Sales and operations planning (S&OP) is a process to develop tactical plans that provide management the ability to strategically direct its businesses to achieve competitive advantage. The purpose is to integrate, on a regularly basis, customer-focused marketing plans for new and existing products with the management of the supply chain.
The primary target of the S&OP process is to determine what and how much your customers are going to buy, and your capability to meet this demand. A second target of the S&OP process is to align plans with financial goals. At a minimum, this implies that financial goals may need to be revised, but there are several strategic alternatives available for the organization to increase sales or lower costs.
A process that brings everyone together
The process brings together all the plans for the business (sales, marketing, development, manufacturing, sourcing, and financial) into one integrated set of plans. It is performed at least once a month and is reviewed by management at an aggregate (product family) level. The process must reconcile all supply, demand, and new-product plans at both the detail and aggregate levels and tie to the business plan. It is the definitive statement of the company’s plans for the near to intermediate future, coving a horizon long enough to plan resources and support the annual business planning process. Executed properly, the S&OP process links the strategic plan for the business with its execution and reviews performance measurements for continuous improvement.
S&OP stands for sales and operation plan and sales and operations planning at the same time. It is both a plan and the process that creates, implements, monitors, and continuously improves the plan. The S&OP process involves a series of meetings to meet a consensus. A demand and production plans that reflect the results of demand-side sensing and influencing activities and supply- and finance-side capabilities and constraints.
Wallace and Stahl, authors of Sales and Operation Planning: The How-to Handbook, list the following meetings in S&OP:
- Data gathering
- Demand planning
- Supply planning
- Executive meeting
The meetings map an overall S&OP Process. The steps of this process are:
- Reviewing performance
- Evaluating demand levels
- Evaluating supply capacity
- Reconciling demand, supply, and financial plan
S&OP provides the following organizational benefits:
- Link between business planning and tactics
- Opportunities to be proactive rather than reactive
- Definitive short-to medium-term plan
- Unified, cross-functional plan and process
- Bridge between customer value and supply chain efficiency
- Incentive to engage in continuous improvement
Like supply chain management, S&OP rests on the assumption that companies wishing to compete in the expanding global marketplace can and must break down the silo walls between functions and break through the barriers separating supply chain partners. In fact, S&OP is intended to be a planning and controlling tool not just for manufacturing but for the entire enterprise. Breaking down those barriers, however, doesn’t always happen quickly and easily.