On Integrating S&OP and S&OE
Nick Ostdick - August 15, 2017
Understanding the relationship between S&OP and S&OE is akin to the novel versus the short story. With the novel, an author more often than not takes the long view of the narrative, spanning large swatches of time with a multitude of characters in order to tell a fully-realized, fleshed-out, and satisfying story. On the other hand, a short story is a much more compressed form of narrative where the author focuses on one, two, or maybe three characters in a more narrow window of time with a specific set of themes, tropes, or conceits in order to give the reader a mere glimpse into the lives of those inhabiting the story.
Both of these narrative modes rely on similar principles of storytelling, but they deploy those principles in slightly different ways for a desired impact - the novel a more long-term, wide-ranging look at a world, and the short story a more compact, micro view of characters, situations, and contexts. The similarities and differences between the novel and the short story mirrors essentially the relationship between S&OP and S&OE in today’s global manufacturing and supply chain. S&OP allows manufacturing companies to create integrated demand planning between sales and production teams for the short to mid-term (the novel game) while S&OE gives planners and managers the capacity to examine their supply situation on a more micro level (the short story).
When working synergistically, S&OP and S&OE provide companies with an enhanced level of agility, transparency, and responsiveness in each aspect of the planning process in the short, near, and long-term.
While S&OE and S&OP contain some important differences manufacturing companies must understand to effectively leverage the advantages of each strategy, the real value proposition comes from integrating S&OE and S&OP into a unified platform. With this in mind, let’s examine the definitions of S&OE and S&OP and how companies fully realize the potential of each to enhance their operations.
Defining S&OP and S&OE
If S&OE is understood as the short story in our analogy, how do we concretely define this concept in the context of manufacturing and supply chain logistics? S&OE comes as something of an ultra-zoom feature on the camera for close inspection of weekly supply chain planning practices which can also be a key indicator as to the viability of S&OP or annual planning. Essentially, 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. In addition, whereas S&OP 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.
On the other hand, the purpose of S&OP is to look ahead by several months. The time frame may vary by industry, but it's usually three to 18 months. S&OP leadership works within the framework of long-term business goals, aligning its objectives accordingly. Meanwhile, S&OP also provides crucial information for setting those long-term goals because the supply chain has such impact on operational costs and profitability. The S&OP process, then, is integral to effective business planning, both in the long term and shorter term.
S&OP software solutions not only automate data mining and reporting for immediate analysis and distribution to those throughout the manufacturing and supply stream, but these systems also centralize data entry and reporting points; reduce waste in time and resources associated with manually gathering and compiling data; and allow for real-time reporting to help manufacturing and supply managers make in-the-moment, cost-effective decisions from inventory to retail settings.
In essence, a well-conceived S&OP strategy and solution makes it easy for the left hand to talk to the right, and for those within the supply network to review and analyze such potential pain points as pricing and cost data, marketing plans, financial targets, and more.
Integrating S&OP and S&OE strategy
While it’s easy to simply compare and contrast S&OP and S&OE to highlight the ways in which planners and managers can leverage each platform independently from each other, the more interesting and valuable question is how can manufacturing companies integrate these concepts to draw greater combined value? How should companies combine S&OE and S&OP strategy to leverage more efficiency and productivity rather than deploying each platform on its own? The following steps will help your S&OP team successfully move toward this new model.
Establish an S&OE process that supports the S&OP cycle. This usually doesn't require starting from scratch. Examine your current S&OP cycle and identify all the activities that should fall under the S&OE umbrella. Any activities dedicated to the next zero to three months should immediately be moved to S&OE. The S&OE list should include demand planning tasks like tracking daily orders against monthly totals, along with comparable tasks on the supply side.
Determine a frequency for S&OE leadership meetings that supports and encourages operational execution decisions. Most supply chain leaders quickly realize that monthly S&OP meetings are not enough to manage daily operations. Instead, the S&OE team should plan to meet once each week. Consider setting this meeting at the end of the week, so the team gets an accurate view of the current week, while still able to make corrections for the immediate future as needed. Treat these meetings as a forum where S&OE leaders can address short-term concerns, and where other business leaders can come to obtain a snapshot of what's happening on the supply chain.
Synchronize S&OE with long-term business planning. One key benefit of removing S&OE from S&OP is that then both activities can contribute to strategic business planning, but only if timing is right. Once you've created an S&OE schedule, use long-term planning meetings to set your S&OP meeting schedule. Led by finance, long-term planning meetings often occur at the beginning of the month. Work backwards from these dates to set S&OP meetings, so that you can show up prepared to provide actionable S&OP insights and data. This will raise visibility of the supply chain and — always important in the age of Industry 4.0 — foster more strategic alignment across company functions.