You can’t turn on the TV, open your internet browser or read a business periodical without seeing something new about corporations missing their objectives due to supply chain disruptions and demand swings. The pandemic, inflation, and the war in Ukraine placed exponential variabilities on existing business processes that continue to get more and more complex with each passing year.
Many of these struggles are encountered when there is no formal integration between mid- to long-term corporate planning and boots-on the-ground, tactical execution activities. Given the different integrated planning processes already utilized by companies, do we need another business process (and yet another acronym)? Like all complex and nuanced questions, the answer is “it depends”. If the organization currently has mid- to long-term strategic plans aligned, integrated, and achieving their company objectives, the answer is a straightforward “no”.
For businesses struggling to achieve their goals during the last two years given the challenges described above, however, an additional formal practice to align their approaches to tackle these headwinds would be an enormous help.
The industry term for such a process is Sales & Operations Execution (S&OE). Over the last few years, S&OE has been increasingly written and talked about in the planning community as it successfully addresses the pain points most companies have been facing. At the same time, many business practitioners think this is another unnecessary, consultant-derived acronym designed to sell consulting services.
As a non-consultant working in the trenches of planning, I ask such sceptics to reflect on the current global factors weighing heavily on the operational efficiency of companies such as Apple, Microsoft, Amazon, Tesla, and others. The problems these companies are experiencing are well documented and no doubt all too familiar for anyone in a supply chain or planning role.
What are the Differences Between S&OP/IBP & S&OE?
The simple difference between them is that S&OP/IBP is the high-level, 3 to 18 months ‘planning stage’ for an enterprise, business unit, or product family. In contrast, S&OE is the ‘transactional stage’ running anywhere from a week to a few months.
S&OE is where sales orders are entered, product jobs are released, POs are created, and intercompany transfer orders are issued, among other things. For ERP specialists familiar with MPS/MRP planning horizon terminology, the S&OP/IBP planning covers the long-range Fluid stage back into the Slush period, and then S&OE is the Slush order creation period, moving into the Frozen segment.
The goal of the S&OE processes is to assist in achieving organizational objectives and financial commitments. This is done by identifying variances as they begin to emerge and addressing them within the weekly short-term cycles, instead of waiting for the monthly planning meetings. These S&OE processes and their supporting performance measurements aim to deliver on the S&OP/IBP plan by identifying short-term gaps and deciding on methods to address them.
Gaps can include plan disruptions due to supplier shipping delays, customer demand spikes and troughs, production throughput shortages, system planning parameter errors, logistics barriers, and warehouse storage constraints, to mention just some of the more common ones that have arisen recently amid the pandemic. Many companies have weekly — or even daily — tactical department meetings. Still, these are usually not cross-functional nor are they formally communicated to strategic planning, thereby failing to manage unplanned disruptions.
This lack of alignment tends to cause the mid- to long-term strategy (S&OP/IBP) meetings to spend significant time focusing on short-term, tactical firefighting instead of the mid- to long-term planning requirements needed to get out of these types of situations.
I like to sum this up by telling colleagues: “It’s a challenge to plan your way out of tactical problems and harder to execute out of the planning ones.” This is because without the appropriate mid to long-term forecasts, capacity supply plans, and other strategic business planning elements in place, it’s difficult to have the required downstream inventory to support the organizational objectives. Due to this, both elements are required to have a competitive advantage within today’s dynamic environment.
How Does S&OE Integrate With S&OP/IBP?
Let’s walk through an example and see how S&OE integrated within a mature S&OP/IBP process will drive enhanced responsiveness and value for an organization. Imagine you’re in a leadership role of a craft beer manufacturer in the current environment. In 2022, you’re facing cost increases and shortages of critical raw materials of CO2, glass bottles, and aluminium.
With a mature S&OE process in place, you will pick up supplier price increases and delivery delays upon the purchase order confirmation entries within the ERP system. Analytical reports from this confirmation data will quickly inform the different cross-functional teams of the risks to the S&OP/IBP and financial plans, and which ERP parameters need to be updated for major variances before the purchase orders are even received at your facility. Reports from the planning tool will quickly inform the different cross-functional teams of the risks to the S&OP/IBP and financial plans, and which ERP parameters need updating.
Proactive use of Pareto-based analysis tools allows you to prioritize items that need to be addressed first; if supplier costs increases, the S&OE can assess what price increase the market will stand, and in the case of longer than expected lead times, alternate suppliers can be sourced. The S&OE team will leave longer-term risks and opportunities and overall cost and lead-time reductions to the S&OP/ IBP team
Companies are Ripe for Change
As Albert Einstein said, “Insanity is doing the same thing over and over and expecting different results”. Experiences of global leaders confirm that getting people to change and adopt new ways of thinking is one of the biggest barriers for middle managers when rolling out or upgrading a new S&OP/IBP or S&OE process.
Most company cultures have been formed over decades, requiring major disruptive events or changes within the top-level management to realize significant shifts in behavior. The positive news for those companies interested in implementing these changes is that the current business environment, with its major disruptive events, has driven many executive teams to move away from the old-school, siloed mindset.
COVID has forced an appreciation for both tactical and mid- to long-term planning, making businesses ripe for adoption of new processes. To close, do not worry about the acronyms referred to in this article (there is no correlation between what you call your planning process and its success). Instead, focus on whether your company has a process that brings different functions together to help your organization leverage its competitive advantages within your industry.