Executing the S&OP plan

This is an excerpt of the original article. It was written for the March-April 2017 edition of Supply Chain Management Review. The full article is available to current subscribers.

March-April 2017

Supply Chain Management Review, which is celebrating its 20th anniversary with this issue.Twenty years after the premier issue, our goal remains the same: To present thought leadership around best practices in supply chain fundamentals, publish case study examples of what leading companies are doing in their supply chains and keep our finger on the pulse of emerging trends and technologies that will shape the future. While Frank’s essay looks to the past and brings us to the present, we also have essays from four experienced supply chain professionals looking to the future of supply chain management.

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Just as there are two sides to every coin, there are two sides to sales & operations planning. On the one side are the sales plans developed by the sales and marketing side of the business. On the other is the operational side of the business that has the responsibility of executing the operations plan: Manufacturing, transporting and distributing the goods at the heart of the plan. Executing on the plan sounds simple. Yet, synchronizing execution activities so that they also meet the performance goals of the S&OP plan is not as easy as it sounds.

In a past column,* I argued that the main purpose for synchronizing short-term operational plans with the S&OP is to help align daily operations—such as those that take place on plant floors and within distribution centers—with S&OP plans developed to meet performance goals. This helps operations managers to plan in accordance with financial and various other performance objectives. In addition, if S&OP plans are also aligned with strategic planning goals and objectives, then daily operations are more closely aligned with corporate strategy.

This alignment is important when operations managers need to execute in accordance with a supply chain strategy developed to be competitive, as I defined it in “Competitive Supply Chains**.” To be competitive, operations managers need to support and enhance the business strategy, and be among the role players that help win business in the short, medium- and long-run. However, how close can “real-time” execution match the short-term operational plans put in place, anyway? As we’re reminded by Robert Burns line about the “best laid plans of mice and men” and the Yiddish proverb that “man plans and God laughs,” execution can get close, but planning accuracy is rarely—if ever—a 100% match.

That said, if the plans could be 100% accurate, would your execution systems enable the S&OP goals and objectives? I still think not due to the difference between planning and execution systems. Most supply-side execution systems focus on decision making to optimize costs and inventories, but not customer demand. Thus, they are typically driven by unit-based volume data, not by moneyed data, such as revenue and operating margins. For example, a revenue-oriented order management system would fill higher operating-margin and low-volume customer orders before it fills lower-margin, high-volume orders. Yet most systems favor filling the latter first because they involve more labor hours.

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