What is S&OP?
S&OP, or sales and operations planning, is an integrated business management process that drives organizational consensus to balance supply and demand. The S&OP process, which typically happens monthly, aligns operational areas – such as sales, marketing, product development, manufacturing, procurement, finance, and accounting – so they work in concert to meet financial and organizational goals.
The sales and operations planning process delivers an updated, rolling operational plan and demand plan that typically extends 18 months to 36 months into the future. By optimizing resources to best meet demand while maximizing revenue and profit, S&OP delivers more effective and resilient supply chain management, which is always crucial but even more so during disruptive times.
S&OP is the single most important and critical cross-functional process. If S&OP is done properly, it leads to significant returns, including increased revenue and profitability.
Micheal Youssef, Senior Director Analyst, Gartner
Why is sales and operations planning so important today?
Although the practice of S&OP has been around for decades, the application of smart technologies like artificial intelligence (AI) and machine learning have transformed modern S&OP processes. In the not-too-distant past, executive teams relied on a combination of spreadsheets and siloed applications for their sales and operations planning. But spreadsheets are static and inefficient; they don’t allow for running what-if scenarios or give companies the ability to respond quickly to changes in the marketplace – nor do they support planning across multiple divisions and locations. Furthermore, applications that aren’t explicitly designed to support S&OP processes aren’t efficient or effective.
Properly executed, S&OP allows businesses to take a holistic approach to planning that takes advantage of opportunities and mitigates risks. By making it possible for operational areas to factor their capabilities and constraints into the planning process, S&OP creates a globally optimized program that helps deliver what customers need while focusing the overall corporate strategy.
S&OP solutions integrate real-time data, including user behavior and market-related information, which allows for supply and demand changes to be managed day-to-day. S&OP software also supports advanced analytics and what-if simulations that streamline the analysis and set-up of theoretical situations without the time or risk involved in real-world trials. In order to navigate the complex environment and large volume of data involved, today’s S&OP solutions rely on modern cloud-based software that is powered by artificial intelligence and machine learning technologies.
Top five S&OP benefits
As a collaborative process that balances supply and demand, the benefits of S&OP include:
- Higher profitability: The S&OP process helps maintain a cohesive, balanced plan. It drives great customer service, lowers inventory, reduces waste, and helps meet financial targets – all of which are invaluable in a volatile supply chain environment.
- Better decision-making: With S&OP software tools, planners can run simulations of demand or supply changes throughout the planning cycle – and deliver what-if analyses that enable better decision-making. These same simulation tools provide day-to-day decision support as planners adjust to an ever-changing supply and demand environment.
- A shorter planning process: Modern software and a technologically augmented approach to S&OP adds structure to the planning process and automates much of the necessary data gathering, analysis, and processing to put actionable information at a planner’s fingertips. It also improves accuracy, generates better results, and shortens the overall S&OP cycle.
- Improved cross-departmental collaboration: S&OP fosters cross-departmental collaboration to develop plans aligned across each functional area as well as the entire organization. By improving communications, S&OP eliminates departmental silos, creates consensus, and keeps multiple teams focused on achieving the same goals.
- Seamless feedback loop: The ongoing S&OP structure provides routine, systematic reporting and measurement of actual performance compared to plans. This allows teams to rapidly address any misalignment between the departments and continuously improve operational and strategic plans.
S&OP in action
See how Norgren uses S&OP to increase productivity and improve operating margins
How does the S&OP process work?
While the steps of the sales and operations planning process vary according to the needs and dynamics of each organization, the overall process follows this progression:
- Workspace preparation: During this data-gathering phase, information is collected on the performance of the current plan, trends are analyzed, and forecast accuracy is assessed. It’s important to specify who will be involved in this phase of the process and assign tasks using online visual planning tools.
- Demand planning: Once the workspace has been prepared, updated statistical forecasts are generated. These incorporate a holistic blend of information, such as one-time sales events, new market trends, new product introductions, and price changes – as well as intelligence such as competitors’ moves and external economic or demographic influences. This results in a consensus-based demand plan.
- Supply planning: The supply plan balances customer service objectives – such as meeting demand, ensuring on-time deliveries, and accounting for returns – against inventory and operating costs. It also details the use of resources and indicates any conflicts, resource constraints, inability to fulfill requirements, and resulting service levels. This plan results in an inventory projection through the full time horizon.
- Plan review and reconciliation: After the demand and supply plans are generated, the planning team, including key decision-makers from each functional area of the organization, review the plans and use analysis and simulation tools to fine-tune and improve them. This is where consensus is reached on any changes required to better use resources, meet expected demand, and attain financial goals and objectives.
- S&OP plan finalization and release: The final step of the S&OP process is to present the optimized, finalized plans to senior management so they can be approved and released for implementation.
S&OP integration with other cloud-based systems
Sales and operation planning is only as good as the data that it is built on. When data is siloed, enterprises cannot get the best and most accurate information to support their forecasting and meet their goals.
Fortunately, most of the necessary data can be gathered from an organization’s supporting ERP system or systems, which is why a fully integrated S&OP/ERP environment is so crucial. S&OP also benefits from integration or interface with other data sources, including CRM, engineering, stand-alone systems, and external databases. The depth of S&OP integration supports greater health in the supply chain overall – which helps give businesses a competitive edge.
How to choose the right S&OP software
In today’s environment of volatile supply chains and dispersed workforces, it is imperative to have powerful S&OP software tools that are available to everyone, everywhere. These S&OP tools need to seamlessly integrate with your ERP and other systems, as well as other supply chain planning solutions – such as demand management, inventory planning, response and supply planning, demand-driven MRP, and supply chain control towers.
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