Sales and operations planning (S&OP) is an integrated

business Business is the practice of making one's living or making money by producing or Trade, buying and selling Product (business), products (such as goods and Service (economics), services). It is also "any activity or enterprise entered into for ...

management process A management process is a process of setting goals, planning and/or controlling the organising and leading the execution of any type of activity, such as: * A project ( project management process), or * A process ( process management process, s ...

through which the executive/leadership team continually achieves focus, alignment, and synchronization among all organization functions. The S&OP process includes an updated forecast that leads to a sales plan, production plan, inventory plan, customer lead time (backlog) plan, new

product development New product development (NPD) or product development in business and engineering covers the complete process of launching a new product to the market. Product development also includes the renewal of an existing product and introducing a product ...

plan, strategic initiative plan, and resulting

financial plan In general usage, a financial plan is a comprehensive evaluation of an individual's current pay and future financial state by using current known variables to predict future income, asset values and withdrawal plans. This often includes a budg ...

. Plan frequency and planning horizon depend on the specifics of the context. Short product life cycles and high

demand In economics, demand is the quantity of a goods, good that consumers are willing and able to purchase at various prices during a given time. In economics "demand" for a commodity is not the same thing as "desire" for it. It refers to both the desi ...

volatility require a tighter S&OP than steadily consumed products. If done well, the S&OP process also enables effective

supply chain management In commerce, supply chain management (SCM) deals with a system of procurement (purchasing raw materials/components), operations management, logistics and marketing channels, through which raw materials can be developed into finished produc ...

. The Sales and Operations planning process has a twofold scope. The first scope is the horizontal alignment to balance the supply and

through integration between the company departments and with suppliers and customers. The second aim is the vertical alignment amid

strategic plan Strategic planning is the activity undertaken by an organization through which it seeks to define its future direction and makes decision making, decisions such as resource allocation aimed at achieving its intended goals. "Strategy" has many def ...

and the operational plan of a

company A company, abbreviated as co., is a Legal personality, legal entity representing an association of legal people, whether Natural person, natural, Juridical person, juridical or a mixture of both, with a specific objective. Company members ...

. A properly implemented S&OP process routinely reviews customer

demand and supply In microeconomics, supply and demand is an economic model of price determination in a market. It postulates that, holding all else equal, the unit price for a particular good or other traded item in a perfectly competitive market, will ...

resources and "re-plans" quantitatively across an agreed 'rolling' horizon. The re-planning process focuses on changes from the previously agreed sales and operations plan, while it helps the management team to understand how the company achieved its current level of performance, its focus is on future actions and anticipated results.

Definitions

S&OP was developed with the concept of aggregated production planning (APP) in the first part of 1950, then switched to manufacturing resource planning ( MRP 2) 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 Management consulting is the practice of providing consulting services to organizations to improve their performance or in any way to assist in achieving organizational objectives. Organizations may draw upon the services of management consultant ...

firm Oliver Wight. APICS defines S&OP as the "function of setting the overall level of

manufacturing Manufacturing is the creation or production of goods with the help of equipment, labor, machines, tools, and chemical or biological processing or formulation. It is the essence of the secondary sector of the economy. The term may refer ...

output ( production plan) and other activities to best satisfy the current planned levels of

sales Sales are activities related to selling or the number of goods sold in a given targeted time period. The delivery of a service for a cost is also considered a sale. A period during which goods are sold for a reduced price may also be referred ...

(sales plan and/or

forecasts Forecasting is the process of making predictions based on past and present data. Later these can be compared with what actually happens. For example, a company might estimate their revenue in the next year, then compare it against the actual resu ...

), while meeting general business objectives of

profitability In economics, profit is the difference between revenue that an economic entity has received from its outputs and total costs of its inputs, also known as surplus value. It is equal to total revenue minus total cost, including both Explicit co ...

productivity Productivity is the efficiency of production of goods or services expressed by some measure. Measurements of productivity are often expressed as a ratio of an aggregate output to a single input or an aggregate input used in a production proce ...

