Sales & operations planning
Take control of executing business strategy through a comprehensive S&OP process
CHALLENGES THAT S&OP SOLVES
Common business challenges that S&OP solves
Disconnected sales and operations plans
Excess inventory and stockouts
Poor demand visibility
Capacity and resource constraints
Conflicting departmental priorities
Slow response to demand changes
INTRODUCTION
Harmonising supply & demand
S&OP (Sales & Operations Planning) is a process that harmonises the supply and demand plans of a business over the mid-to-long term horizon. In addition to bridging the supply and demand plans, S&OP also focuses on integrating financial reporting as well as encompassing market planning, new product development and business strategy.
TRUSTED BY LEADING ORGANISATIONS
S&OP
The evolution of S&OP
S&OP is certainly not a new concept. As a business process, it has been widely deployed since the 1980s. Whilst the original concept focused on balancing supply and demand, i.e. sales and operations, it has developed into a more comprehensive business-wide process incorporating financial planning and strategic direction, and is now sometimes referred to as IBP (Integrated Business Planning).
The best S&OP processes are designed from the ground up, working alongside stakeholders and considering the varying functional nuances of the business. S&OP is not about buying the right system first and then designing a process around it. An effective S&OP process requires a platform that is bespoke to the needs of the business. Systems support becomes useful once the process has been designed, deployed and tested, allowing technology to be configured around the process, rather than the other way around.
OUR APPROACH
S&OP - 5 step approach
The S&OP process needs to be based on an accurate reflection of the company’s product portfolio. Each month, as the first step in the S&OP process, the portfolio should be reviewed with the aim of flagging new product introduction, identifying delist requirements, adding new SKUs and updating ABC classifications. The reviewed and validated portfolio can then be used as the foundation for the next step, Demand Planning.
In this step the unconstrained demand forecast is developed and agreed. This is where the long-term sales forecast is updated, including baseline growth or contraction, new product impacts, market promotions and extrinsic trends. For a truly effective S&OP process this demand plan should focus on a mid-to-long term horizon, usually at least a rolling 18 months at an aggregate level i.e. product families.
The longer the planning horizon, the better it is for the supply chain. New assets such as warehouses and production facilities can have a long commissioning lead time: A S&OP process looking at just 6 months is of little use if it takes 12 months to commission new assets.
Using the information from Step 2 the operations team now review how they will meet the required demand plan and what level of resource will be required. These resources may include people, handling equipment, material, production equipment, warehouse capacity and transport capacity. If there is significant growth in the Demand Plan from Step 2, then the Supply Planning Step can require a significant level of operational modelling.
Of course, it’s relatively easy to be reactive with resources in supply chain. Temporary labour, vehicle spot-hire and 3rd party storage can all be deployed quickly as a contingency measure, but at an additional, and usually unbudgeted, cost. Instead, given the opportunity to plan for events through an S&OP process, the supply chain and operations teams are able to ensure that fluctuations in demand are more efficiently planned for.
In Step 4 the key stakeholders involved in the first three steps meet to discuss the outputs of their respective steps and agree the ‘non-negotiable’ elements alongside the trade-offs. For example, the demand plan may reflect a sales forecast that will exceed production capacity for a short period of time. In the Supply Plan this sales requirement may have been met by using overtime, or external production capacity at additional cost. However, it may be agreed during this optimisation step that the forecast can be met by pre-building inventory in a quieter period and hence the requirement can be met at a more favourable supply cost.
Step 5 is the opportunity for the company’s executive team to review the plans from the preceding steps and provide decisions where required. This may encompass reviewing the Demand Plan to ensure it fits with the business strategy and authorising requirements within the Supply Plan that may incur additional costs i.e. new equipment, premises, inventory, outsourcing capacity etc.
Any changes or decision made at the Executive approval stage are then fed back to all stakeholders and incorporated within the planning of the next S&OP cycle.
FEATURED CASE STUDY
S&OP for healthcare case study
S&OP for a healthcare products manufacturer
Making S&OP work
S&OP should be a simple process that is fully understood by all stakeholders and actively supported by senior management. Too often, existing S&OP processes become over-complicated and ultimately fail because of time constraints or a lack of engagement. Our consultants have designed, implemented and managed S&OP processes for major multinational organisations, and can support either the full design and implementation of S&OP or the review and improvement of an existing S&OP or IBP process.
We deploy a five-step S&OP process, using a series of logical steps each month to ensure the different functions within a business are working towards the same goals. The emphasis is on creating a practical, sustainable process that brings the right people and information together to support effective business planning and decision-making.
INSIGHT
S&OP articles & advice
5 Issues That Will Break Your S&OP Process
Sales & Operations Planning (S&OP) is a powerful decision-making process that provides a platform to balance supply and demand on a mid-to-long term horizon. The
S&OP: Don’t Develop Your Supply Chain Without It
All too often supply chain development, and investment into supply chain assets, is focused on a single plan at a fixed point in time, be
S&OP Explained in 500 Words
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