Over the last years, Sales and Operations Execution (S&OE) has created a name in the supply chain playbook. Many organisations have implemented at least some sort of process and most supply chain planning tools created sub modules specifically for handling S&OE.
The reason for this increase in relevance is understandable and can even be seen as a natural evolution. For example, many decisions that businesses need to take do not effectively fall within S&OP time horizons which typically evolve around monthly timelines (e.g. consider short term order allocations or deciding on short term resource constraints in your plant). Consequently, in traditional S&OP settings we often see that the short term issues kidnap the S&OP process which ideally has a focus on tactical decisions on the midterm level. Finally, multiple events have caused for rapid changing dynamics on the short term which needed to be managed directly. Covid has shown that being able to quickly respond to short term changes can have an extreme impact on performance. Moreover, these events increased short term uncertainty which resulted in many additional meetings to monitor events continuously and adapt when necessary. The war in Ukraine resulted in extreme price increases and uncertainties in grain for instance.
However, while the need for S&OE is valid, implementing such a process can still be rather complicated in order to become effective. Many topics need to be addressed while designing a high performing S&OE process. I will discuss some of these topics to provide guidelines in setting up your process.
It’s all about decisions
As a guiding principle, the business planning cycles should be centred around the most essential decisions that need to be made in order to effectively control supply chain performance. Here S&OP is often a monthly process while S&OE follows a weekly drumbeat where the decisions that you want to make on a weekly basis are reviewed. This requires a thorough understanding of which decisions can be made, what their impact is on supply chain performance and the frequency that you want to decide on these topics.
Effective supply chain management is making the right decisions at the right time. S&OP often focuses on demand, supply and capacity decisions on the mid-term which can be made on a monthly basis. S&OE also focusses on making sure capacity and demand are balanced but these decisions are much more focussed on the actual execution. One example is a company that needs to replace fuse boxes at households. Important here is to control the demand versus the available capacity on relatively short terms. A key decision is to decide how much informational letters are send out to households which allow people to make appointments. Another example is a chicken processing chain where the amount of chicken that enter a plant is decided by how many eggs you enter in the breeding process.
Additionally, it is interesting to consider which decisions you actually need to make at which moment. Traditionally, production planning works with certain frozen periods in the production plan such that operations can make preparations in time. However, with such a strategy it is difficult to still act upon changes in demand and optimize certain service levels. It might be that what production really needs is understanding what production wheel they need to produce. Consequently, certain volume decisions can be postponed and optimized just before production starts which can optimize service levels and stock on infrequent SKU’s. Mostly, there are a few mechanisms which require weekly decisions and have a high impact on performance. Identifying these is a great way to start and structure your S&OE process.
Time fencing
This is where it can become tricky. If we consider Gartner’s guideline for S&OE, the time fence that needs to be considered is 0 to 3 months. From 4 months onwards you move to the S&OP process. This guideline feels, to some extent, intuitive. Significant capacity decisions become more difficult in the short term. Nevertheless, it is not a clear case. Considering our discussion on decisions above, it might be that we want to make weekly decisions on things that impact our supply chain more than three months from now. We obviously take these decisions into account in our S&OE process. For example, in the cheese industry, ripening can have significant lead times to make sure the right maturity is attained. Production volume decisions can be made on a weekly basis which can be crucial because of high promotional pressures and late confirmations in the retail markets. It does not consequently mean that the S&OP horizons are pushed by this extending time fence and can therefore live alongside each other.
Finally, if a supply chain is super responsive, the focus on month 3 might be irrelevant and thus a waste of time and energy. Often food retail assume short lead times, and transfer a lot of complexities towards the producers. The take here is that while 0 to 3 months might provide an intuitive guideline, it is not a fixed truth. The dynamics of your supply chain decisions are the best starting point of your S&OE time fence focus.
People and IT
With the focus on the right decisions and an understanding of the time fence, your S&OE fundament already has solid grounds. Important to consider is who is able to make decisions and to what extent. In a weekly process you do not want to continuously bother top management to make the decisions. However, there are often valid boundaries to which point decisions can be made. By doing this you can improve speed and react quickly to changing market demands.
Finally, S&OP generally has a focus on more aggregated levels while S&OE processes are much more granular, leading to increased amounts of data and thus information. S&OE is also more reliant on short term information, e.g. actuals developments of supply or demand volumes. Having the appropriate IT systems that process data effectively and present that in such a way that it facilitates decision-making is extremely beneficial. Typical examples are order information, forecast consumptions, capacity issues or raw material blockages. Nevertheless, do not let this bother you when starting an S&OE process. Sometimes more is less, let the information specifically facilitate your most essential S&OE decisions and start from there.
In conclusion, the key message is that the decisions that your supply chain requires drive the fundaments of the S&OE process. Often, in a more execution oriented environment the decisions are less general and more specific. Moreover, S&OE is, just like S&OP, not just a meeting. The work before such a meeting, the process of making planning decisions, by who and with which information is often done before the meeting itself. Clarity on the decisions also makes the S&OE meeting more action oriented.
A well-functioning S&OE process improves your supply chain performance by structurally making informed decisions. The added value is even higher in times of big uncertainty. The structure ensures that it is already clear what the key focus should be, which eliminates the unproductive time of understanding what needs to be done. S&OE also aligns the right people within an organisation, which increases the velocity of actions. Therefore, having a well-functioning S&OE process is likely to mitigate risks of unforeseen events and thus contribute to your supply chain resilience..
