Key learning points: S&OE integration into S&OP / IBP

• S&OE is a weekly cycle focused on execution and short-term exceptions to the plan derived by the S&OP / IBP cycle. It’s an opportunity to use any latest intelligence - including insight from actual performance in the business - to add quality to the plan that has already been built;

• The monthly S&OP / IBP cycle is often just too slow to deal with high volatility and it never really catches up with fast-moving developments;

• As well as better managing short-term exceptions, it also means that the S&OP / IBP cycles and meetings are freed up to focus on the mid- to long-term rather than tending to become dominated by short-term issues;

• Clear ground rules are vital:

• As a rule, the executive committee should not be involved in the S&OE cycle so they can focus on the longer-term. However, issues and decisions are routinely communicated and the executive committee can get involved when absolutely necessary but by exception;

• Sales and supply chain are the key leads within S&OE with finance supporting with the financial implications of decisions. Other functions attend by exception as, typically, their ability to affect outcomes at short notice is very limited;

• Don’t wait for the weekly meeting to learn about big issues. Preparation is key: the diagnosis and implications should be addressed as they arise so the meeting can focus on the actions that need to be taken;

• Don’t bring every little thing into the meeting. Many issues can be dealt with at lower levels so only the major calls are considered during the meeting. KPIs are rarely discussed;

• Keep meetings short and punchy…no more than 60 minutes;

• Attendance is mandatory and any absences must be planned for with surrogates attending to ensure complete functional representation…vital also for decisions to be properly communicated throughout the business.

• A one-page summary after each meeting including key metrics and changes with additional commentary is widely circulated for everyone in the business.

Key learning points: implementing ‘next-gen’ planning systems

• A recurrent theme: the ‘soft’ challenges around ownership, buy-in, behavioural change and adherence are often the trickiest;

• A common assumption is that sticking with an incumbent technology provider should make transition and integration easier but that often not the case, even though some incumbents seem to be overly relying on this assumption;

• It was noted that some ‘next gen’ platforms seem more mature than others, including some of the bigger names. This is often notable by whether or not the vendor is able and willing to perform a live demo using sample customer data and the extent to which capability is already built or on the development roadmap;

• Multiple platforms are being used for different aspects of planning and, generally, they serve their purpose well, often supported by some in-house developed solutions. However, the interfaces between those systems is a persistent challenge which makes getting reliable output a real challenge.

Key learning points: integrating ESG / sustainability metrics into IBP

• Use a balanced scorecard which uses a combination of leading and lagging metrics grouped into four perspectives: organisational capability, process improvement, customer experience and financial performance;

• Mapping strategy, including sustainability strategy, against these perspectives helps provide clarity and alignment of initiatives;

• This approach can (and should) also be applied to transformation initiatives to clearly understand where they are adding value;

• The balanced scorecard becomes the focus for the integrated set of measures which underpin the IBP (Integrated Business Planning) process.

Chris Morgan, Suntory: Integrating S&OE & ESG metrics into IBP

What exactly is meant by S&OE at Suntory?

It’s the execution part of S&OP moving from the long-term horizon to the short-term horizon. S&OP or IBP is a monthly cycle focused on developing scenarios, shaping the plans, getting numbers agreed and aligned and really working that 3- to 24-month horizon. As that plan starts to reach what we call “focus month”, which is three months out, that plan transitions into the execution process.

The frequency of the review then moves from monthly to weekly. At this point, it’s all about managing changes by exception with the objective of making sure that the fundamental demand and supply continue to be aligned as news hits the numbers and we course-correct that plan. Within the current month or four-week window, the expectation is that the plan is absolutely operationalised in terms of trucks on the road, stock in the warehouse and orders coming through from customers. At that 3-month to four-week period, it’s any last chance to use latest intelligence to add quality to the plan we’ve already built.

We also use insights from actual performance in the business - what we call “going to the Gemba” (we’re a Japanese business) but is really a term for where the action happens, IAA, in-store, on the shop floor etc. All of this goes into our weekly execution review.

How does it fit with the S&OP / IBP process?

All of the plans we develop from 3- to 24-months out are, of course, based on assumptions…our most likely outcome. The closer you get, the more certainty you have about what is likely to happen so, when we move into execution mode, we’re adding that intelligence. It’s very tempting to change things just for the sake of it so, in this process, we’re very conscious of making sure there’s a very good reason to make changes and only if we understand something now that is materially different from the assumptions we made, whether on demand or supply.

