A new twist on a familiar set of processes has entered the executive suite. Seeking to become an essential element in top management's tool kit, executive sales and operations planning (executive S&OP) promotes processes that enhance the effectiveness of sales and operations planning (S&OP).
Leaving detailed plans (mix) to the likes of master scheduling, kanban, material requirements planning, and plant and supplier scheduling, executive S&OP concerns itself with aligning aggregate plans (volume). Working from the top down, executive S&OP ensures top management's close oversight in all facets of S&OP. The executive element is the keystone. Although S&OP balances demand and supply, integrates units and dollars, and aligns aggregate plans with detailed plans, executive S&OP is the glue that holds it all together.
With a forward-planning horizon of between 15 and 36 months, executive S&OP involves the entire executive team (president, COO, general manager, managing director) in its decision-making process. It occurs on a monthly cycle and provides for mid-month corrections when the demand or supply picture shifts sharply. Properly done, executive S&OP lifts S&OP to another level. Executive S&OP consists of a five-step process: data gathering, demand planning, supply planning, the pre-meeting, and the executive meeting. It frequently deals with issues involving strategy, policy, and risk. Highly cross-functional at both the operating and executive levels, executive S&OP involves people from sales and marketing, operations, finance, and product development.
In short, executive S&OP serves as the overall direction for all mix-related S&OP activities. In turn, these drive the week-to-week, day-to-day, and hour-to-hour activities in the real world: the plant floor, shipping and receiving, and the customer service department. Thus, executive S&OP directly links decisions made in the executive suite and results where "the rubber meets the road."
Companies doing a first-rate job of S&OP cite benefits in two main categories: hard and soft. Hard benefits might include higher customer service, more stable supply rates resulting in higher productivity (for production, procurement, and contract manufacturers), faster and more controlled new product introductions, lower finished goods inventories, and shorter customer order backlogs. In addition to these solid or hard benefits, the soft benefits that result from executive S&OP can prove substantial.
Consider the following:
1. Enhanced teamwork at both the executive and operating levels of the business
2. Better decisions with less effort and time, yielding better results
3. Better financial plans with less effort and time, and which align with the operational plans
4. Greater accountability for results
5. Better control of the business through using one, agreed-upon set of numbers
6. A window into the future to see potential problems soon enough to prevent them from becoming actual problems
Executive S&OP proponents refer to executive S&OP as "top management's handle on the business." From consumer products companies to the oil drilling industry, executives at various levels commend executive S&OP for its current effectiveness and future potential.
The president and CEO of an oil drilling company notes that by incorporating executive S&OP, he now works with his entire management team to look 12 to 18 months ahead and validate or modify plans. The CEO of another company abandoned an ad hoc approach to long-term issues in favor of a comprehensive scan of its demand and production future--up to 18 months, in both units and dollars. The marketing vice president of a consumer products company cites the benefit of gaining greater control of the business through employing executive S&OP to offer the visibility required to be proactive instead of reactive.
Executives who use executive S&OP successfully are spreading the word. Lean manufacturing is already discovering the process because, even though executive S&OP was not invented as part of lean manufacturing, it works extremely well with lean. Since executive S&OP operates effectively outside traditional manufacturing, other business fields can realize its benefits, as well: for example, engineering and design organizations, retailing, banks, and companies using 100 percent contract manufacturers.
Global expansion of supply chains can favorably affect the use of executive S&OP to harmonize the entire supply chain. Executive S&OP sits at the pivot point, the center of the supply chain, which is where the demand/supply balance needs to occur.
Continuing software development promises to play a greater role in executive S&OP. As complexity and the rate of change increase across the industrial landscape, the need is emerging for S&OP software to become more powerful, more effective, and more useful to executives and managers. This kind of software is beginning to be available today and more will, no doubt, be developed in the future.
Currently, the use of S&OP-generated, financial-planning numbers in leading-edge users is good. As greater attention is given to executive S&OP's financial integration side, its widespread use will be secured.
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