Translating S&OP to execution

The biggest challenge of the Sales and Operations Planning (S&OP) is the translation of results and decisions from the monthly planning process into real-life scheduling and execution. One of the reasons for this difficulty is the summarized and aggregated nature of the information handled in the S&OP process. Another reason, which mainly impacts companies in the Fast Moving Consumer Goods, it is the dynamism of the market that can make planning obsolete at the time of execution. The following paragraphs aim to discuss these two issues and propose solutions that enable the execution of the planning.

Data aggregation level

Aggregated data is great for trade-off analysis and decision making, key features for S&OP meetings. This summarized view, however, makes it difficult to translate decisions into execution. How to realize that production will have its capacity exceeded at the end of the month because of the concentration of demand in the last week if the planning looks at the month in aggregate form? To anticipate this capacity problem, it is necessary to see the sales plan per week and, if applicable, consider creating a buffer stock with idle capacity at the beginning of the month to meet the peak at the end of the month. Another example is supplying the DC with a low-turnover product. If the supply plan evaluates the transfer of a family of products per month, how will you find the right day to transfer a given SKU?

Sales and capacity plans must be at levels of disaggregation that allow critical capacity points to be perceived during planning. Each operation needs to evaluate the plan with a different level of aggregation depending on its nature. While the stock plan needs to assess the daily demand for each SKU, the transfer plan only needs to have a view of the volume in pallets to be transported per day and the purchase plan for inputs per week. Although each planning function makes its plans at the level of aggregation of information most useful for its purpose, the analyzes presented in the meetings need to be in a single language so that everyone understands the interfaces and impacts between the plans. This single language should be more aggregated, but can be opened up when a greater level of detail is needed for a specific discussion.

Figure 1 - Level of aggregation of information in S&OP

Source: ILOS

Opening up information is essential for capacity critical points to be anticipated and resolved during the planning process. Otherwise, these problems will only be identified and solved in the execution process, making the decisions taken during planning useless.

market dynamism

In more dynamic markets, the accuracy of the forecast made for the following month may not be the best possible, as the nervousness of demand makes the forecasting quickly obsolete. One of the effects of this low accuracy is that when it comes to executing the plan, demand is so different from what was planned that the operational areas are tempted to ignore planning and react to the market.

For companies inserted in highly competitive and dynamic markets, as Fast Moving Consumer Goods, the solution has been to add a weekly planning cycle to the process, called Sales and Operations Execution (S&OE). This shorter planning cycle was described by Executive Partner Leonardo Julianelli in post about the topic and can be summarized as the S&OP unfolding process that seeks to detail the weekly updated sales plans for the weekly production, receipt and shipment plans, allowing for adjustments and the best possible allocation of resources in the face of demand variations. In this way, the changes foreseen in the short term of the week can be considered in the planning through small adaptations.

Figure 2 - Monthly (S&OP) and Weekly (S&OE) Planning Cycles

Source: ILOS

It is very important that demand planning is done at a level of aggregation of information that anticipates the problems that will be faced during execution, as well as adequately reacting to market changes through planning revisions in a shorter forecasting cycle. Otherwise, the operational functions will have to make decisions during execution, which may result in results that are not in line with planning. After all, if execution doesn't reflect planning, why waste time planning?

References

<https://ilos.com.br/web/sales-operations-execution/>

<http://www.logility.com/blog/chris-russell/january-2014/translate-sales-and-operations-planning>