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.

This article originally appeared in the Fall 2022 issue of the Journal of Business Forecasting. To receive a print copy of the Journal every quarter, become an IBF member or subscribe. 

Sometimes driving S&OP towards decision making is challenging, with meetings often focused more on the here and now than looking forward, especially when the economic environment is so uncertain.

The pandemic highlighted the importance of collaboration, consensus and transparency in this process and, if we weren’t aware before, the criticality of using S&OP to make timely and effective decisions. So, how do we optimize S&OP for decision making?

The Challenges of Planning in the Current Environment 

I have been involved in S&OP since 2005 and am currently implementing S&OP at DS Smith, a global packaging company. S&OP is all too often an update forum where we talk about previous performance and a one number plan. With the challenges presented by COVID and the Ukraine war scenario planning is critical, so a business has a response to factors that may become reality. This reduces the all too common firefighting loop that businesses find themselves in. I have seen, however, that functions don’t always like giving up their power of decision making to a collaborative, cross-functional forum, partly because they feel that they alone have the depth of knowledge to make decision relating to their functions, and partly because they can make decisions quicker if they operate outside the S&OP cycle.

In my world, the focus is now much more short term as well as on assumptions for the longer term horizon as we’re unclear as to what the next year to 18 months will look like. Selling patterns are different to pre-pandemic and what I’m finding now is that we need a very good S&OE (Sales & Operations Execution) process running alongside S&OP.

Where to Make Decisions, S&OP or S&OE?

With that, it’s important to define where we take decisions – in the shorter-term S&OE or in the longer term, more strategic S&OP process? Having very defined S&OE and S&OP processes stops people from ‘going rogue’ and making siloed decisions.

In the packaging world linked to FMCG, volumes have reduced compared to pre-pandemic. As a result, we’ve had to make some very quick decisions. Do we stock build, turn off capacity for example? If so, we can’t wait for the S&OP cycle. Tactical decisions, tackling the next month’s view, are then taken care of. This reassures people across functions that the key tactical decisions are being taken in a timely manner, and thus stops them going ‘off-piste’. Communication of these decisions is also a critical part of ensuring alignment across the business.

You may well find that maintaining your existing S&OP cycle in this current environment is having negative impacts on your business. If I see an upturn in demand, I want us to be ready for it so we don’t miss out on sales – S&OE helps with that.

Don’t Make S&OP More Tactical, That’s What S&OE is for

I find that data is the challenge at the moment; things are changing so much that we can make a decision one week, and by next week the assumptions behind that data have changed and don’t support that decision anymore. Assumptions behind market behavior are changing with us coming out of COVID, people coming back to work, inflation, and the war in Ukraine. All of that creates demand volatility.

We need to be on top of all these fluctuations, increasing the importance of shorter term decision taking, but leaving the S&OP process intact so we’re not constantly changing the longer-term strategy based on tactical decisions.

You have to keep the shorter and longer-term planning approaches separate. I caution against making S&OP more tactical – it’s not designed to be agile. It’s about identifying gaps. So, regardless of whatever is happening in the short-term we don’t change our targets and budgets, and so we shouldn’t change our S&OP.

Tips for Keeping S&OP Meetings Focused On Decision Making

Constant reinforcement of what S&OP is for is key to keeping focused on decision making. At DS Smith we do the ‘what-ifs’ – what are the realistic likely scenarios that we need to model that executives need to make decisions on, when would these decisions need to be taken, and what are the financial implications of those scenarios? It’s about coming back to the gaps and closing them in good time. For me it’s about discussing how we use inventory, how we use our capacity so there are no surprises relative to the plan.

Identifying best and worst-case scenarios allows us to close the gaps ahead of time so we don’t have to make tactical decisions. This helps delineate S&OP and S&OE, keeping the right level of decision making in the right forum. If we do need shorter term, and tactical decision making then we take that to S&OE.

S&OP stakeholders don’t always read the meeting pre-reads so if there are decisions that need to be made coming out of the next S&OP meeting, I’ll meet the main participants individually ahead of time and walk them through the desired outcomes. In week 4 before S&OP, I might book an hour with the key people which can then be canceled if not needed.

This is harder with remote working – gone are the days of going up to somebody in the office for a quick chat and setting expectations ahead of meetings. With remote working I find people’s diaries are completely full, so arranging a Zoom call is difficult. Going back to just phoning people as and when helps rather than trying to book peoples’ time.

Educating S&OP Stakeholders for S&OP Maturity

Driving S&OP as a powerful decision-making process requires constant improvement and education. As an S&OP lead, I always keep an eye on our S&OP maturity and where we are in our evolution. I sometimes engage consulting firms to gain a clear picture of where we are and what it’ll take to progress to the next step. Every step needs some education – there’s no shame in bringing in outside experts; after all, some messages are better delivered from the outside than in.

From my point of view, as someone responsible for this education, it is just a case of getting the budget to do it. I always follow a change management approach where we do the initial education with coaching and hand holding, then we run the process, then we have a review. For example, last year with DS Smith we launched S&OP in April, then in October we had a ‘what’s working and what to improve’ review. This helps with the buy in of those involved in the process, and helps me understand what they need as an outcome of S&OP.

The Bottom Line

To conclude, it’s worth remembering the key elements of successful S&OP. Keeping focus on the below will facilitate the decision making it is designed to achieve:

Collaboration: Bringing cross-functional teams together to drive a one-number attitude with clear timings for decisions based on scenarios coming to life

Transparency: Explaining on what you know and what you don’t across functions and extending that attitude to your trading partners

Consensus: Making decisions together that benefit the business as a whole

 Join us in Orlando for IBF’s Business Planning, Forecasting & S&OP/IBP Conference from October 18-21. With 2 maturity level streams, you’ll find the specific knowledge you need to implement or improve S&OP/IBP, and level up your planning skill set. With great networking and socializing in a wonderful Florida setting, it’s the biggest and best event of it’s kind. Register now to avail of Super Early Bird pricing.