How S&OE Reduces Supply Chain Costs
Nick Ostdick - April 06, 2017
Today’s global manufacturing supply chain is rapidly evolving and maturing thanks in large part to globalization and the advancements in technology and supply chain theory. As a result, manufacturing companies are tasked with competing in new and emerging markets often times with the same or limited amount of resources and manpower.
This is where S&OE (sales and operations execution) can be an extremely important value proposition for companies in reducing costs associated with their supply chain management. In alignment with lean manufacturing and supply principles, S&OE provides companies a method of checking the pulse of their overall supply situation in order to make critical adjustments for short, mid, and long-term success and viability. And because much of S&OE relies heavily on core industry drivers such as Industry 4.0, digitization, and other technological platforms, companies who embrace S&OE can often see significant enhancements of processes across other touch points of their value chain.
How exactly does S&OE help manufacturers reduce costs? What are the critical pain points companies must address in leveraging a S&OE platform? What is the end result of deploying an S&OE strategy? These are the questions and concerns we’ll examine as we discuss how S&OE can reduce supply chain costs and enhance their value in competitive, variant-rich industry.
S&OE: A definition
Before we can explore how S&OE can help companies reduce supply chain costs, we must first operate under a fundamental understanding of S&OE and its place in a global supply chain management. As defined by Gartner, S&OE functions as a quick, short-term snapshot of the overall supply chain situation for planners and managers to make vital course corrections on a weekly basis to better create long-term strategies. S&OE acts as a demand planning supplement or safety net to detect the possibility of bottlenecks or breakdowns in larger-scale planning platforms. This in turn allows planners and managers to create and deploy solutions to these disruptions to enhance each touchpoint of a company’s overall value chain.
In addition, whereas more traditional S&OP strategy and annual planning often deal in forecasting, simulations, and other hypothetical supply and production scenarios, S&OE tracks actual demand and production metrics in real-time for a more accurate picture of the demand and production stages. By monitoring actual demand and production data via real line items and data, S&OE provides planners and managers an early warning system that helps ensure smooth production cycles in the mid and long-term. This also allows planners and managers to avoid costly bottlenecks or production breakdowns in the mid-range future by combatting issues today that could snowball tomorrow and beyond.
S&OE as a cost reduction tool
Now that we understand S&OE as a critical element of demand planning strategy, we can examine S&OE as an important tool in cost reduction and enhancing lean, streamlined manufacturing principles. Because S&OE provides planners and managers with a glimpse of current supply situations in order to make adjustments in longer-term planning, the term ‘micro-agility’ is often applied to S&OE as it gives companies the maneuverability to effectively respond to sudden disruptions such as late shipments, inaccurate forecasting, or demand planning errors. S&OE also works to eliminate waste and reduce additional costs by:
Combating supply chain volatility. Supply chain management in today’s global context is by nature a volatile business. S&OE and its ability to assess essentially in real-time the state of the supply chain and compare forecasts against actual operations provides companies with the responsiveness necessary to make in-the-moment adjustments and modifications to planning and production programs to cut complexity and combat a number of elements of volatility, such as bottlenecks, inventory overages or shortages, and transportation or routing concerns. S&OE provides companies the agility to improve scheduling accuracy and consistency, reduce waste of raw materials and resources, and provide enhanced levels of production and customer service without the need to expedite or reschedule orders to meet demand.
Increasing end-to-end (E2E) visibility. Because S&OE provides a window into the weekly supply chain situation, planners and managers can essentially work backwards or forwards in the demand planning process to increase visibility across the supply stream on a number of levels, be it daily, weekly, monthly, or even yearly. This structure elevates the supply chain and makes it easy for individuals across the value chain to expose weaknesses or inefficiencies at any stage of the process, which in turn makes supply chain streamlining and optimization a much easier and effective end result to achieve. In addition, because S&OE operates largely on real-time data rather than forecasted or predicted outcomes, companies are better equipped to make modifications or adjustments to planning and production programs based on variable rules and restraints, thus allowing for enhanced visibility into the inner workings of a company’s supply network.
Allowing for advanced analytics. We discussed before on this blog about the value of advanced analytics in fostering lean supply chain management strategies and putting mountains of data and reporting to good use for more effective, accurate planning. Because advanced analytics operate primarily in real-time and provide planners and managers with an immediate window into supply and production cycles, S&OE functions in perfect harmony with advanced analytics in giving planners and managers an outlet for massive amounts of real-time data and metrics. Essentially, advanced analytics is the gasoline for short-term planning and modifications to production programs while S&OE is the car that requires the fuel.
Simply put, S&OE is quickly moving from an interesting concept or idea in global supply chain management to a necessary value proposition for companies to leverage productivity, growth, and profitability. By helping companies reduce operating costs, S&OE provides manufacturing companies with a vehicle for maximizing ROI and enhancing their operational platforms.