Sales and Operations Planning (S&OP) is a structured monthly business process that aligns all functional areas under a unified set of assumptions to enable and coordinate decision making. It integrates product, demand, supply, operations, and financial planning into one game plan for business.
The guiding principle is that S&OP is a formalized and repeatable process that integrates different steps and functional areas. To help us understand exactly what S&OP is (and what it is not), I have created the following list.
1. S&OP is not a supply chain procedure – It needs to be a business process. It needs to be elevated to the same level as where business decisions are made. If it remains purely a supply chain or demand planning process, it will never be truly linked to strategy or have full participation from executives.
2. S&OP is not about a number – It is not about creating a forecast number or how much we need to produce. It needs to become the way you align to strategies. A business process is a structured set of activities that produce a desired result. If your desired result is just a forecast or inventory number, then why bother? A system can do that for you. We need results that generate tactical responses and strategies that drive the business.
3. S&OP is not just Sales and Operations – It needs to align with all functions. If it is a business process, it will be impacting all aspects of the business so everyone needs a seat at the table. As per the point above, if S&OP never progresses beyond a functional process, while we can say it is integrated, we will struggle to get cross-functional buy in and participation.
4. S&OP is not supply’s response to a forecast – It needs to be a unified plan. There needs to be a one number attitude and this goes beyond forecast. Just as we need to go beyond integration of all functional areas, we need to extend this one number attitude to a single set of assumptions and plans.
5. S&OP is not a reporting forum – It needs to be a decision-making consultation. If all you are doing is meeting and reporting what happened last period, how bad your KPI’s were, or even revealing the latest forecast, then you’re wasting yours and everybody’s time because these can all be done via email. It is almost guaranteed that a process that doesn’t help solve business decisions will, over time, lose engagement from executives.
6. S&OP is not a meeting – it needs to be an iterative process. While there are various meetings that comprise S&OP, we cannot lose sight of the objective of the S&OP process. This is about collaboration, communication, and consensus – and meetings facilitate part of this. But each meeting is part of a whole and enables the next step in the process, guiding us closer to making key business decisions.
7. S&OP is not a project – it needs to be a continual development. Unfortunately, many organizations start their journeys with only the objective of having a running S&OP process. Projects have a defined deliverable and timeline with an end date. S&OP has continuous incremental improvements and if done properly, will help run your business and enable decision making. Do not start an S&OP project, but rather begin your journey, implementing small changes and improving each month.
The Bottom Line
Sales and Operations Planning (S&OP) is a powerful decision-making tool for businesses. According to Tom Wallace, one of the originators of S&OP, “S&OP enables the company’s managers to view the business holistically and gives them a window into the future”.
It needs to be thought of more as a strategic operating model for making better decisions. Sure, you may be organizing monthly meetings and maybe a four step or five step process, but your mindset should focus on an enterprise-wide process, aligning all functional areas around a common set of assumptions, thereby enabling the business to make better decisions.
To develop your S&OP skills, there is no better training than IBF’s Forecasting, Demand Planning, & S&OP Live Online Training, held in May 2021. You’ll learn all aspects of the field from university professors and Directors of Supply Chain and Demand Planning at multinational companies. Pick and choose each module for $379 ($329 when you become an IBF member) or the full course plus exams to get IBF CPF certified. Find out more.