Before this, we tried to do this in our monthly process and, particularly in the volatile times of the last couple of years, found that it’s just too slow and you can never really catch up with fast-moving developments. Also, if you’re using the monthly cycle to focus on the short-term, it dominates the time and you end up not thinking about what’s beyond, where this is heading and what the short-term is telling us about the mid- to long-term.

By separating the process stages, we found that it released the monthly process to focus on further out discussion, taking the insights from the short-term. The question becomes, “How does this affect our trajectory?”

How do you manage the relationship between the S&OE and S&OP / IBP cycles?

It’s important to set some clear ground rules. The executive committee or the board used to get quite involved in the short-term stuff but it’s the teams below ExCom that need to run this to free up the leadership to focus on the longer-term piece. That doesn’t mean to say we don’t communicate with the leadership on issues and decisions that are required but it’s by exception. There’s a separation in attendance as well: operational teams deliver the plan and ExCom are focused on building that plan. 

The S&OE process means sales and supply chain are the key leads within this, with finance supporting on the financial implications with other functions attending by exception as marketing, R&D etc. have a limited opportunity to affect outcomes at such short notice. So it’s more that they are informed in terms of the RACI for those guys and, of course, the output available to all in reporting how we’re doing.

We’re very explicit that the ownership and accountability for the demand plan sits with sales and the role of demand planning is to drive the process, challenge assumptions and perform some of the analysis associated with coming to a consensus.

Another key principle is that we used to have a habit of waiting for the meeting to land any big issues on the table and then have a big discussion but we now make sure we deal with them as the arise, diagnosing the issues and implications and then using the meetings to discuss the response, not just to learn about the issue.

We don’t bring every little thing into the execution meeting…it’s really for senior management. At lower levels, there are plans detailed at the customer SKU level where the account teams and planning teams get together and decide those issues where they could. There’s no value in chucking everything into a weekly review because otherwise, we’d be there the whole week! 

We keep the meetings to no more than an hour or so, covering the whole business. Of course, we’re reviewing performance and KPIs at a macro level but only the big things come to the table…people have got used to the fact that urgent issues are usually better solved with a quick phone call to a colleague in another department.

The preparation ahead of the meeting is key to keeping it sharp and punchy and focused. Ideally, if our IBP process is good, there shouldn’t be that much change in the short-term but that’s the dream…the reality is that there are a hell of a lot of changes so, even during the pandemic, the diagnosis in advance meant we kept meeting to to 45-60 minutes generally. We were just checking what had changed since the last time and deciding what to focus on for the week ahead.

Finally, attendance is mandatory. It needs the right representation from across sales and supply chain to contribute to and, more importantly, disseminate any key actions required. The core group in the weekly execution meeting consists of demand planning and collaboration, finance, sales and supply chain. We cover forecast accuracy, any families or SKU groups that are trending off-track, the root causes, how to correct and any unresolved risks and opportunities around the plan. We want to make sure that there’s a clear signal going through to supply chain finance on invoiced sales, net sales, gross profit, operating income that feed into the IBP process. Supply chain bring insights around service levels, factory performance, any supplier availability issues, residual stock or leftovers that we need to declare and get a sales input into that.

Generally, the weekly meetings don’t include the ExCom or VPs but it depends on what’s going on. As we work through the short-term issues, then the focus tends to shift to the longer term implications of what we’re seeing and then we’re into the IBP process. This weekly process helps build confidence that we’ve got a clear set of numbers to execute in the short-term so the VP-level don’t feel that they need to be getting involved as frequently. It also can highlight where capability is required if plan execution is consistently lacking, instead of the VP stepping in on a regular basis.

What are the key outputs?

We run short-term “what if” scenarios which, for example, might be a customer promotion that we didn’t anticipate but comes up as an opportunity…can we do it or not? We come to a decision about whether we can and whether we’d want to as a business.

We produce a one-page summary that is circulated across the business which includes key commercial, supply chain and financial metrics. It shows our latest estimate of what’s changed since last week, comparisons versus budget, changes to the P&L, performance around key drivers, project and new product developments. If there are things like brand launches, supply changes, regulatory changes, we use a traffic light format with additional commentary.

Some of the information that goes into the on-page summary comes from readily available metrics and data so some of it is “lift and drop”. However, as a whole it’s not too onerous but some of it takes a bit of additional thinking.

The KPIs are included in the information we bring to the meeting and the one-pager for the whole business but we don’t spend time discussing unless we start to see a trend of performance going in the wrong direction or not improving as we’d expected.