Can S&OP Become More Continuous? Automation is Key.
Sales and Operations Planning (S&OP), a process often focused around a monthly meeting, is evolving into a more continuous process. A recent whitepaper by supply chain planning and optimization firm Optilon explains why and how.
S&OP is a process where decisions are traditionally made once a month as a part of an executive review. But the infrequent nature of the decision making often leads to a gap between S&OP and operations. As Optilon says, “The S&OP process starts ‘living its own life’ while operations struggle with the day-to-day realities of managing demand and supply in an unpredictable environment.” Or as Gartner Research states, “The No. 1 challenge among manufacturing companies is connecting sales and operations planning (S&OP) to operational plan/execution.” (Set Up Sales and Operations Execution Process to Support the S&OP Cycle, January 2016).
Problems arise when S&OP and supply chain planning (SCP) are developed separately plans, with little interconnectivity or overlap. Therefore, having a single more unified process that spans the different time horizons is very important. Gartner created a term called Sales and Operations Execution (S&OE), defined as the “capability that bridges this challenge by building a critical missing piece that connects the higher level plans to execution through S&OP.” Because S&OP can’t realize its value without a strong, ongoing follow-through; S&OE earns its keep by linking tactical planning with granular execution. It’s near-term, Gartner says that detailed actions on the supply chain provide a “checkpoint for the supply chain and business leaders to ensure that the reality and plans remain aligned.”
The S&OE charter is to compare demand to forecast and make sure production can deliver—via fast operational pivots like inventory buffers, lead times, and asset utilization. This visibility also helps the business determine if the sales and operations plan is working. Gartner says that without a good connection between planning and execution, many companies needlessly overact to short-term volatility. S&OE offers a dampening effect.
With Optilon’s approach, “The S&OP process does not have to be executed every day, although you would have the capabilities to do so. Each company can decide to arrange their S&OP meetings according to their preferred frequency as usual, but the data required for an S&OP meeting will be available whenever it is needed. Thus, if for instance an ad hoc S&OP meeting is required due to a crisis or similar, the required up to date data will be available.”
Optilon calls this concept “Continuous S&OP”. As opposed to a monthly S&OP process, it is deﬁned through its ability to support decision making at any point in time, utilizing ”always up-to-date information”. It is accomplished via a holistic architecture that supports demand, supply and production planning, as well as review with relevant stakeholders such as ﬁnance.
Automation lies at the core of this architecture. Many tasks that were previously done manually, are instead supported by automated solutions. Focus is shifted from manual work, such as keying in numbers or trying to assess trade-offs in spreadsheets, to value-added work that bridges the gap between planning and execution.
In their whitepaper, Optilon looks at the problem from the perspective of three major SCP processes – demand planning, supply planning and production planning.
- Demand Planning – The key is to start with an automated statistical forecasting process where a large quantity of stock keeping units with particular demand complexities, such as campaigns, eliminating the artificial divide between “planning” and ”execution”.
- Supply Planning – They say that in complex environments the number of alternative outcomes is often measured in the hundreds of thousands. The key is to automate underlying calculation to shift the focus towards analysis and what-if planning.
- Production Planning – The crucial distinguishing factor in near-term production planning is the ability to automatically create an implementable production plan that accounts for constraints and rules in production, as well as material availability. This capable-to-promise ability allows for decision making on customer prioritization, if so required.
Automating the S&OP process allows for faster decisions, less manual work, and more informed decisions yielding improved KPIs. Integration and up-to-date information bridge the gap between planning and execution, and between monthly S&OP meetings and continuous day-today planning. This keeps the supply chain out of firefighting mode, smooths relationships with customers and suppliers, and helps sustain margins by reducing expediting and other short-term reactionary responses.