What is Sales and Operations Planning (S&OP)?
Sales and Operations Planning (S&OP) is a structured planning process that uses forecasted customer demand to drive production schedules. It is a “boundary spanning” activity that, in order to be effective, requires active engagement with cross-functional teams including sales, manufacturing, supplier management and business management.
What is the Goal of S&OP?
Sales and Operations Planning helps bring order to the chaos of the marketplace and to help coordinate across different areas of the business. It enables manufacturers to be proactive, rather than reactive, to changes in the business environment and can occur at regular evaluation intervals that fit the needs and goals of the business.
What are the Benefits of S&OP?
Five key benefits of S&OP include improved business alignment, lowered costs for expedited shipments, better capacity utilization, enhanced return on assets, lower cash requirements and a reduction in supply chain risk.
What Makes S&OP Successful?
Successful S&OP results in higher levels of customer service, optimal inventory levels, and highly efficient production runs that maximize manufacturing efficiency. It provides an operational framework that helps all members of the organization work collaboratively towards achieving these common goals. Prosperous companies have strong leaders who clearly communicate a distinct vision for managing current business and for planning future growth. Healthy organizations all work together to achieve defined organizational goals.
Organizations without a successful S&OP approach incur each functional area pursuing their own objectives. This results in a misalignment of activities in support of the business’s overall strategic direction. However, organizations with successful S&OP planning have all operational areas working together collaboratively to achieve your corporation’s strategic objectives.
Key Pillars of S&OP
Businesses with successful S&OP planning processes have implemented structured organizational formats that facilitate cooperation among departments. The structured organizational formats defined by your organization are repeatable across your business and help produce consistent achievements. The 5 key pillars of S&OP are:
- Visibility and Analytics
- Business Simulation (Scenario Planning)
- Supply Chain Collaboration
- Workflow Management
- Operational Reconciliation
Robust S&OP programs share common elements including an emphasis on data transparency and clear analytics, “what if” business simulations, and accurate data that is refreshed in real time to promote operational reconciliation.
A 7 Step Business Process
Within the S&OP community, there are seven essential steps that are widely recognized as being key to a successful S&OP program. The steps include:
- Collecting and managing data
- Using forecasted sales to develop a demand plan
- Creating an inventory assessment plan
- Coordinating a finance review
- Developing a product portfolio management system
- Scheduling monthly Pre-S&OP operational meetings with those charged with S&OP process success
- Running monthly S&OP meetings and presenting intended plans to upper management
This allows manufacturers to adapt lot sizes to real demand and avoid the scrapping of outdated products. So even if fixed costs are distributed differently on every other product batch, cash flow and profitability increases by being able to sell instead of stocking and scrapping!
Roles and Responsibilities of S&OP
Establishing roles and responsibilities within the Sales and Operations Planning (S&OP) process is of utmost importance. As Sales and Operations Planning spans across your business, it is important for the S&OP team to have a representative from each business function that either impacts, or is impacted by, the S&OP process. This multi-functional team is tasked with creating proactive solutions that help ensure optimized manufacturing planning. Key personnel to have on your team include:
- Executive Management
- Sales & Marketing Leader
- Demand Planner
- Sales Personnel
- Operations Leader
- Procurement Planning and Master Scheduling
S&OP vs Integrated Business Planning
Like S&OP, Integrated Business Planning (IBP) provides a structured format for multi-functional teams to develop plans for achieving business objectives. IBP tends to be used by higher level executives within an organization. It has more of a distinct focus on aggregate financial issues than on the “in the weeds” details required to plan and execute a highly effective Sales and Operations Planning plan. The goals of IBP are integrated cross-departmental communication, an efficient decision making process and effective outcomes.
Ensuring that an organization has sufficient capital, deployed effectively, to meet long-term strategic goals, within the context of IBP, is another way to ensure strategic alignment throughout the entirety of an organization. (Higher level executives can assign financial resources to support the execution of S&OP plans).QAD helps companies adopt and use S&OP by facilitating better communication and planning across the company.
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Thank you, Brent, for this informative article on Sales and Operations Planning (S&OP). S&OP is indeed a crucial process for any organization looking to streamline its operations and adapt to the ever-changing market dynamics.