Within supply chain, there is a subset of decision-making processes that are designed to keep supply and demand in balance. This subset is called Sales and Operations Planning (S&OP). S&OP is a methodology used to balance supply and demand, as well as to integrate high-level financial planning with daily operations.
S&OP is a tested method of continually measuring materials input against finished products. Used together with historical sales data, your organization can more accurately forecast future sales projections. In turn, you can use sales projections for operational planning, such as to maintain inventory at an optimum level.
What is Sales and Operations Planning?
Sales and Operations Planning is sometimes known as aggregate planning. This is a process fostered by executive management, who meets and reviews the projections for demand and supply, and their fiscal consequences. The point is to ensure that tactical plans in every business area follow the company’s overall business plan. When S&OP is done correctly, it helps promote effective management of the supply chain. The outcome from S&OP lets top management set the level of production (the production plan) to meet the currently planned level of sales (the sales forecast). Promulgated by global consultancy Oliver Wight over two decades ago, S&OP best applies to supply and demand balancing. Organizations looking to incorporate complete financial evaluation should look to Integrated Business Planning (IBP), which is basically S&OP with financial planning and analysis.
The key to success in S&OP is that the executive team is engaged in the planning, implementation, and follow-up.
Benefits of S&OP
Sales and Operations Planning is an effective way to make evidence-based decisions regarding planning for production, procurement, sales, and inventory levels. S&OP ties all the areas together to allow for daily scheduling and execution. Following are some other benefits of S&OP:
- Improved communications in the executive suite and on the factory floor.
- An environment for executives to make informed decisions, including financial outcomes, more easily and more accurately.
- Everyone has access to the same single set of numbers, in units and in dollars. This gives all decision makers the same information for running the business.
S&OP allows for production and inventory planning to keep your organization ready to fill orders while keeping inventory at appropriate levels.
Succeeding with S&OP
Sales and Operations Planning can help turn a company into a success. Following are important tips for using S&OP in your organization:
- Sales and Operations Planning is a production system that involves the collaboration of different departments such as sales/marketing, supply chain, and operations. As such, teamwork throughout the organization is vital to success.
- S&OP that succeeds is driven by a CEO or general manager who takes charge of the S&OP process. With buy-in and participation from organizational leaders, S&OP can improve organizational performance. Without top leadership believing in and promoting S&OP, a company may see fewer benefits from its adoption.
- Regularly scheduled monthly meetings are a must, especially since the S&OP process can be disruptive. Meetings are required to work out the naturally occurring conflicts associated with S&OP.