Sales and operations planning
Sales and operations planning is a business management process used by companies to determine what they expect to sell and whether they can make and deliver those products and/or services with their available resources.
The process brings together sales forecasts, production capacity, inventory levels, and budgets so that different parts of the company work from the same assumptions. These plans are reviewed and updated as conditions change.
By comparing expected customer demand with available supply, managers using S&OP are able to understand how the business is performing now and what is likely to happen next.
S&OP is intended to facilitate better supply chains management by aligning demand and supply.
Definitions
S&OP was developed with the concept of aggregated production planning in the first part of 1950, then switched to manufacturing resource planning around 1985, till the current definition of business process for the alignment of supply and demand. The term S&OP and its modern meaning were conceived of in the 1980s and are generally attributed to Richard Ling, then a consultant with the management consulting firm Oliver Wight.APICS defines S&OP as the "function of setting the overall level of manufacturing output and other activities to best satisfy the current planned levels of sales, while meeting general business objectives of profitability, productivity, competitive customer lead times, etc., as expressed in the overall business plan." The Institute for Supply Management defines it as "working cross-functionally with internal business units to forecast anticipated demand, inventory, supply and customer lead times based on the sales forecast, actual demand and capacity forecast." One of its primary purposes is to establish production rates that will achieve management's objective of maintaining, raising, or lowering inventories or backlogs, while usually attempting to keep the workforce relatively stable. It must extend through a planning horizon sufficient to plan the labor, equipment, facilities, material, and finances required to accomplish the production plan. As this plan affects many company functions, it is normally prepared with information from marketing, manufacturing, engineering, finance, materials, etc."
It has also been described as "a set of decision-making processes to balance demand and supply, to integrate financial planning and operational planning, and to link high-level strategic plans with day-to-day operations."
Planning process
S&OP is the result of planning activities, and it is composed of 5 main steps: data gathering, demand planning, supply planning, pre-meeting and executive meeting with the addition of a preliminary step at the beginning, two additional steps at the end of the process in case of a multinational company and revision as the conclusive step of the S&OP cycle.It is a tactical process with a planning horizon that covers up to 18 months at the product family level and it is typically performed monthly.
While S&OP is typically viewed as a balancing of supply and demand of "goods," these principles can also be applied to businesses dealing exclusively with services.
Inputs to S&OP
The inputs are related to the plans from the different departments involved in S&OP, including constraints and goals. The inputs could be demand plans, sales/demand forecasts, demand impacts, marketing actions and sales actions, procurement and supply plans, supplier lead time, constraints from the supplier and other information, supply capacity, production and capacity plans, inventory, work-force level, operational constraints, production lead time, flexibility, contingencies, distribution plans and distribution capacity, lead time for the delivery, transportation status, service level targets, constraints, or budgets.Output of S&OP
The main output from S&OP is the integration of the plans of Marketing, Sales, Operations and Finance. The integration of plans is allowed by the cross-functional integration fostered by S&OP. The integration is different from coordination: in fact, it takes into consideration the target while the coordination takes it for granted. To achieve the integration the main precursors are: informational quality, procedural quality, alignment quality, constructive engagement.Goals of S&OP
The goals of S&OP could be classified in these categories: alignment and integration, operational improvement, results focused on a single perspective, results based on trade offs and end results. Many authors, including Patrick Bower have written on how S&OP creates value in the supply chain.Implementation
The implementation is driven by the means of maturity model of S&OP. There are different maturity models proposed in the literature in function of the type and number of dimensions considered and the type and number of stages of evolvement. These models serve three purposes: descriptive for the implementation, prescriptive and comparative.One maturity model described in academic literature includes five dimensions and five stages. The five dimensions are related to: meetings and collaboration, organization, measurement, information technology and S&OP plan integration. The stages, along with these dimensions evolved are, no S&OP process, reactive, standard, advanced and proactive.
There is another maturity model which suggests four dimensions and six stages of evolution. The dimensions are process effectiveness, process efficiency, people and organization and information technology. The stages of evolution are undeveloped, rudimentary, reactive, consistent, integrated and proactive.