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Ventana Research

Managing operational performance across the supply chain and intersecting demand frommarketing/sales to finance to operational management requires a common set of plansfor meeting objectives and targets.

Manufacturing organizations looking to leverage their supply chain and operational investments must automate cross-organizational performance planning processes to enable operational performance management. The reason – the lack of nimbleness and automation in existing sales and operational planning (S&OP) processes have stunted management’s ability to drive change efficiently. Responding to new initiatives and meeting new business and financial objectives and targets during the year are critical issues for enabling performance and process improvement.

The mandate to adopt change and to link sales and operational management with financial targets is further stressed by evolving pressures of RFID, compliance and contract/supplier outsourcing initiatives that do not immediately reduce costs of operations. The additional pressure by finance to maintain cost structures and provide visibility into operations complicates the goal to simplify and improve profitability of manufacturing. Direct efforts to evolve existing supply chain-centric S&OP efforts can help provide the framework for operational process improvement.

Your organization will have to choose how to adapt and meet these management and process requirements to ensure you are not caught in what often is referred to as operational “cement,” which inhibits efficient change to performance targets. While decisions might be made in an effective manner, efficiency in implementing them is the key challenge for organizations. Aligning people and processes to reach performance targets is the essence of what is called performance management.

Linking your executives, sales, product, operations and finance areas to streamline performance process improvement increases your opportunities for maintaining a competitive advantage. Getting people to efficiently and effectively adopt change and achieve stated objectives and targets is the essence of effective performance management.

Understanding Linkages In Performance Management

In most organizations, the management process of performance management in any area of the organization is defined across three steps – strategy, planning and execution. We at Ventana Research correlate a performance improvement process, PerformanceCycle, where strategy should enable alignment, then planning enables optimization and finally execution is linked to understanding the business. It is the responsibility of management to ensure the optimal set of resources and time allocated to each step for reaching the potential performance targets.

To enable this process, our research has found that the order and focus of the management and performance improvement processes is directly linked to the efficiency and effectiveness of an organization. By this we mean that the efficiency and transition from the strategy to planning to execution process will assist in improving the effectiveness of the organization. Unfortunately, many organizations spend more time trying to understand performance by measuring the past rather than focusing on future potential and forward-looking planning processes for operational and strategic objectives.

Refining objectives, defining new initiatives for maximizing the value of products in the market, and reaching the corporate, financial and customer level goals for market share and profitability improvement are difficult tasks. While most companies can determine their strategy and objectives at different levels, it is not as easy to drive change through planning. Planning requires collaboration of people among processes to a shared acceptance and future accountability for performance targets.

Understanding the Operational Performance Gap

Planning is the link between strategy and execution. Driving change across competing organizational agendas and linking operational and supply chain processes with financial outcomes is imperative for planning to succeed. Instead of just individual departmental approaches to planning, organizations will have to synchronize activities and utilization of resources to meet the fluid aspects of sales and operational processes. Of course, just doing the operational planning without well-defined targets and objectives that shift with strategy refinement is insufficient.

So to become more nimble you will need to consider the operational reality of your organization and the market you operate within. Dynamic changes caused by competitive pressures, merger and acquisition activities and economic shifts to your demand and supply chain have to be easily accommodated in your sales and operational areas. Unfortunately, the lack of preparedness for these stated issues and inability to assimilate external and internal information to adapt and plan represent some of the largest challenges facing sales and operational management.

Why is this so important? The traditional annual planning and supply chain planning processes are not sufficient to respond to today’s competitive and internal demands. The reality of new initiatives and changes require better coordination and communication efficiently across operations. Linking plans across sales pipelines, demand forecasts, revenue and product planning to financial plans are not simple feats. To have a better chance to drive the change will require linkage of customer and product processes across manufacturing, operations, sales and finance.

While there are plenty of efforts and probably systems at the detailed supply chain execution and sales forecasting level within your organization, the lack of unified efforts to support operational planning across the enterprise hinders your ability to align efforts to performance targets. How well you enable and focus operational performance management as a management process to achieve the common goals and objectives across your operational areas will determine how effective you are in eliminating your performance gap. Driving change in order to meet competitive pressures, industry and internal initiatives and create a more nimble organization requires the close collaboration of people and processes through planning.

Requirements for On-Demand Operational Performance Planning

Within any manufacturing organization there is a quagmire of individual systems and an array of never ending spreadsheets that plague operational performance planning processes. With so much information and no cohesive or unified process/information systems, it is a wonder that organizations do as well as they do. Even mere incremental improvement on inventory levels, promotional effectiveness and supplier delivery could reduce costs and improve revenue by millions of dollars.

If your organization spends less than two-thirds of its time on forward-looking strategy and planning for operational performance and process improvement compared to measuring and monitoring execution, you are probably a perfect candidate for on-demand operational performance planning.

In many cases, the actions and decisions that deliver improvement in product and operational margins are accomplished on a continuous basis. So what is your organization doing and how should you assess your requirements for taking on this initiative?

