skip to Main Content

Sales & Operations Planning: The Key to Managing Change

S&OP  
09/19/2018

A bedrock principle of Supply Chain Management is its recognition that all value-adding functional activities within an enterprise are interconnected. Once a company realizes this interdependence, the challenge becomes one of operationalization: how does the organization work this insight into their search for competitive advantage? The forward-thinking enterprise seeks to optimize the contribution of its entire talent pool and encourage a culture of collaboration.

The pace of change is frantic. To the swift go the spoils. Globalization, technological advancement, and empowered customers have made fast response to market developments evermore challenging.

Research firm The Aberdeen Group of Boston, MA has found that a formal process of Sales and Operations Planning (S&OP) was a key enabler in companies who were able to achieve best-in-class results in customer service levels, average cash conversion cycles, forecast accuracy at product family levels, and in gross margin rates realized.

North American businesses face three predominant pressures: to reduce supply chain operating costs, to improve the management of increasing demand volatility, and to improve top line revenue. Customers mandate faster, more accurate and more unique fulfillment as well as a need for tighter integration between planning and execution. Managing demand forecasts within an S&OP framework, and integrating the financial planning and budgeting processes within the S&OP process were seen to address these pressures.

Put simply, Sales and Operations Planning (S&OP) is a business process that facilitates the balancing of supply and demand. Occurring over a monthly cycle in five stages, it is cross-functional, involving the participation of staff from various business units within a company, including Sales, Marketing, Production, Distribution, Finance, and Product Development. S&OP is meant to bring together all the plans for the business into one integrated set of plans.

In his work, Orchestrating Success: Improve Control of the Business with Sales and Operations Planning (1988), Richard C. Ling devised a process that would improve upon the traditional “Production Planning” activity, which demands that Sales / Marketing devise a forecast and hand it off to Operations, who execute the plan through functions like Master Production Scheduling. He called his new process Sales & Operations Planning.

Unlike Production Planning, S&OP, requires that the barriers between Operations, Sales, and Finance families be removed – that a single comprehensive plan is developed in a collaborative manner. Forecasts are articulated at aggregate (product family) levels, rather than at item levels of detail. Conflicts that frequently arise between various functional areas within the business are reconciled before the plan is set to execution. In a “Production Planning” environment, sales plans and operations plans are sequential; in the S&OP case, sales planning and operations planning occur jointly, and collaboratively.

At each stage, the process requires collaboration: input from specialists throughout the organization, and communication to resolve the conflicts that will inevitably arise.

S&OP helps businesses manage change. It enhances the organization’s ability to make changes very quickly, since an agreed-upon game plan is already in place. Wallace puts it succinctly: “If things never changed, there would be no need for S&OP. It’s there because things change.

Related Articles

Is S&OP owned by supply chain?

S&OP is commonly under supply chain, but should it be? The Institute of Business Forecasting & Planning said, “As S&OP maturity evolves the requirement for ownership of the process becomes more and more focused on business leadership and decision-making.” It [...]

Why you should be using an S&OP Calendar

Do you use your S&OP calendar? It is a great tool to help you meet your goals and work together. The Institute of Business Forecasting & Planning noted, “By consistently indicating where they contribute in the process, and indicating that [...]

Working on your S&OP tech

Technology can be instrumental in bettering your sales and operations planning. The APQC blog said, “Specific industries are adopting technology such as AI and data analytics to address planning challenges, which indicates a critical competitive shift other organizations will soon [...]

S&OP vs. SIOP: What’s the Difference?

From one perspective, there is very little difference between “sales and operations planning (S&OP)” and “sales, inventory, and operations planning (SIOP)” because the overall objective is the same for both: Get the right inventory to the right place at the [...]

Seven Advantages of Integrated Demand and Supply Planning

A championship football team reaches such heights because of teamwork, practice, and a clear strategy.  Both offensively and defensively, team members are drilled over and over to work together and know the plan so that on game day, everyone is [...]

Are you utilizing technology for S&OP?

Technology keeps getting better in sales and operations planning, and businesses are really utilizing it! Supply Chain Management Review reported, “Nearly 70% of the respondents in APQC’s survey of S&OP professionals consider technology to be an extremely critical or very [...]

Places to Improve in your S&OP Process

Process and technology may be improving S&OP, but there are always places to improve. As much as possible, try to get your executive team informed and in the loop. Kumar Singh said, “Supply chains are becoming increasingly complex and as [...]

Is your Sales and Operations Planning just Mediocre?

Even in the places you think you’re doing a good job, there is often room to improve. Ventana Research reported that many companies are not doing as well as they might think saying, “The Dynamic Insight analysis suggests that many [...]

MRP – A Key Enabler of Agile Manufacturing

Over its roughly fifty-year lifespan, Material Requirements Planning (MRP) has been established as one of the most powerful and influential innovations in manufacturing technology. Introduced and popularized by Joseph Orlicky through his book Material Requirements Planning (MRP): The New Way [...]

Collaboration Between Sales and Demand Planning

Creating channels for efficient communication and collaboration between your sales department and demand planning can have great results. The Institute of Business Forecasting & Planning said, “This allows the organization to capture what we know in current sales levels and [...]
Subscribe to our Blog
Back To Top