Sales and Operations Planning
Overview
Sales and Operations Planning or S&OP is a strategic initiative in the SCM (Supply Chain Management) that aims at enabling the business enterprise to respond effectively to the demand and supply variability with application of the optimal market deployment and most profitable supply chain mix by using appropriate technologies and bringing about radical changes in the business processes.
S&OP is the process with which we bring together all the plans for the business (customers, sales, marketing, development, manufacturing, sourcing, and financial) into one integrated set of plans.
What is S&OP?
It is a monthly process in which the business (unit) considers it’s medium term plans in terms of sales/demand, supply to meet that demand, the resources needed to deliver that supply to meet that demand, and the financial numbers that arise from those plans – are we meeting the annual budget/business plan, do we need to take any actions to better hit the plan? It is about getting demand and supply into balance in the medium term. If you can plan that balance in the medium term, then short term planning must become easier.
Typically there are 5 steps in the monthly process – but there can be less, there can be more. The process is to fit your environment, not a standard model. The 5 steps are typically :
New product update
Demand planning
Supply and resource planning
An integration and reconciliation meeting
Executive meeting
The number of steps will be influenced by the number of business units to be included, the hierarchy of the organisation, the geographic spread and more.
The process provides to the executive team for the business an overall, high level, big picture of the business in the medium term, covering demand, supply, resources and finances. From this view, the executive can take important decisions that will affect the success of the business in the future. It is not about sorting today’s or tomorrow’s problems and issues, but about planning for the medium term to work, so that, when the medium term becomes the short term, as it undoubtedly will, there are realistic plans to hit the numbers.
Why do we need S&OP? What benefits should we see?
It is about planning to hit the numbers in the annual budget/business plan, and then hitting them consistently. It should lead to improved customer service, with improving on-time, in full deliveries, leading to every customer order being shipped becoming an ‘efficient, perfect order’. This should be achievable with less inventory and reduced lead times. The company will more consistently achieve the revenue and profit numbers, and funds can be invested as planned. The management team feels in control of the business, and is steering the business in the planned direction. Most activities become proactive, rather than reactive.
Where do we need S&OP?
It can be implemented in all your operations around the world, whether sales, supply or development business units. Each business can have its own process and cycle, and the local numbers can be accumulated into worldwide numbers for the top level executive to review. This global dimension of S&OP is becoming much more common. MBE has been involved in 2 such projects in the last 12 months. A worldwide monthly timetable is established and everyone works to that one schedule, to get the numbers done for the end of each month.
What timeframes are we looking at?
The horizon for S&OP is typically the medium term, the 12 to 18 month horizon. Business planning is more about the long term – 3 to 5 years. Master scheduling and detailed material/capacity planning are more about the short term, often just the next 1 to 3 months. So S&OP connects these plans together in the medium term, so that the long term strategic objectives can be planned and delivered, and the short term plans can be executed effectively and efficiently.
The process is a monthly process, just like the financial and management accounts. Would you miss one of those financial cycles? No, of course not. It is the same for S&OP. The executive needs the medium term view every month, to maintain control, to know when to turn the numbers up or down.
You need to start now. The longer you leave it, the more time your competition has to get ahead, and leave you behind. The sooner you start, the sooner you can get your medium term plans under control, the sooner you can hit those plans when they become the short term numbers.
Who should be involved?
First, the top management team from the business unit. They need to be committed, they need to want the numbers, they need to be convinced that they will better run the business from the extra numbers. They need to be involved in the process from the beginning. Middle management need to be involved. They are the ones who collate the numbers together every month, make recommendations to the executive, and who finalise the agenda each month. Sales teams, project teams, planning teams and more will also get involved to provide some of the numbers to middle management. All will need education and training, and will need to participate in the development of the process for your particular environment. People lead to success.
S&OP Process Benefits
Applying S&OP in right earnest can have a positive impact on profitability, performance, customer satisfaction and the product portfolio enabling the business enterprise to yield prompt realization in return on investment. Application of the S&OP can definitely mitigate the significant business challenges that include shrinking profit margins, decreasing customer loyalty, augmenting business rivalry and increased supply chain velocity. Improvement in the S&OP practices can particularly drive benefits holistically in the key business performance areas across the value chain such as in sales and marketing, distribution, manufacturing, and procurement.
Sales and Operations Planning, as taught by APICS, is a process where the executives of an organization gather monthly to review previous performance against plans and if necessary create new plans. The input to the process is the forecast and the output of the S&OP is the production plan, the demand plan, as well as the many other plans that are derived from these.
The objective of Sales & Operations Planning is to arrive at a business “Game Plan” to help manage and allocate critical resources to meet the needs of the customer at the least cost to do so.
S&OP works on pre-agreed Key Performance Indicators. It helps the Managers to identify the area for improvements through these KPI and track the plan vs. actual performance.
If implemented and used effectively , S&OP will yield major benefits to the firm,
Benefits
improved customer service
reduced inventory
lower manufacturing & distribution costs
better control of overall business performance
increased team work within and across functions
It brings in Sales, Marketing, Finance, Production, Materials and Logistics department together for reconciling their individual plans and create a ONE NUMBER plan which will be agreed by all the stakeholders in the Organization.
Sales & Operations Planning is a FIVE step process
Collect Historical Sales Data and generate a statistical forecast.
Compare Forecast vs. Demand Plan vs. Marketing Plan and reconcile the plans for realistic demand number.
Generate the supply plan/ production plan.
Pre - S&OP Meeting: Compare & Check for realistic Demand Vs. Supply plan within the Financial boundaries. Any changes in supply & demand plan can be incorporated and finalized for the month.
S&OP Meeting: Actual Vs. Plan performance; Exceptions and issues with recommendations are recorded for further root cause analysis in the next meeting
Crux of Sales & Operations Planning
Effective S&OP meetings require a one paged single document which tabulates Demand, Supply, Inventory and the financial capabilities of the Organization. The single document should enable Executives to take decisions on the fact and decide upon further action plans. S&OP should be a driving force for Strategic Plans in an Organization.
S&OP meeting primarily is not about matching the supply & demand, but to analyze the root cause of problems arising on matching the same. Its a place for evaluating the opportunity & risks and to decide how profitably one can match demand & supply.
S&OP is all about focusing on the issues proactively. It helps the team to compare the plans devised and set revised goals and objects if there is any deviation. It drives the "Management by Exception" engaging the executive team only on those issues which are critical and adds value to the stakeholders.
Wrong perception about S&OP
S&OP primarily focuses on demand availability and transparency for taking decisions with reducing variability and inventory across the demand. It should NOT be treated as extended Demand Planning.