Closing the Gap Between Tactical S&OP and Operational Execution

A sales and operations planning (S&OP) process has its limitations. Forcing an S&OP process to close the gap between tactical planning and day-to-day operations too often leads to compromised results. The good news? There is a planning process that is specifically designed to bridge the chasm between the two. 

[Editor’s Note: In the wake of COVID-19, it is more important than ever to maintain a collaborative planning posture and develop the required capabilities and level of visibility needed to support decision-making. This post explains why S&OP and S&OE are two separate, but important, processes to do just that.]

Using S&OP to do a job it’s not meant for

We have helped many companies implement S&OP processes as part of our supply chain consulting services. In every project, we develop processes to generate tactical plans that are aimed at maintaining a demand and supply balance. However, the operations team often has trouble buying in. The S&OP team receives feedback such as, “Well, it’s nice to know, but not really useful,” “This is too high-level – we need more detail,” or “This looks out way too far into the future.”  

Because many operational issues are high-priority, they draw the attention of management, often leaving the S&OP process compromised. Little by little, the S&OP team finds itself attempting to support operations with a process that is not designed to deliver the level of detail that is required. As a result, they have less time for tactical planning to support executive decision-making. Eventually, the S&OP process becomes inept and unable to do a good job for either party.

Connect planning to operations via S&OE 

You can break this vicious cycle by implementing a supply and operations execution (S&OE) process. Acting as a link between tactical S&OP and Operational Planning, S&OE identifies deviations and acts on exceptions, when those deviations reach a defined threshold. S&OE needs to translate and disaggregate tactical plans, at a higher level of granularity, and have the ability to understand if and where the deviations exist from the standpoint of operations.

If it helps, here’s how S&OE differs from other supply chain planning processes:

Taking your S&OE process to the next level

Chainalytics has developed an S&OE maturity model with progressing levels, each one encompassing more business capabilities than the preceding one. The starting point, the assumed “level 0” status quo, is a monthly S&OP process – comprising traditional demand and supply capabilities and the use of a legacy Advanced Planning System (APS).

Level 1: Visibility

Real visibility can be achieved quickly and at a low cost. Avoid complexity by keeping organizational and process changes to a minimum. Focus on the design of the S&OE data model and establish the business parameters for actionable deviations. Build your capabilities in data transformation and real-time analytics through staff education and hiring if necessary. Acquire modern IT technologies for integration efficiency and automation in data management. Your results, typically dynamic reports refreshed weekly (or, even better, continuously), should be shared with the right roles. Existing forums can be used for planning and decision making.

Level 2: Demand-Supply Balance

This balance relies on the visibility developed at level one and the corresponding increased appetite for improvements in planning and decision making. Analytics reveals problems both in processes and responsibilities as well as the benefits for even tighter collaboration and information sharing across supply chain roles and functions. The introduction of a weekly S&OE process synchronizes the monthly S&OP process with operational planning and execution. This initial bridge between the two processes brings improvements in operational efficiency and reduces the degree of eleventh-hour surprises and the constant need to fight fires.

Level 3: Process

At the third maturity level, deviations and exceptions are being identified and flagged continuously. Plan updates and decision making can then follow with virtually no delay. A dedicated S&OE team stands by to resolve exceptions by finding the best match of S&OP’s tactical rules with the current operational reality. Business priorities and financial targets are incorporated into the criteria informing S&OE decisions. Besides an APS to support collaborative, integrated decision-making, planners may also employ machine learning-enabled analytics for predictive planning and discovery of potential issues. 

Level 4: Optimization

At the highest maturity level, plans are maintained and decisions supported by frequent simulation and optimization. Optional scenarios based on accurate revenue and cost data are generated for decision-making with operational and financial performance visibility. Continuous synchronization with S&OP ensures that near-term optimized performance reflects the business targets set at the tactical level. Leading-edge planning software – employing real-time artificial intelligence and machine learning with high-level optimization capabilities – is implemented, providing the continually updated “digital twin” of your entire supply chain.  

The fool’s errand of using S&OP to cover the no-man’s land between it and operations planning is, quite simply, a bridge too far. S&OE is the way to connect the two reliably while adding value and intelligence to the process as well as improving business results across the board.

S&OE can bridge the internal process gaps that are holding your enterprise back. Chainalytics’ combination of top supply chain talent, proven methodologies, and exclusive market intelligence consistently puts our clients ahead of the curve. Reach out to us to see how Chainalytics can help upgrade your supply chain planning processes.

Pekka Häkkinen is a Director and Sami Salminen a Sr. Manager in the Integrated Demand & Supply Planning consulting practice at Chainalytics, where they help clients develop and implement strategies to optimize their supply chain planning processes.