Closing the Gap Between Planning and Execution

Many companies have a sales & operations planning (S&OP) process where they are forecasting at the product level what is apt to be demanded in the market from three to twenty-four months out. Then companies seek to examine whether the forecast meets what a manufacturer can produce. Scenarios and tradeoffs are examined. Finally, the company comes up with a plan for matching projected demand with the company’s production capabilities. If companies use the term integrated business planning (IBP), then this demand/supply tradeoff process is also designed to ensure that budgetary goals are achieved.

But companies often do not achieve their revenue, market share, service level, or profit goals. A new process – called sales & operations execution (S&OE) – is being promoted as a process that will allow companies to better achieve the goals set forth in the S&OP executive meetings.

S&OE, as a process, is not well understood. Harish Iyer, VP Industry & Solutions Marketing at Kinaxis, tells me customers understand the issue, but refer not to S&OE, but to the need to “’close the gap between planning and execution,’ ‘tying planning to execution,’ or ‘closed loop planning.’”

So, what can be done to close the gap between planning and execution?

IMPROVE PLANNING

Improve the Forecast

Many companies believe that improving their forecasts is the best way to close the gap between planning and execution.

Step one is to get rid of human bias. In an IBP process, for example, there can be strong pressure to produce forecasts that will show companies will achieve their budget goals. A forecasting value added methodology can help eliminate this, and other, human biases.

But when you are planning at the product family level and executing at the stock keeping unit level, there is a built-in disconnect. Further, there are limits to how far forecasts for what will be sold several months out can be improved. There is likely to be a significant margin of error. Accessing downstream data and other relevant external data sources and the use of demand planning solutions with robust machine learning, can improve, but not fully solve this problem.

Improve Supply Planning

The more granular the supply planning model, the better the supply plan will be. A granular supply planning model understands a wide variety of constraints, not just in the production facility, but in warehousing and transportation as well. AspenTech’s customer Perstorp, a leading global specialty chemicals manufacturer, has a model that contains 1.5 million variables and 500,000 constraints!

Better Demand and Supply Planning Synchronization

Most companies make a one number forecast. They forecast, for example, that they will sell 5,876 units of SKU 1 in the month of May. A better practice is to make a range of forecasts with different confidence levels. The S&OP plan is focused on committing capacity to forecasts with higher confidence levels.

Not all of a month’s capacity is committed. The unplanned capacity is available to meet demand upsides (demand that was not forecast but which emerges). This method is not available to companies with long frozen production windows.

Plan More Often

Salim Shaikh, Sr.Director, Global Industry Strategy at Blue Yonder, points out that while many companies talk about S&OP plans being focused on the 3 to 18 month planning horizon, that can vary by industry. In electronics, for example, a “product’s whole lifecycle might last six months.” Thus, in these industries, instead of matching demand to supply three months out, this might be done for the coming month. In shorter time horizons, the forecast is more accurate, so the ability to execute to the plan is enhanced.

S&OE

IMPROVE EXECUTION

Better Visibility to Supply Chain Disruptions

There can be all kinds of disruptions that can upend a plan – unexpected spikes in demand, inbound delivery problems, outbound delivery problems, supplier quality issues, etc. The quicker a company has visibility to these issues, the quicker they can work to resolve the issue. Further, in some scenarios, knowing before your competitors can lead a competitive advantage. For example, if a key supplier to an industry goes bankrupt, the company that knows first can work to lock up alternative sources of supply that may become unavailable to their competitors. Suppliers like FourKites, Resilinc, and others as well, provide real-time shipment or risk data.

Concurrent Planning

Supply chain planning vendors such as Solvoyo, Kinaxis, Blue Yonder, and OMP speak of the value that planning solutions with concurrent planning capabilities add to agile execution. Concurrent planning links execution plans, the plan for the coming month, to the S&OP plan. As new short-term scenarios and plans are created, the linkage to the revenue and profitability goals based on the initial S&OP plan becomes instantly visible.

Recognize S&OE as a Distinctive Process

Whereas S&OP plans are created once a month, S&OE adjustments are made on a daily or weekly basis. Further, there are a variety of different types of disruptions that can occur. The cross functional team that responds to an inbound supply disruption should be different from the team that is struggling with a shortage of finished goods and the need to allocate scarce products to customers. Different types of problems require different playbooks.

Further, a company needs a way to collect the incidents that occur and store them. Elementum, a S&OE supplier, argues that while during the week, S&OE teams are charged with putting out the fires, there should also be an end of month S&OE meeting.  In that recap meeting, root causes to incidents should be analyzed, and a continuous improvement methodology applied to preventing those incidents wherever possible. Of course, not all incidents can be prevented. In these cases, the continuous improvement methodology should be applied to improving the playbook.

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