable benefits are easy... • Service levels are up and inventory is down. • For example, the two largest businesses in my portfolio today each have service levels above 99.5% with inventory that is 20% less than 3 years ago.”

22. Continued • “I could argue, however, that the intangible benefits are just as valuable. We have much better teamwork because of the engagement and constructive conflicts that are natural components of S&OP. This approach has extended to almost every process and function within the business . . .” • “Moreover, I feel much more in touch with the business without micro-managing it.”

23. Energy Alignment Before S&OP Accomplishment After successful S&OP Accomplishment

24. If you align human energy an organization can do things not before possible. A Truth . . .

25. Conflict Resolution

26. Conflict Resolution * . . . • Disagreement has two parts: • Substantive issue • Emotion behind that issue • Disagreementbecomes Conflictwhen both parts are not completely addressed • Lasting Conflict Resolution must deal with BOTH elements of disagreement • Doing that effectively can be learned: • With a motive to do so & • A framework on which to work *“Getting to Resolution” – Stewart Levine

27. Need to be Hands-On with the Executive S&OP Process Top Management andExecutive S&OP Done Properly . . . It takes Top Management between 1 & 2 Hours per Month President Authorative Decider VP Sales/Mktg VP Operations VP Finance VP R&D Demand Supply $$$ Tech Stewardship & Leadership (Manager/Trustee & Guide/Command)

28. The ‘Catch 22” Of Implementation

29. The Challenge . . . Success with eS&OP is NOT: • Doing what you do better, but rather from • Doing things differently to be better! That translates to RISK . . . particularly to Top Management . . .

30. Getting Top Management involved from the start: If you DON’T – you won’t address the cultural or behavioral changes If you DO – they realize that success does not come from doing what they do better, but from doing things differently to be better That translates to personal and/or organizational discomfort and risk for those in charge The Top Management ‘Catch 22’ . . . * Overcoming the "Catch 22" of Implementation by Robert A. Stahl and Joseph F. Shedlawski Foresight Journal Spring 2012

31. Characteristics of Success

32. The Executive S&OP Process Step #5 Executive Meeting Heavy Lifting Decisions & Game Plan Step #4 Pre-S&OP Meeting Conflict Resolution, Recommendations & Agenda for Exec. Mtg. Step #3 Supply Planning Capacity constraints 2nd-pass spreadsheets Step #2 Demand Planning Management Forecast 1st-pass spreadsheets Sales Actuals, Statistical Forecasts & Production Actuals Creates a Disciplined Rhythm Step #1 Data Gathering End of Month

33. Characteristics that make eS&OP Operate at it’s Best • Cross-functional, collegial, collaborative, consensus building mindset, and a disciplined process that aligns human energy – Step #1 - #4 • Holistic ownership (leadership) of demand, supply, and fiduciary responsibilities, with authoritative decision making power, creating ONE set of numbers – Step #5 • View the implementation of eS&OP as a Strategic Imperative

34. “The Big Lie of Strategic Planning”HBR – Jan/Feb 2014 by Roger Martin The Problem:“Executives know that strategy is important. But almost all find it scary, because it forces them to confront a future they can only guess at.” . . . “Strategy making is uncomfortable.” The Solution: “Reconcile yourself to feeling uncomfortable, and follow three rules: • Keep it Simple • Don’t Look for Perfection • Make the Logic Explicit” “A detailed plan may be comforting, but it’s not a strategy.”

35. Characteristics that make eS&OP Operate at it’s Best • Cross-functional, collegial, collaborative, consensus building mindset, and a disciplined process that aligns human energy – Step #1-#4 • Holistic ownership (leadership) of demand, supply, and fiduciary responsibilities, with authoritative decision making power, creating ONE set of numbers – Step #5 • View the implementation of eS&OP as a Strategic Imperative • Integrated performance measurements that align with desired performance – Including Compensation Incentives

36. Corporate Role . . . • Mandate only the fundamental concepts and principles of eS&OP * • Establish a priority to make eS&OP implementation & use a Strategic Imperative • Demonstrate a willingness to “put the moose” the table • Assure sufficient resources to develop necessary and appropriate tools – which may vary • Measure progress – development and process discipline • Help address cultural and performance measurement issues • Reward success * S&OP Principles: The Foundation for Success Robert A. Stahl and Thomas F. Wallace Fall 2012

