Sales and Operations Planning (S&OP) is a structured planning process that uses forecasted customer demand to drive production schedules. It is a “boundary spanning” activity. that, in order to be effective, requires active engagement with cross-functional teams including sales, manufacturing, vendor management, and business management. Successful S&OP results in high levels of customer service, optimal inventory levels, and highly efficient production runs that maximize manufacturing efficiency.
Sales and Operations Planning helps bring order to the chaos of the marketplace. It enables manufacturers to be proactive, rather than reactive, to changes in the business environment.
Advantages of S&OP
What are the main advantages of S&OP? Prosperous companies have strong leaders who clearly communicate a distinct vision for managing current business and for planning for future growth. Healthy organizations all work together to achieve these organizational goals. It provides an operational framework that helps all members of the organization work collaboratively towards achieving these common goals.
Therefore, key benefits include improved business alignment, lowered costs for expedited shipments, better capacity utilization, enhanced return on assets, lower cash requirements and a reduction in supply chain risk. Key capabilities of S&OP include more effective support from executive management, optimized planning process control, better cross-functional collaboration and improved scenario management to help eliminate risk.
In an organization without successful S& OP, each functional area is pursuing their own objectives. They are not necessarily aligning their activities in support of the business’s is overall strategic direction.
However, Organization with successful S&OP planning have all operational areas working together collaboratively to achieve the corporation’s strategic objectives.
Key Pillars Of S&OP
Businesses with successful S&OP planning processes have implemented structured organizational formats that facilitate cooperation among departments. Thus, these organizational structures are repeatable across businesses and industries and help produce consistent achievements.
Robust Sales and Operations Planning programs share common elements including an emphasis on data transparency and clear analytics, “what if” business simulations, and accurate data that is refreshed in real time to promote operational reconciliation.
A 7 Step Business Process
Within the Sales and Operations Planning community, there are seven essential steps that are widely recognized as being key to a successful S&OP program.
These steps include:
- Collecting and managing data
- Using forecasted sales to develop a demand plan
- Creating an inventory assessment plan
- Coordinating a finance review
- Developing a product portfolio management system
- Scheduling monthly Pre-S&OP operational meetings with those charged with S&OP process success
- Running monthly S&OP meetings and presenting intended plans to upper management
This allowed manufacturing to adapt lot sizes to this real demand and avoid scrapping outdated products. So even if fixed costs were distributed differently on every other product batch, cash flow and profitability increased by being able to sell instead of stocking and scrapping!
Roles and Responsibilities of S&OP
Defining roles and responsibilities in the S&OP process is primordial. As Sales and Operations Planning is a boundary spanning process, it is important for the S&OP team to have a representative from each business function that either impacts, or is impacted by, the S&OP process. Indeed this multi-functional team will collectively create proactive solutions that will help ensure optimized manufacturing planning. Key personnel to have on your team include:
- Executive Management
- Sales & Marketing Leader
- Demand Planner
- Sales Personnel
- Operations Leader
- Supply Planning and Master Scheduling
Integrated Business Planning
Like S&OP, Integrated Business Planning (IBP) provides a structured format for multi-functional teams to develop plans for achieving business objectives. As a matter of fact, IBP tends to be used by higher level executives within an organization. It has more of a distinct focus on aggregate financial issues than on the “in the weeds” details required to plan and execute a highly effective Sales and Operations Planning plan. Like S&OP, the goals of IBP are integrated cross-departmental communication, an efficient decision making process and effective outcomes.
Finally, ensuring that an organization has sufficient capital, deployed effectively, to meet long-term strategic goals, within the context of IBP, is another way to ensure strategic alignment throughout the entirety of an organization. (Higher level executives can assign financial resources to support execution of S&OP plans).