The Integrated S&OP and S&OE Process
Robin Hornung - March 30, 2021
What's the difference?
Sales and Operation Planning (S&OP) is the process where all business planning comes together. This process includes customer service, sales, marketing, development, manufacturing, sourcing, and financial planning, melded together into an integrated set of tactical plans. The S&OP process prepares management to lead their business on the path of success, meeting goals, and achieving sustainable competitive advantages. A survey reported that 70% of companies have adopted S&OP practices to improve forecasting and planning. With this implementation, these companies will likely see reduced inventory costs, higher overall profitability and improved ROIs on any investment. Statistics speak for themselves – S&OP is a necessary and beneficial process for any organization.
Sales and Operations Execution (S&OE) is a process companies have always used to elevate the production and sale of products. While this is old news, what is new is that it's becoming integrated with the planning process and therefore will run smoother, meaning fewer inventory adjustments, less sales cost on incentives, and less adjustments in the supply chain. It is the integration of S&OP and that is the key to success, especially with the rise of Industry 4.0 systems. While S&OP focuses more on monthly or quarterly plans, S&OE drives daily and weekly supply and demand fluctuations. This can be achieved by developing real-time and highly-visible capabilities, allowing supply chains to monitor short-time operational goals closely. S&OE plans will give you a platform for building your S&OP processes, so make sure they are connected and support one another's goals. This ensures that your long-term goals are matched with daily operations and thus achievable.
The integration of both S&OP and S&OE will create business plans that outline the allocation of critical resources needed to fulfill the supply and demand needs of both the customer and the company. It is important to remember that these processes are built off one another, so it is vital that they are conducted cohesively and integrated into your supply chain.
The balance of supply and demand is a challenge faced by every organization. Even for established businesses, customer demands are continuously changing, so they must have a system in place to manage operations per these demands. In response to this, most manufacturers need to perform multiple use cases, some of them supported by specific S&OP software, some of them executed more manually. The use of innovative planning software and the maturity of the planning process is a typical chicken and egg case, but it should be the smart process driving the requirements concerning the supporting tools. In the end, the software should encourage integrated planning and as S&OP spans across the entire supply chain, it is vital that the systems you implement are integrated with one another, and the supply chain as a whole.
First and foremost, nowadays your S&OP process should include product planning functionality followed by sales forecasting functions. Frequent questions supply chain managers ask is “which product do we sell when, in which market, in which volumes, and which product do we produce when, where, and at which volume?” Sounds tricky? It is, especially for mass products with high variants, but forecasting software will support you in finding the best answers to these questions. For supply chain operations, it is vital to have accurate demand forecasting for upcoming years to maintain your supply. Especially when investments in resources are needed in upcoming years, solid demand plans would form the basis to lay out the capacities of these resources. And no matter how in-depth the plans are, unexpected demands will unravel these efforts which makes it necessary to actively plan for flexibilities which then form the boundaries for any future plans all the way down to the execution processes.
Especially with Industry 4.0, with AI and advanced analytics, we mainly discuss highly innovative forecasting functions which make up the intelligent solutions. But in reality, the key to success is to bring together all this information, which is available on totally different levels, for specific markets, and across specific products. And bring it together in a consistent way, making sure, the data can be integrated and once this rather not so spectacular system design challenge is solved, then the fancy stuff like trend analytics and advanced analytics algorithms can all be integrated and be used in a valuable way., And it should be done in exactly this way because forecasting is the platform for all S&OP and S&OE processes, advanced solutions such as these are essential. The bottom line is that your plans are only as valuable as the accuracy of your predictions, so ensure that they are precise.
With access to accurate forecasts, we can move further into the planning process, which entails matching supply and demand. This requires an understanding of the capacity and production flows of your supply chain. With optimized S&OP software, you will obtain detailed planning, consisting of visualizations of hypothetical orders, allowing you to convert expected demands into production sequences and part demands for the supply network using the bills of materials (BOMs). This process combines in the context of integrating S&OP and S&OE the big picture of production planning with intelligent production ordering for ideal market stocks in terms of inventory and product mix. This detail provides end-to-end visibility, which will in the most mature stage translate beyond the production line, optimizing your supply chain as a whole. This will significantly help you in S&OE planning, translating your long-term goals into daily and weekly tasks that contribute to the bigger picture.
We mentioned having the capacity to visualize hypothetical orders. This is an extremely valuable tool in both the S&OP and S&OE processes, allowing you to manage orders proactively and optimize demand planning. While only successful with accurate forecasting, a system with order generation capabilities will enable you to create orders before customers have made them. Once actual orders come in, you can insert them into your existing production line with only minor changes, optimizing the speed and efficiency of your production line. In addition to reducing processing time, such visibility and proactiveness will give you the time and clarity to identify necessary adjustments within the supply chain, offering optimal resource allocation. For many often smaller markets, the centrally generated planned orders can be converted into actual orders and like this provide smart planning methodology also to less sophisticated markets.
With all the data and information you have collected up to this point, it is paramount that you understand it to use it efficiently. With user-friendly dashboards equipped with monitoring and reporting features, you will receive real-time supply chain visibility, allowing you to get the maximum value of your supply chain technology. Wrapped up with a neat bow, you will be able to visualize planning parameters and forecasts, adjust plans, and analyze and comprehend output data. Additionally, this will ease the data sharing process, allowing you to quickly transfer information to relevant stakeholders, keeping them in the loop.
With all the features we have mentioned, it may seem like a lot to manage at once, and it can be. For this reason, your S&OP and S&OE systems must have interoperability capabilities. These capabilities will ensure that your planning and operating systems can connect each step of the supply chain and the technologies and processes within each stage planning for the required capacities at all points on the supply chain through better forecasting. For complete visibility, however, you need solutions that will connect each software utilized by your organization all the way to the last mile - a major aspect of integrated planning.
Best Practices for Integration
S&OP and S&OE software will optimize your supply chain, especially if you choose to implement the ones specified above. At the same time, it's important to remember that these are the processes embodying the technology you utilize – so there is some work you must do before you can integrate.
First, look at your supply from an end-to-end perspective, starting with mapping out product structures and network models. This involves defining who is responsible for each step of the supply chain process and what that responsibility entails. The business planning software you implement will likely aid you in this step, but it is still important to receive input from stakeholders within the supply chain. Following this, take advantage of the forecasting and automation technologies in your possession. This will increase the likelihood of your production capacity matching with actual demand accurately, thus giving you a sense of how to adjust accordingly. Utilizing the S&OE process you have in place, you will be able to coordinate your short-term planning with the long-term planning of S&OP, resulting in continuous progress on your goals.
Every organization will benefit from carefully integrated S&OP and S&OE processes, especially if supported by accurate forecasting, visibility, and a core component that is capable of integrating all the data on different levels into a consistent planning database. Using these tools, you will lower inventory and supply chain costs, meeting your customers’ demands with ease. Integrated planning requires communication and cooperation throughout every department in your organization, so you must look at every stage of the supply chain process through a holistic lens. With accurate and detailed planning in the S&OP and S&OE processes, your organization will become a master of supply chain efficiency and pave the road to success.