Insights / Supply Chain / Article

How to Set Up S&OE in Supply Chain Planning

August 30, 2019

Contributor: Sarah Hippold

Supply chain planners should set up a distinct S&OE process to better execute on S&OP plans and optimize costs.

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The game of golf consists of two distinct parts. In the long game, you try to reach the green with as few shots as possible. In the short game, the goal is to place the ball in the cup. Each phase requires different tools and a distinct way of thinking.

The same is true for supply chain planning: Sales and operations planning (S&OP) focuses on a tactical horizon from 3-24 months and has completely different objectives than sales and operations execution (S&OE), which covers the near term. Many supply chain planning leaders don’t consider S&OP and S&OE as separate processes, and therefore end up with a mix that doesn’t work well for either planning or execution.

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“Imagine playing a golf course with only one single club,” says Marko Pukkila, Vice President, Gartner. “The ball will eventually find its way to the bottom of the cup, but you certainly won’t win a tournament, and nobody would consider that a game-winning strategy.”

“ S&OP meetings should not include any time discussing operational issues”

A good way to think about S&OE is to picture a middleman that receives, interprets and forwards information between the operational and strategic levels. On the one hand, it breaks down the strategic input from S&OP into detailed instructions that can be executed in daily business. When the results of the execution come in, S&OE filters out all redundant information and makes sure that leaders receive a crisp screenshot of reality to compare to the plan. 

Separate S&OE and S&OP

The default scenario in most businesses is that the S&OP process contains S&OE content. This situation is not ideal, as both processes have different goals and requirements and should therefore be separated. The first step for the supply chain planning leader is to identify the S&OE content in the S&OP process and move it to a separate agenda.

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As a rule of thumb, anything that covers the near-term horizon, commonly 0 to 3 months, is S&OE. It deals with all the issues stemming from actual demand and supply — the reality of supply chain that is never as polished and refined as the S&OP plan.

Set up a meeting

The usual meeting frequency for S&OP teams is once a month, which is not frequently enough for the operational day-to-day issues of S&OE. The most common S&OE setups are weekly or bi-weekly cycles that enable immediate course corrections and granular fine tuning.

A separate meeting for S&OE issues declutters the S&OP meetings and helps team members focus on their main goals — to provide a monthly bottom-up checkpoint to see if the business is on track to meet its objectives and create strategies and tactics for the upcoming months and years.

“S&OP meetings should not include any time discussing operational issues,” Pukkila says. “The only exception is when day-to-day issues are so big that their impact alone can make or break an annual plan — events such as earthquakes or floods.”

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Leverage the benefits of S&OE

In every business, the execution details are crucial. Plans are realized as actual orders are received from specific customers due on a certain date. When those orders are repeated every day and week, S&OE ensures that plans laid out in S&OP are executed in an orderly fashion. Due to the increased meeting frequency, unexpected or unintended developments can be spotted quickly. 

In short: S&OE makes things run smoothly, which means operational costs should be at an optimal level. And because disturbances are spotted and addressed quickly, the risk of overspending declines. In supply chain, there are always fires to put out, but S&OE is uniquely equipped to keep them well contained.

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