While your organization may spend time within its departmental areas fine-tuning specific plans and measuring performance from a detailed and bottom-up perspective, such an approach is probably not enough for interoperability across functional areas. What’s also needed is a common approach that can be used by management across the business.

Your first step is to determine how your finance, operations, sales and supporting organizations are doing operational performance planning today, and how they proactively address new opportunities and react to change in the marketplace. Look for an operational management up-and-down approach compared to bottom-up or finance-out approach. As you consider the pros and cons of your approach, you must examine the different methods that enable operational performance planning.

• Financial Management – This approach is designed to extend your annual financial budgeting/planning processes and system to reach to the operational management levels. It should be examined to see if it can handle the cycle and complexities of nonlinear and nonaggregated level planning. New capabilities are extending solutions into operational areas and include vendors such as Applix, Cartesis, Clarity Systems, Cognos, Geac and Hyperion.
• ERP and Supply Chain – This approach is designed to leverage your ERP-centric supply chain and Advanced Planning & Optimization (APO) processes as the center of gravity. Then by linking in the sales and demand plans along with financial information you can provide a method for your operations. Further evaluation of this approach to determine its ability to meet your entire operations’ needs should be closely examined. Typical vendors in this area would include i2, Manugistics, Oracle, SAP, SSA Global and others.
• Operational Planning – This approach is designed to build a common foundation to operational planning processes and systems that can work across operations and extend to the needs of the supply chain, finance, sales and other operational areas. Applications offering spreadsheet-like capabilities are common among vendors in this area, which include new solution providers along with evolved independent APO providers. An example set of vendors include Eivia, Interlace Systems, Preactor International, Quintiq, RSS Solutions, SmartOps, SteelWedge and Kinaxis.

Of course in any of these approaches you should consider leveraging your existing investments in your underlying supply chain, financial and BI systems. Make sure you invest in applications that align with your operational performance planning processes. Ensure that you instill a process and system that can be used across different levels of management and supporting analysts. Do not propagate approaches that increase the chance for errors as found in an individual spreadsheet-based planning approach.

How to Get Started

You have now seen the basics behind operational performance planning and the fundamental goals of efficiency, effectiveness and alignment of your planning processes for improved performance. We’ve provided perspective on how to enhance your management process and connect the gap between strategy and execution.

Your ability to lead and build an operational performance planning foundation to streamline your processes is critical to your organization. Once you have addressed operational and efficiency issues you will be able to advance to the strategic focus on improving the value of your sales and operations investment from the supply chain to the customer. To get started and accelerate your path utilize these five easy steps:

1. Operational planning process and system assessment – Conduct a simple but thorough independent and unbiased assessment of your operational planning processes and systems. Establish a benchmark for current efficiency and effectiveness and then identify areas for improvement. Evaluate financial and operational requirements in this approach including conducting ROI/TCO calculations.
2. Build a business case to improve value and results – Building the business case requires good definition of the value and cost of your program. Address the cultural, business and technology barriers to ensure executives can support and follow through on your operational performance planning initiative.
3. Assemble the program and plan – Once you have executive sponsorship, create a well-defined program and plan to communicate to the management of your organization. The program will need to be articulated at different levels and areas of the organization so the value is well presented. The program should also address how to improve the effectiveness of the operations through defined process improvement via planning.
4. Evaluate solutions with proper criteria – After establishing operational performance targets, executive sponsorship and a program, evaluate your solution options. When deciding on your approach, look at the different approaches as outlined. Establish good evaluation criteria and ensure the program will be timely and responsive to the organization. Vendor viability and consolidation in the market has changed the landscape quite significantly and all options should be evaluated, from existing to new suppliers.
5. Operational performance planning solution adoption – The final step is ensuring widespread operational adoption to reach your objectives. This requires an understanding of how to minimize interruptions to the business, culture and technology.

These steps lead to the ultimate goal of increasing efficiency, effectiveness and alignment of your operations. Through a simple operational-wide approach you can quickly transform your people, processes and systems in an efficient manner.

Your Opportunity to Seize

Adopt operational performance planning that spans organizational areas with a more focused link between the people and systems for performance management. Unfortunately your current process and systems within finance, sales and operations are probably not ready to meet your specific requirements for performance improvement.Embracing an approach that can provide a unified operational performance planning process is an essential first step.

Understanding the potential outcomes and impact to the people in the organization with operational performance planning is as important as setting goals and objectives or measuring and monitoring execution. Driving change in an organization to adopt a new management and performance process is as much about people as it is about the organization. Your outcomes will depend on it and can either drive improvement or continue your chance of degradation to performance targets.

This allocation of time and resources has a direct correlation to the level of investments in underlying systems to automate the management and performance processes. Reducing the risk of potential unused inventory or unprofitable operations can be achieved through the evolution of S&OP to leverage performance planning processes that enable operational performance management.