How this helps to align your S&OP long game with your S&OE short game
Sales Operations and Planning (S&OP) is a long-term game, as its purpose is to look ahead by usually 3 to 18 months, depending on the industry. However, S&OP is too often treated as a mid- to short-term tool. A recent Gartner survey shows that 27% of companies still have an S&OP time horizon that is less than 12 months, and 62% less than 18 months.
That’s why I often see that short-term Sales and Operations Execution (S&OE) is driving more and more tactical decisions in S&OP meetings, but doesn’t look beyond the 12-month horizon. However, many supply chain decisions need to be made well in advance. So below, I’ll explain how you can efficiently align your long-term S&OP with your short-term S&OE.
If you know how to play golf, you know (the difference between) S&OP and S&OE
To understand where S&OE and S&OP differ, let’s think about golf. During a round of golf, you tee off with a long stroke and try to position yourself strategically. During the following short game, you aim specifically for the hole the closer you get to the green. While the long game requires strength and agility, the short game asks for precision and discipline. Each approach, though quite different, works hand-in-hand as you aim to putt the ball in the hole with the fewest strokes possible.
The difference between this long and short game is essentially the difference between S&OP and S&OE in today’s global manufacturing and supply chain. S&OP allows companies to create integrated demand planning between sales and production teams for the short to mid-term, while S&OE gives planners and managers the capacity to examine their supply situation on a more micro-level.
Too much focus on the short-term only gets you part of the (run)way
“S&OP should be a medium-term process that looks on the horizon between 3 and 18 to 24 months into the future. By tackling important issues well in advance, planning leaders can ensure that things are done on time and for a reasonable price,” Micheal Youssef, Senior Director Analyst at Gartner.
Or in other words: ‘You can only putt the ball with precision when you’re on the green’.
During S&OP discussions with my customers, I advise them that a 3 to 12-month planning horizon gives you plenty of opportunities to solve demand and supply issues, as it still gives you enough time to anticipate. However, what I often see is that companies schedule S&OP meetings concerning the current or next month. These discussions are indeed important, but they’re S&OE meetings, not S&OP meetings. In times of crisis, such as during the pandemic, these shorter-term meetings can be useful to make tough supply chain decisions when you’re running out of time. But when you invite the executive team to an S&OP meeting, you only want to discuss the long-term planning.
Heading for the bigger picture
In my opinion,
many companies are stuck in crisis management
mode while recovering from the pandemic. In times of crisis, it’s absolutely necessary to give precedence to operational, short-term S&OE issues over S&OP. But I would still make the difference between
2 types of supply chain planning meetings: One operational, S&OE meeting to take care of the short-term firefighting
- One operational, S&OE meeting to take care of the short-term firefighting
- One strategical, S&OP meeting to plan ahead for a few months
Now, the S&OP process is often only used for S&OE discussions and last-minute adjustments to supply chains, without taking into account the bigger picture. Once your supply chain has cooled down though, make sure to give equal, if not more, attention to your S&OP and long-term supply chain planning.
Recently, I’ve been doing the same exercise for a couple of customers. If they have trouble getting out of crisis management mode, I propose to bring together their executive team once a month and to realign their supply chain priorities: ‘Do we need to keep certain customers, or is it better to stop these contracts?’, ‘Which products or the most important to us?’, ‘How will we safeguard their production?’, etc. In the end, we come up with several practical outcomes, which are in themselves no magic solution, but they show the way to a healthier and more long-term supply chain planning.
The importance of macro-economic indicators
And these are by no means easy choices. To make them, you need the right processes and tools to analyze different scenarios and make reliable, long-term forecasts. In a stable market under normal circumstances, forecasts are based on historical data (‘statistic forecasting’), followed by a validation process by Sales. But in the current, unpredictable global climate, you need to incorporate macro-economic indicators to the mix if you want to anticipate volatile markets.
That’s why it is important to understand the tendencies in your market environment. Which leading indicators help you understand your sales pattern and improve your forecasts? Where do you need to deploy your sales resources or how do you decide whether to close or open a distribution center? All this can be based on quantitatively validated market assumptions. Let’s make sure you always hit your ball on the green!
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