Sales and Operations Planning (S&OP) is a comprehensive process that aligns an organization’s demand, supply, and financial planning. This integrated approach supports executive decision-making, allowing companies to manage a feasible and profitable material and financial plan within their master planning framework.
S&OP starts with a global aggregate demand forecast, which is compared with available resources, such as manpower and machinery, to determine material capacity. The analysis enables executives to assess trade-offs and arrive at consensus decisions that shape the company’s strategy and future operations.
Strategic and Tactical Planning in S&OP
S&OP plays a role in both strategic and tactical planning. On a strategic level, it helps companies anticipate shifts in demand for specific products or regions, influencing decisions about manufacturing capacity, workforce adjustments, and supplier relationships. Tactically, S&OP generates a production plan that executives approve, which then informs the master schedule and material requirements planning (MRP).
While similar processes like Integrated Business Planning (IBP) and connected planning exist, S&OP consistently emphasizes financial feasibility and profitability, ensuring that executive management approves every major plan.
S&OP Planning Horizons
The S&OP process typically spans planning horizons from 18 to 36 months. This includes weekly plans for short-term operations, monthly plans for the midterm, and annual plans for long-term strategy.
Stakeholders in the S&OP Meeting
To ensure the success of the S&OP process, key stakeholders from various departments must be involved.
The typical stakeholders in an S&OP meeting include:
Executive Management
Usually represented by the CEO or a C-suite executive, they lead the meeting, hold the company accountable for following the approved plan, and serve as the final decision-makers, especially when conflicts arise.
Department Leaders
Managers or department heads from every major function in the company (e.g., finance, marketing, sales, and operations). They present performance data for their respective teams and ensure that their departments adhere to the agreed-upon plan.
Demand Planner
The demand planner is responsible for analyzing historical data and current trends to forecast future demand. Their forecasts play a central role in shaping the demand plan presented in the meeting.
Supply Planner
Similar to the demand planner, the supply planner focuses on inventory, supply chain capacity, and resource availability. They ensure that demand forecasts can be met by available supply without overproduction or shortages.
Operations Leader
This individual ensures that production processes can meet the approved S&OP plan. They monitor actual vs. forecasted performance, address any backlogs, and ensure operations stay on track.
These stakeholders work together to reconcile supply, demand, and financial plans, ultimately ensuring that the S&OP process is a collaborative effort across the entire company.
Essential S&OP Process
The S&OP process consists of steps designed to align demand and supply planning with the company’s overall strategy.
1. Data Gathering and Management (Forecasting)
The first step involves collecting data across various teams, including sales, marketing, operations, logistics, and finance. This data includes:
- Past sales performance
- Trend analysis
- Plan success rates
- Forecast accuracy
Ideally, the company will have software that compiles this information on an ongoing basis. This data is then formatted into demand forecasts, providing the foundation for the next steps.
2. Demand Planning
Once data is gathered, the demand planner works on creating a demand plan based on historical trends and input from other departments. The demand plan typically includes:
- Customer service policies
- Marketing promotions
- One-time events
- New product launches
Sales and marketing teams review the demand plan to ensure it aligns with ongoing campaigns before it moves to the next stage.
3. Supply and Production Planning
Using the demand plan as a guide, the supply planner and operations team create a supply plan.
- Setting inventory targets and safety stock levels
- Adjusting production schedules
- Identifying capacity constraints
- Managing inventory and logistics
The supply plan ensures that production methods and schedules can meet anticipated demand without exceeding resource capabilities.
4. Plan Reconciliation (Pre-S&OP Meeting)
During this stage, the demand and supply plans are reconciled to ensure they are realistic and aligned with each other. This reconciliation often involves finance, as they ensure that the plan stays within budgetary constraints. Any significant obstacles that could impact the plan, such as unexpected costs or supply chain disruptions, are discussed at this stage.
5. Executive S&OP Meeting
At this stage, the reconciled demand, supply, and financial plans are presented to the executive team. The primary goal of this meeting is to obtain final approval of the plan. By the end of the meeting, there should be a consensus on an actionable, agreed-upon plan for the entire organization.
6. Plan Implementation
Once the plan is approved, department leaders are responsible for working with their teams to implement the changes outlined in the S&OP plan. Regular evaluation of the implementation process is recommended to ensure that the plan remains on track and that any necessary adjustments are made.
Challenges in Sales and Operations Planning
S&OP is a collaborative, company-wide effort that requires input from various departments, including finance, operations, marketing, and sales. However, the process faces several challenges.
Accurate Reporting
Establishing consistent and accurate reporting for demand and supply inputs is crucial for effective decision-making.
Pre-Work Analysis
Identifying changes in demand or supply before plan approval is critical to addressing potential issues proactively.
Decision Impact Presentation
Developing clear decision criteria, especially in terms of customer service, supply chain costs, and revenue, helps guide executive decisions.
Managing Product Lifecycle
The introduction of new products, the retirement of existing ones, or the incorporation of newly acquired product lines during mergers and acquisitions must be carefully planned.
Data Transformation
Converting large data sets from multiple systems into actionable insights can be challenging but is essential for reporting.
Emerging Trends in S&OP
As technology continues to evolve, companies are increasingly leveraging tools like Enterprise Resource Planning (ERP) and Supply Chain Management (SCM) software to enhance their S&OP processes. Despite the rise of advanced software, many organizations still rely on spreadsheets, which can limit data processing capabilities and pose security risks.
Convergence of Planning and Execution
More frequent updates to supply chain plans and the ability to react quickly to disruptions are becoming standard practices.
AI and IoT Integration
Emerging technologies like Artificial Intelligence (AI) and the Internet of Things (IoT) are playing a larger role in S&OP processes, providing new insights and efficiencies.
Multitier Collaboration
Technologies that enhance collaboration and visibility across multiple tiers of the supply chain are gaining traction.
Segment Analysis
Systems that enable flexible and rapid analysis of products with shared features or demand profiles are improving decision-making.
AI, Machine Learning, and S&OP
Machine learning and AI technologies are increasingly being used to automate decision-making processes in S&OP. These technologies can predict available capacity, drive promotion planning, and identify stable product plans, reducing the time spent on data analysis.
IoT technology is also improving the effectiveness of S&OP. For example, predictive maintenance enabled by IoT can provide executives with insights on when and why production capacity might change and suggest contingency plans to ensure seamless operations.
Advanced analytics, combined with logistics, manufacturing, and order management systems, offer real-time insights that help supply chain managers make more informed decisions, reducing the reliance on lengthy planning cycles.
S&OP Adapting to Market Shifts
As next-generation technologies advance, the traditional S&OP process is rapidly evolving beyond the constraints of a monthly cycle, thanks to modern tools that enable more frequent plan updates. By integrating key stakeholders and leveraging these tools, companies can achieve better alignment between sales, operations, and financial goals, creating a more flexible and responsive system that adapts to market shifts. The ability to swiftly adjust plans ensures a balanced approach to managing demand and supply.
With these innovations, businesses must now consider critical strategic questions such as how to capitalize on the ROI of advanced S&OP technologies to stay competitive in an ever-changing market?
