The “Sales and Operational Planning” process (or S&OP for short) is a business tool used to develop a set of plans (which includes sales, production, inventory and financial plans) which provide a timed plan of what products to produce, in which quantity and for which customer. An effective S&OP process facilitates competitiveness and provides clear demand signals to its supply chain.
All business will have slightly different review period requirements (for example FMCG and small volume suppliers will have different needs) but most business will review their S&OP on a monthly basis and appraise a 12, 18 or 24 month planning horizon.
S&OP is a decision making tool, its outputs (in particular production plans and inventory plans) commit costs (resources, materials etc) and determine outputs. A best practice S&OP business process will engage both functional and senior management in plan development (Senior management must be involved in the sign off of the resultant plans). This is especially true given that the the resulting plans directly correlate to businesses financial planning (e.g. budgets).
Most businesses will deploy performance measures along side their S&OP to measure its effectiveness – many organizations choose to include measures that help the organization determine (and improve) the accuracy of their plans – KPI’s that assist with this typically include:
• Delivery Schedule Adherence to customer
• Production Plan stability
• Demand Forecast accuracy
• Accuracy to budget
Many organizations try to move beyond the traditional S&OP plans by incorporating more advanced techniques such as scenario planning or modeling (what happens if my customer demand increases by 10%). Closer ties with financial controls are often a key objective. Many businesses also seize upon the unique structure of S&OP and utilize it as a tool that improves organizational communications.
Problems with S&OP
Like all processes S&OP is not without its issues – the more typical challenges that accompany S&OP are:
• Poor quality data used for planning
• Organizational politics and silo departments
• Clear understanding of roles and responsibilities
• Ensuring compliance with the resultant plan
This last issue is perhaps key – what do businesses do when their plan is challenged by the customer. S&OP works best with stability (when everyone knows what the need to do over the medium term). Consistently fluctuating priorities can kill even an excellently constructed S&OP.
Summary
S&OP processes are an integral part of many manufacturing organizations. The process provides a unique, cross functional tool that provides the business with a strategy (what to build, in what quantity, within what time period, for which customer). The by-product of a successful S&OP can be an efficient supply chain, a well directed work force and high levels of customer satisfaction (providing the plan is adhered to!).
While there is no specific rule of what S&OP process have to include businesses should ask themselves if their process is delivering the expected benefit? And if not what action plan could be put in place to recover the situation.