Sales and Operations Planning, commonly abbreviated as S&OP, is a process whereby modern businesses attempt to ensure they have the ideal amount of inventory to match sales with demand, to put it in the most simple terms. S&OP is part of a business’s master planning strategy and helps align teams such as finance, sales, marketing, production, warehousing, shipping, management, and operations with the corporate strategy for the most efficient road to success.
The sales and operations planning process examines production, sales, demand, and inventory data and uses it to prepare forecasts up to 18-36 months into the future, though these projections are continually analyzed, reviewed, and updated through regular S&OP meetings and processes.
An effective S&OP process is beneficial for today’s fast-moving businesses wishing to optimize production, sales, and profits, while reducing inefficiencies and unnecessary spending in supply and inventory. Having fewer resources committed to inventory frees up working capital and improves cash flow. More frequent and detailed analysis of data improves forecasting and reduces wasteful spending. An efficient S&OP process streamlines communication between departments, team leads, and company leaders, and reduces wasted effort (and spending) on unwise or unplanned initiatives. It also provides greater company-wide visibility into sales, operations, production, marketing, finance, and leadership.
Most organizations have a monthly S&OP cadence, but some may choose to accelerate the cycle based on rapid changes in the market, intense competition, or serious supply chain interruptions (such as during the COVID-19 pandemic). In a less competitive or volatile market, a business may opt to extend the S&OP process to every other month or even semiannually. However, a monthly S&OP process is likely the most attainable and beneficial to the majority of business organizations, due to the time and effort required for effective analysis, planning, forecasting, and implementation.
At ORI, we believe that “continuous alignment” is the logical evolution of the traditional S&OP process. This entails supply chain professionals leveraging data and software tools to calibrate on a daily basis rather than relying exclusively on the typical 30-day S&OP cycle. Today, changes in markets, business conditions, and supply chains move too quickly for a reactive S&OP approach and instead require proactive, continuous alignment.
The terminology of the 5 primary phases of the S&OP process may differ somewhat, but most agree that the essential steps in sales and operation planning include:
During this first phase of the S&OP cycle, team members gather and analyze demand, sales, inventory, and production data, particularly from the previous month (or longer, depending on the S&OP cadence), and determine its accuracy compared to projections.
Other key areas that need consideration and analysis include financial information such as profit margins, production costs, product pricing, holding/storage costs, and any applicable transportation/shipping costs.
This initial phase is also the time to account for any unforeseen events that may be impacting supply and/or demand, such as external events, changes in the market, or price adjustments.
The next phase of the S&OP process includes analyzing all factors influencing product demand and preparing a statistical demand forecast for the next period (as well as over the next year to year and a half). The team should examine the previously predicted demand, compare the data to actual sales over the last time period, and discuss potential reasons for any discrepancies. Demand trends based on previous year-to-year data should be part of the discussion.
This analysis should also include all relevant information that may impact demand, including consumer/sales trends, new product launches, marketing, and internal and/or external part/component demand.
Relevant observations on chief competitors’ actions should also be accounted for in the demand forecast, as well as any socio-economic influences.
Building on the demand planning phase, the next part of the process is supply planning. Teams may modify or update previous supply plans based on observations of market conditions and/or demand planning results. Analysis should include details of successes and problems with on-time deliverables, customer service, product returns, resource use, and inventory since the last S&OP update. Any surplus or shortages that occurred since the last S&OP should be examined and the causes identified if possible. The team should highlight any changes in production costs, seasonal influences, or relevant national/worldwide trends that have impacted supply (or that may impact it during the next phase).
The deliverable for this phase is a detailed supply and inventory forecast for the next cycle, and ideally out to 12, 18, or even 36 months.
This is “the meeting before the meeting.” Key team leaders and decision-makers from every applicable area of the organization will meet to review and discuss the demand and supply planning forecasts, address any problems, and suggest modifications to any plans for operations, marketing, sales, shipping/delivery, and all other aspects of the product cycle, based on the available data.
Ideally, all team leaders will reach a consensus and prepare suggestions for company leaders regarding any necessary changes in order to better meet demand while addressing any supply issues. Any modifications or suggested courses of action should be reconciled with over-arching company plans and financial requirements at this time.
Finally, the previously reviewed sales and operation plan is presented to the executive team or company leaders for discussion, modification/finalization, approval, and release for implementation. In this meeting, team leads should present all relevant data, planning strategies, and suggested adjustments to previously established courses of action. The executive team will review the proposal, discuss any modifications, and make any vital decisions that haven’t been possible in the previous stages. If certain decisions cannot be made at this time due to insufficient data or external factors, the attendees will set specific and attainable decision deadlines.
After addressing all relevant issues and making necessary tweaks to the plan, the executive team will release the finalized sales and operations plan for implementation by the various departments and teams.
One of the benefits of efficient S&OP is that it can reduce or eliminate tedious “paperwork” and spreadsheet analysis as teams and leaders streamline data reporting, analysis, forecasting, and sharing. It stands to reason that any well-thought-out software tool that reduces inefficiencies and helps facilitate rapid, accurate planning and forecasting can be of benefit to the modern S&OP process, particularly if it is optimized for a particular industry (where applicable).
At ORI, we’ve blended 30 years of high-impact S&OP consulting experience with best-in-class data management and proprietary AI-powered software to enable S&OP excellence. Reach out via our Contact page if you’d like a free demo.
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