Sales and operations planning (S&OP) is a collaborative effort that balances supply and demand while coordinating activities between the company and its suppliers and customers. It's an initiative that involves the sales department working with operations departments—such as manufacturing, marketing, finance, and procurement—to develop a single production plan.
As a business management process, it helps align and balance supply and demand, improve performance, and increase customer satisfaction. This collaborative approach aligns operational areas, such as sales, marketing, and manufacturing, with finance to work together toward organizational goals.
S&OP, a term which passed into common use starting in the 1980s, is an approach and solution aimed at breaking down internal uncoordinated siloed processes often found in the supply chain planning process, improving interdepartmental communication, and involving all necessary departments in the supply and operations decision-making process.
It originated with manufacturers who were struggling with inventory management and production planning, but eventually spread to non-manufacturing organizations as well. Understanding this historical context is crucial to fully grasping the evolution and significance of S&OP.
Key considerations
S&OP focuses on the following areas:
- Enable an integrated planning platform: Provide an integrated planning process aligning customer demand, supply chain, and financial planning.
- Support long and short-term planning: Enable planning frequency that can provide longer-term time horizons (e.g., 36 months+) but is usually performed monthly and can be driven by business, competitive, and economic events.
- Decision support: Help executives decide about material and financial plans, manufacturing capacity, workforce, and supplier management.
- Optimize inventory: Optimize inventory while improving cash flow and increasing revenue.
- Improve company performance: Increase revenue while improving collaboration with suppliers and increasing customer satisfaction.
The S&OP process
Typically, the process begins with information gathering: for example, recent forecasts and sales and inventory data. The team then uses this data to develop a demand plan, which outlines the expected customer demand over a specific period. This plan is then used to build a production plan consistent with current and planned capacity. The team then reconciles the demand and production plans against resource constraints before obtaining and pursuing final stakeholder approval.
S&OP is focused on planning and collaboration and is not the sole tool used for organizational production. It is a critical component of a more holistic supply chain management (SCM) focus, which enables all planning, implementation, and controlling the supply chain operations to satisfy customer requirements as efficiently as possible, including supply chain planning and execution. SCM includes planning, procurement, manufacturing, inventory/warehouse management, distribution, transportation and logistics, and decision support analytics to support the SCM management process.
Main functions and job roles within S&OP
In the prior section, we discussed some of the critical focus areas of S&OP. These are supported by capabilities provided in S&OP business applications that include:
- Forecasting
Enabling forecasting, demand, and supply planning, along with management and executive review. - Demand review
Providing an unconstrained forecast and consensus demand planning. - Supply review
Coordinate and sync the supply plan with the demand plan. - Product review
Analyzes the health and position of a company’s products within the market while examining product pipelines and making product planning decisions. - Risk and opportunity identification
Aggregate all risks and opportunities in the market. - Budget and gap review
Validate the forecast and review gaps with operational and financial budgets.
These functions require many critical job roles for successful S&OP operations, and an organization must have a leadership and management focus with clear roles for the following positions and their interaction:
- Sales and Operations Manager
Manages S&OP interactions with employee teams and is responsible for the day-to-day execution of the S&OP strategy. - Vice President or Director of Sales and Operations
Oversees S&OP to ensure predictable revenue growth. - Sales and Operations Analyst
Analyzes data to gain insights that inform strategy. - Sales and Operations Coordinator
Supports other S&OP roles by entering data, preparing reports, and organizing meetings. - Demand Planner
Produces demand-based forecasts to drive the planning process. - Sales Personnel
Ensures that actual orders and forecasted future needs are entered into the forecasting system. - Operations Leader
Serves as a liaison between the S&OP planning committee and the manufacturing facility. - Marketing Team
Communicates and promotes the brand and products. - Finance Team
Coordinates S&OP plans with financial plans.
Ensuring every part of the machine works well together is of the utmost importance, and it should be one of any supply chain leader’s main priorities.
Best practice in S&OP planning
Enabling a smooth S&OP process within an organization is all about facilitating smooth collaboration. The following is a list of key considerations that supply chain leaders should keep in mind:
Position S&OP as central to the organization
An effective S&OP implementation will impact organizational performance and improve financial statements, ultimately leading to an improved stock price if you are a publicly traded firm. Stakeholders must understand this and make their participation a high priority. Ensure that you have appropriate executive support for your initiatives.
Aligning S&OP with your enterprise strategy is crucial
All S&OP decisions must be in sync with your organization’s business strategy, which serves as the unifying shared goal among all teams. Each contributor to the S&OP process must understand and operationalize this alignment, fostering a sense of focus on the shared goal.
“It’s all about the data”
Data that feeds S&OP must be current, accurate, and appropriately filtered to focus on the components needed for planning and be timely. It is vital to work with IT and ERP user departments to ensure that the appropriate data is brought into the system and the integration is accurate. This also includes the need to integrate with the proper planning solutions in your organization. The importance of data accuracy cannot be overstated in S&OP, as it forms the foundation for all planning and decision-making.
Coordinate with all internal stakeholders
Organizations must coordinate with stakeholders from sales, finance, marketing, and other supply chain functions (e.g., procurement, warehousing, inventory management, logistics, and manufacturing). It is critical to scope out cross-functional coordination and how this will be managed.
Measure and manage performance
Metrics, such as key performance indicators (KPIs), are central to any S&OP initiative. They are crucial to understanding when performance is not meeting expectations and negative trends are occurring that need correction.
Coordinate issue resolution between stakeholders
S&OP requires coordination between many departments as it involves significant inter-departmental coordination. Collaboration must be managed to ensure candid and constructive discussions occur to ensure alignment with enterprise strategy.
Strive for the best accuracy possible
Perfect accuracy is not attainable. Instead, S&OP must strive to achieve the best consensus forecasts possible, considering the vast amount of input required for a plan.
Next steps
To learn about how S&OP works in Pigment, click here.
To learn about Pigment for supply chain, click here.
