What stood out most about last week’s Gartner Supply Chain Executive Conference was the emerging consensus around the importance of Sales and Operations Execution (S&OE). There were multiple sessions in the agenda on this topic, but the one that I found to have the most insightful information was the S&OE case study presented by Marko Pukkila, Gartner Vice President, and Aaron Baker, Director of Operations Inventory Management at Levi Strauss & Co.
Marko began the session by sharing what he’s heard from clients: that many get stuck trying to drive benefits and value out of S&OP initiatives, because the S&OP process doesn’t lend itself to execution. The S&OP process is by design a big-picture, leadership-level process but the factories and distribution facilities on the ground need a different level of detail to work with—one that disaggregates from broad product families down to specific regions and SKUs. S&OE plugs that hole by providing a more tactical process with a 0-13 week horizon, to complement the 3-18 month strategic horizon of the S&OP process.
One of the most compelling arguments Marko made was that S&OE actually closes the feedback loop for S&OP. It can show how the plan actually converts into results in terms of customer orders and fulfillment—and not just in terms of overall volume, but timing: are monthly S&OP forecast buckets breaking down in a manageable way into realistic daily/weekly execution activities? By providing a real-time review to make sure demand plan is converting to actuals in an orderly fashion, teams can take action to refine or correct. He describes this best practice as “managing for deviations from the plan.”
Without S&OE, Marko describes the industry status quo as cycles consisting of “3 weeks of nothing, then 2 days before the monthly S&OP planning meeting, teams reviewing what happened last month and trying to cram in action plans at the last second”. Instead, what is needed is a process that takes key action items from the S&OP process and tracks them on a weekly basis in the S&OE process, maintaining visibility and accountability in those actions. He emphasized the need for a reporting tool that raises the red flags when an order pop into your system that’s clearly above what the forecast was. If you have traditional 1-3 month lag on your forecast error report, no one can tell you what actually happened because it was so long ago, but with S&OE you can learn about customers and market every week. Marko also emphasized that this doesn’t mean jerking teams and partners around with changes on a daily basis, some deviations will not be able to be remediated in real-time, but at least you are collecting actual data on what’s driving errors to improve the next S&OP cycle.
Next, Aaron Baker described how they tailor-made an S&OE process for Levi Strauss and company. He reinforced the central distinction in planning horizons and product aggregation levels that Marko described: S&OP being 3-24 months at the product family level, and S&OE being 0-12 weeks at the SKU level (Levi’s has over 100,000 SKUs). Aaron described the problem they were trying to solve with S&OE as a fundamental “disconnect between planning, supply management, and inventory management.” The KPIs between these teams never connected, and he described meetings with these cross-functional stakeholders as being like “a game of Marco Polo”, each one shouting out their own view of the KPI while stumbling around trying to connect it to the others’. For example, the demand planning team would have a forecast consumption KPI of 110% (in Levi’s terminology, 110% “Detailed” orders), but the 3-4 month process to manage high-order fill rates and allocate finished goods inventory would result in only 85% of orders processed and delivered by the DCs. The title of his slide told the story: “Order Detailed != Inventory Available != DC Processed”
After implementing their S&OE process, they have the ability to more effectively communicate and align across the cross-functional teams and stakeholders. The planning group would facilitate weekly meetings, with each week focused on a different aspect of the execution. For example, in week 1 the team reviewed orders vs. forecast (forecast consumption) and the current month shipping forecast, with the output being both adjustment of the forecast plan and also Intra-DC inventory movement. Weeks 2 and 3 then would go into forecast updates by brand, resulting in outputs like changes to the on-lot priorities to ensure the most critical orders go out on time.
Although these weekly meeting can sometimes get heated, Aaron emphasized that “time is a perishable commodity” and proactively making decisions that result in some customers not getting full orders fulfilled is better than having those decisions made for them by chance. Being able to share challenges with customers early so they can at least prepare for an upcoming shortfall is a completely different conversation than the one you have when the customer is calling you to complain only after shipments failed to arrive.
Aaron ended his section by sharing a screenshot of the S&OE dashboard they created to provide a “business view into operations.” It included a waterfall-chart-like graph showing how forecast consumption (“detailing”) differed from shipments week to week. Users could drill down to see what customers are consuming below forecast, and what didn’t get shipped last month, with the related reason codes. With this basic S&OE report, the teams no longer talk past each other while looking at different KPIs in different versions of excel spreadsheets.
Finally, Marko tied it all back to the keynote session that discussed the importance of having the right foundations in place before you embark on a big supply chain digital journey. And in this journey, you need to ask yourself if your S&OP process is driving as much value as it can? He encouraged everyone to start small and simple: just start tracking the plan versus the actuals. And as you start building, will be able to see more detail and granularity, and at the same time, leadership will start asking more to understand root cause of variability and deviation from plan. As your process matures, you will move from simplistic single value targets (where everything is an exception so you can’t do anything with them) to acceptable ranges of compliance that will let you understand what you really need to fix. A well designed exception management process will support a multi-level balancing of demand plan, actual orders, supply plan, and production inventory, down to level where you can keep factory and distribution plans in sync with reality.