Parker Hannifin Up to Complex S&OP Challenge
By SCDigest Editorial Staff | SCdigest.com
Company Working to Bring Standard Planning Process to more than 140 Decentralized Global Divisions; Insights from S&OP Expert Robert McAdoo
How do you create a successful Sales & Operations Planning process across a very large global company that has experienced rapid growth in the past decade, both organically and through acquisition, and operates using a decentralized business structure?
One division at a time, says Robert McAdoo, Vice President, Business Systems at motion and control technologies company Parker Hannifin, headquartered in the Cleveland, OH area. McAdoo has been working for several years toward rolling out an S&OP program across the $13 billion maker of valves, pumps and a whole lot more.
Parker is a company that has more than 140 divisions, with a culture that is highly entrepreneurial and decentralized, strongly committed to Lean and continuous improvement, and very focused on keeping inventories low and customer service high. McAdoo’s real challenge became convincing each division leader that adopting S&OP will not weigh his or her business down with process overhead, but rather provide a powerful tool that will help them reach the division’s objectives.
He said the goal of S&OP at Parker is simple: “To meet customer demands through the usage of the minimum amount of Parker’s capacity.” That’s a clear and succinct message to send to business managers regarding what S&OP should be all about. While as a company Parker was performing well, the reality was that the planning process at the division level varied dramatically from unit to unit, with many businesses maintaining the processes that were in place when they were acquired by Parker. The goal was to develop a standard and integrated approach to business and supply chain planning.
Parker began developing its new S&OP process in 2006. A year later, the work of moving forward with 8-10 initial divisions began. In general, the divisions usually start out with a sort of “S&OP lite,” to get them going, McAdoo says, and progress to more advanced processes over time.
More than half of the divisions have initiated their S&OP journey, McAdoo said, with more joining each month. A critical part of moving down the S&OP maturity curve at Parker is an increasing focus on the financial outputs from the S&OP process. That involves making sure there is not just the right balance between supply and demand, but that the plan also matches the division’s financial goals and corporate’s strategic targets. Some companies are calling this more fully integrated financial state Integrated Business Planning (IBP), but Parker prefers to stick with the term S&OP.
Along the way, Parker added Logility Voyager Solutions software to support the new approach to S&OP. That includes core demand planning software, manufacturing and inventory planning tools, and an S&OP workbench.
As divisions begin with the “S&OP lite” model, they move through the maturity curve, with a special focus on improving in the following areas:
- Overall process optimization
- Improved use of the available software tools (both Logility and select homegrown tools)
- Development of a “data-driven” culture
“We found that to really drive the P&L, we needed to truly nurture a fact-based culture,” McAdoo explained.
In the end, the company believes that with a mature S&OP effort across most of the company, it can reduce inventories 10-15%, improve customer service 1-1.5 percentage points, improve cash flow generation by 5%, and reduce the time it takes to introduce new products by as much as 10%.
Lessons for Success
McAdoo believes Parker is on a good track for meeting or exceeding the results the company expects from its S&OP journey. Here is a sample of some of the wisdom he offers on the keys to S&OP success:
- Focus on Being Able to “Turn the Crank”: In the effort to get S&OP up and running, companies often do not put enough focus on keeping it going after the company experts go away, McAdoo says. The ability to keep turning the “S&OP crank” month after month to achieve true repeatability of the process is critical, he notes, but nevertheless companies tend to not put enough focus here.
- Work to Develop “True Believers”: Champions of S&OP are absolutely needed for success, McAdoo says. The way to win the hearts and minds of the business team is by preparing a clear communications strategy. That means not only quality pre-prepared materials and comprehensive internal communications, but developing those materials at multiple levels. For example, McAdoo recommends having a basic S&OP elevator pitch for quick, informal interactions, a 10-15 minute executive overview that focuses on the likely benefits, and an hour long presentation for the team members that will actually be involved in the process.
- Leverage the Extended Company Team: A network of S&OP experts from divisions in the company who, along with a very few outside consultants, will support the roll-out of S&OP in new divisions. He adds that Parker has several “model” divisions that serve as the best practice repositories and also as the pioneers for changes to the S&OP process or technology support.
- Adopt “On-Purpose” Inventory Management Thinking: Many companies maintain levels of inventory that are simply beyond what is needed to reach customer service goals, McAdoo says. It is important to really understand what the role of inventory is in the company, and very explicitly match inventory levels and service goals. The result will usually be to find excess inventory that is not required and can be removed with no impact on customer service. He also believes that companies should manage inventory at and across each level of the supply chain, down to which SKUs and configurations should be held at each node in the network.
- Embrace a “Planner to Planner” Mentality: A real win for a company, both in terms of customer relationships and supply chain success, is achieved when Parker can get its planners directly connected with the corresponding planners of its customers. “The result when that happens is almost always a positive one,” McAdoo explained.
- Don’t Try to Get Salespeople to Make Detailed Forecasts: Many companies try to turn their field salespeople into forecasters, often all the way down to the individual SKU level over some forecast period. That is usually an inefficient use of time and effort, McAdoo says. Salespeople, and even marketing managers, are not always experts at forecasting. So, it’s good to have sales reps/account managers review forecasts to make sure nothing is obviously off target, and to develop a process that provides qualitative input on factors that the system simply may not be able to capture relative to demand.
Parker’s experience has shown that with a plan focused on meaningful business results, combined with the right technology support, and real insight into what it takes to be successful, any S&OP challenge can be overcome.