Sales & Operations Planning (S&OP) has been with the business world since the 1980’s. Despite this maturity there are still a lot of myths and misconceptions about what the process actually is. This is a brief article aimed to tell you exactly what S&OP is, and what it isn’t…
As a Supply Chain Consultant, and also as a manager, I have implemented S&OP many times in different businesses. Consequently I have heard far too many times the following:
“…that’s a new IT system isn’t it?”
“…it will replace our existing MRP processes”
“…it’s about reducing our inventories”
“…that’s just another strategic senior management meeting”
Firstly, let me tell you that S&OP is none of those things in isolation; and secondly let me tell you that despite the encyclopaedic books written on S&OP, the numerous advanced training courses and the over-analysis of the topic by academics, S&OP is actually a very simple process.
So, what is S&OP?
S&OP is a process that facilitates a company to develop a mid-to-long term plan on how it will efficiently balance demand and supply. In addition to this the process also ensures that all key functions in the business are in agreement with the plan and everyone has visibility of the same numbers.
What are the Requirements of S&OP?
As S&OP is about the mid-to-long term horizon, planning should be undertaken at an aggregate level i.e. product families. S&OP planning, at the simplest level, is carried out in a monthly cycle of meetings and pre-meeting preparation and broadly works as follows:
Week 1 – Demand Planning
A mid-to-long term volume based demand forecast is generated and agreed with all key stakeholders. The stakeholders may include sales, marketing, finance and new product introduction. Week 1 effectively answers the question “what are we planning to sell?”.
Week 2 – Supply Planning
Using the demand forecast from week 1 a supply plan is overlaid. The supply plan is created to assess, at a high level, what resources will be required and whether those resources will be under or over capacity. Stakeholders for capacity planning may include production, purchasing, logistics and finance. Week 2 answers the question “how are we going to make and deliver what we plan to sell?”.
Week 3 – Bridging Proposals
In week 3 the demand and supply plans are assessed for efficiency. The objective of week 3 is to develop, in consensus with all stake-holders, plans to mitigate inefficiency, over-resourcing, under-resourcing etc. All stake-holders from the demand and supply planning steps of the S&OP process should be involved in week 3.
Week 4 – Executive Approval
As the final step in the monthly cycle the demand plan, supply plan and any bridging proposals are presented to the senior management team for approval, or for alternative action. At this meeting there should also be reporting on the status of any previous bridging proposals, along with a measure of activity vs. plan i.e. forecast accuracy, inventory levels, resource utilisation etc.
Following the week 4 meeting the whole process starts again in preparation for the following month.
What I have explained here is the basic requirements of S&OP, and it’s core objective. There are many interesting and effective developments happening with S&OP to help senior executives assess risk and analyse alternative strategies. However, these developments can only be an evolution from firstly having a good basic S&OP process implemented, as described in this article.