S&OP and S&OE: A Symbiotic Relationship
Kristin Masters - November 08, 2016
How often do your supply chain plans exactly match what happens in reality? Chances are, there's often deviation; even the most robust Sales and Operations Planning (S&OP) process cannot account for every eventuality.
That's where the Sales and Operations Execution (S&OE) has proven crucial, providing a process for addressing the daily complications of supply chain management and ensuring alignment between the strategic plan and execution. Indeed, effective S&OP and S&OE cannot exist without one another, and the most successful supply chain managers acknowledge and exploit this symbiotic relationship.
The Difference Between S&OP and S&OE
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&OE often gets rolled into S&OP because it can be seen as an extension of S&OP. The S&OE process, however, focuses on a much more immediate time frame, usually zero to three months. Again, this period may vary in different industries based on manufacturing load times. S&OE leaders concentrate on operational concerns that occur at the level Master Production Schedule (MPS), reconciling the plan laid out by S&OP with actual daily demands on the supply chain.
S&OP Alone Isn't Enough
Since the ideal plan rarely comes to fruition, it's impossible to achieve effective S&OP without S&OE. Yet the conventional approach to supply chain leadership doesn't acknowledge that S&OP should be completely distinct from S&OE, leading to several potential pitfalls:
- Daily supply chain volatility is magnified: Without a distinct process for proactively handling these short-term fluctuations, S&OP leaders often slip into "fire drill" mode, overreacting to changes in ways that add cost to the supply like rescheduling production and expediting raw materials.
- The S&OP process breaks down: When the line between S&OP and S&OE is blurred, the focus gets lost. Usually this manifests as S&OP meetings that are increasingly dedicated to addressing execution challenges, rather than looking forward.
- S&OP loses its value as a strategic business planning function: As S&OP gets mired in execution, business leadership loses focus on key supply chain metrics such future unit volumes and supply chain costs. Overlooking these metrics can easily lead to making the wrong trade-off decisions.
Treat S&OP and S&OE as Separate but Equal
For these reasons, manufacturing industry leaders now recognize the importance of creating a separate S&OE process — one that's coordinated closely with S&OP, as the two cannot occur without one another. Developing an independent but related S&OE process yields multiple significant benefits:
- Tactical planning can be executed consistently: S&OE "translates" S&OP goals into real activity, bridging the gap between best-case hypothetical scenarios and what actually happens on the supply chain each day. The process effectively mitigates supply chain volatility and contributes to schedule stability.
- Supply costs are more effectively controlled: S&OE supports proactive supply chain management, reducing the need to reschedule production, use outbound priority transportation and expedite raw materials.
- S&OP efforts can focus on the future: Once a distinct S&OE protocol is in place to handle day-to-day supply chain operation, S&OP leadership can focus forward and build a strategic plan that aligns with and contributes to business goals.
The Path to Separating S&OP and S&OE
Industry emphasis on S&OE is relatively new, and research is emerging about the best ways to develop a robust S&OE process that dovetails with, but is distinct from S&OP. The following steps will help your S&OP team successfully move toward this new model.
1. 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.
2. 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.
3. 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
While adopting a distinct S&OE process may come with a few growing pains, it's worth the investment of time and resources. A robust S&OE cycle will result in more controlled costs, higher profitability and more strategic alignment across all business functions.