37. Implementation Approach

38. Implementation Alternatives “Build it and they will come”Design it first, get the mechanics working, and then attempt to sell it to top management. = Low probability for success (because you can’t address the cultural issues without Top Management) “Hold the high ground”Involve top management at the very outset of the implementation, and throughout. = High probability for success

39. How to do that . . . Mitigate RISK • Uninformed (before Go/No-go #1) Boss: “Okay, let’s do an Executive Briefing.” • Semi-informed (after Briefing: Go/No-go #1) Staff: “Okay, let’s do a Live Pilot Demonstration” • Fully informed (after Pilot: Go/No-go #2) Staff: “Okay, let’s go to full cutover.” Low Risk

40. Phase III Financial Integration Phase II Expansion Phase I Pilot Demo Implementation Path Live Pilot Demonstration Go/No-Go #2 Business Improvement Kickoff Session Low Cost Low Risk High Impact Quick Results 1 2 3 4 5 6 7 8 9 Months Executive Briefing Go/No-Go #1

41. Identify and enlist an Executive Champion; someone with executive influence, willing to put skin in the game, confidence of CEO Connect the hard benefits of executive S&OP to successful implementation Mitigate risk – path of low risk/low cost Quick results to build confidence – 90 Days Feedback on progress/success Generate local ownership and enthusiasm How to Engage Top Management?

42. A Run the Business today B Projects to support ‘A’ Business Excellence X Executive S&OP Parallel Paths Top Management’s Job: Assuring resources for all Use Pilot for learning, not benefits Gain focus - application of principles

43. Leadership’s Role During Change • Lead educational process • Manage cultural changes • Assure proper resources • Immerse themselves in the detail • Approve procedures • Insist on clear targets (goals) • Participate • Measure Progress

44. Leadership’s Role(Continued) Ongoing • Insist on meaningful participation • Insist proper homework be done • Remove themselves from the detail • Clearly raise & resolve conflict • Make clear decisions • Hold people accountable (process & results) • Encourage & expect realistic improvement • Lead management development • Measure performance

45. Implementation Roles • Champion • Design Team Leader • Design Team Members(6 to 10 Cross-functional)

46. Role: THE Executive with ‘skin in the game’ CEO’s Representative (if not CEO) Mentor to Design Team Leader Sell Executive Staff(as required) Demonstrate & support the discipline / behavior that is required ‘Listen’ to Design Team & the coach Qualifications: CEO or member of Executive Staff Courage to talk about the tough issues 5-10% of time Champion’s Role

47. The Real Challenge . . . Understanding eS&OP is simple. The hard part is . . .Behavioral/CulturalChange changing the way everyone does their jobs. Keys: - Full cross functional buy-in - Counter-experiential/intuitive - Comfort vs Change - Path of low risk

48. Middle Mgt. only It’s a Supply Chain thing Top Mgt. but not President (SBU Ldr) No Education (‘Build It’) Supply based Families Too much granularity No consensus on ‘end game’ No discipline – mixed messages Inadequate Pre-eS&OP Conflict Aversion eS&OP Meetings: Show & Tell Unfocused Short Term Too Much Detail (MS) Meeting Too Long Finger Pointing Ongoing Data Problems Lack of Progress ImplementationPitfalls

49. Success Requires Design Team’s Job: • Defined set of practices (What, How, & Who) • Accurate, timely, & believed data • Valid, simplifying assumptions(Dem/Sup/$$)(Getting out of ‘Suicide Quadrant’) Leadership’s Job: • High discipline clear process accountability • Constant improvement • Changed performance measures • Culture/Behavior change(Moose on table)

50. Gravitational Force Needed . . .(The definition of eS&OP Success) Customers Executive eS&OP: Top Management’s Handle on the Business ! (Muting the Ugly Trade-offs) Natural Force = Centrifugal Desired Force = Centripetal Executive S&OP Owners Employees (Suppliers, Community, Country, Planet)