I remember the day very clearly when I read Donald J Wheeler’s book “Understanding Variation – The Key to Managing Chaos.” What grabbed my attention was the sterility of the traditional monthly report and, furthermore, the potential for it to be truly misleading.
Let’s consider what is usually provided to managers prior to and, worse, at meetings designed to help them steer the business. The S&OP is one example of such a meeting. Do any of the following describe typical reports in your business? If so, read on!
- Tabular rather than graphic
- Binary comparisons with plan and/or budget
- % difference between current period/month with last period/month
- Units which are not the “common currency” of those attending
- Little or no narrative
- No historical or future context
Few people can absorb real meaning from data presented in tabular format – it is difficult to process and tends to focus the reader on the largest numbers, whether they are positive or negative, important or trivial. Appropriate graphics showing historical trends gives considerably better insight, but even better when overlaid with the forecast and plan.
The inherent bias in the review process created by reviewing tabular data sets is then compounded by making comparisons with plan or with budget. A comparison of sales numbers for, say, September 2009 with the budget created from forecasts made in September 2008, adjusted and phased politically seems to me to be rather pointless! Additionally, using percentage movement rather than absolute change can, as we all know, be very misleading.
Thinking about the S&OP; data is often presented on last month’s sales volumes in SKU’s, inventory in weeks cover, working capital, line capacity…….as a Marketing Manager, I’ve just nodded off and will find a good reason not to attend next month! The challenge is to present the same core data in the units understood by all attendees: $, €, £, or ¥ for Finance and Marketing and volume, SKU’s, weeks cover etc. for Manufacturing folks.
However, the main issue here is “context.” How much more informative would the data be if it was presented in a way which showed historical trend, future trend, historical variation, the forecast, the trend through the forecast numbers, the gap between current trend and plan/budget and the required performance to close any gap? Clear graphical presentation of exceptions is essential to focus the meeting and decision-making process.
Supporting documentation should include a narrative covering commercial intelligence and explanations for historical and forecast changes in trend or variation and, where available for any exceptions. This narrative should also include commentary concerning the tactics used to close any gaps and likelihood of success.
If any of these ideas resonate with you, please attend my session at the IBF’s Supply Chain Forecasting & Planning Conference: Europe in London 1st-2nd February 2010 – see you there!
IBF Board of Advisor
Rivershill Consultancy Ltd. (United Kingdom)