, competitive customer lead times, etc., as expressed in the overall

business plan A business plan is a formal written document containing the goals of a business, the methods for attaining those goals, and the time-frame for the achievement of the goals. It also describes the nature of the business, background information on ...

Institute for Supply Management Institute for Supply Management (ISM) is the world's oldest and largest supply management association. Founded in 1915, the U.S.-based not-for-profit educational association serves professionals and organizations with interest in supply managemen ...

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 Inventory (British English) or stock (American English) is a quantity of the goods and materials that a business holds for the ultimate goal of resale, production or utilisation. Inventory management is a discipline primarily about specifying ...

or backlogs, while usually attempting to keep the

workforce In macroeconomics, the workforce or labour force is the sum of people either working (i.e., the employed) or looking for work (i.e., the unemployed): \text = \text + \text Those neither working in the marketplace nor looking for work are out ...

relatively stable. It must extend through a

planning horizon A time horizon, also known as a planning horizon, is a fixed point of time in the future at which point certain processes will be evaluated or assumed to end. It is necessary in an accounting, finance or risk management regime to assign such a f ...

sufficient to plan the

labor Labour or labor may refer to: * Childbirth, the delivery of a baby * Labour (human activity), or work ** Manual labour, physical work ** Wage labour, a socioeconomic relationship between a worker and an employer ** Organized labour and the labour ...

equipment Equipment most commonly refers to a set of tool A tool is an Physical object, object that can extend an individual's ability to modify features of the surrounding environment or help them accomplish a particular task. Although many Tool use by ...

, 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 Marketing is the act of acquiring, satisfying and retaining customers. It is one of the primary components of Business administration, business management and commerce. Marketing is usually conducted by the seller, typically a retailer or ma ...

engineering Engineering is the practice of using natural science, mathematics, and the engineering design process to Problem solving#Engineering, solve problems within technology, increase efficiency and productivity, and improve Systems engineering, s ...

finance Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...

material A material is a matter, substance or mixture of substances that constitutes an Physical object, object. Materials can be pure or impure, living or non-living matter. Materials can be classified on the basis of their physical property, physical ...

s, etc." It has also been described as "a set of

decision-making In psychology, decision-making (also spelled decision making and decisionmaking) is regarded as the Cognition, cognitive process resulting in the selection of a belief or a course of action among several possible alternative options. It could be ...

processes to balance demand and supply, to integrate

ning and operational planning, and to link high-level

s 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 (event plans), two additional steps at the end of the process in case of a multinational company (global roll-up and global executive meeting) and a critical revision step as conclusive step of the S&OP cycle. File:Monthly S&OP Process.jpg, A cycle of S&OP Process It is a tactical

process A process is a series or set of activities that interact to produce a result; it may occur once-only or be recurrent or periodic. Things called a process include: Business and management * Business process, activities that produce a specific s ...

with a

which covers up to 18 months, at product family level (or sku) and it is performed generally every month (or driven by events in case it is used as a tool to respond quickly to the uncertainty of the context). It is important to note, that 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. Patrick Bower wrote a seminal article on the use of S&OP in the service industry.

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,

actions and sales actions,

procurement Procurement is the process of locating and agreeing to terms and purchasing goods, services, or other works from an external source, often with the use of a tendering or competitive bidding process. The term may also refer to a contractual ...

and supply plan, supplier

lead time A lead time is the latency between the initiation and completion of a process. For example, the lead time between the placement of an order and delivery of new cars by a given manufacturer might be between 2 weeks and 6 months, depending on vari ...

, constraints from the supplier and other information, supply capacity, production and capacity plan,

Inventory Inventory (British English) or stock (American English) is a quantity of the goods and materials that a business holds for the ultimate goal of resale, production or utilisation. Inventory management is a discipline primarily about specifying ...

, work-force level, operational constraints, production lead time, flexibility, contingencies, distribution plan and distribution capacity, lead time for the delivery, transportation status, service level targets, constraints,

budgets A budget is a calculation plan, usually but not always financial, for a defined period, often one year or a month. A budget may include anticipated sales volumes and revenues, resource quantities including time, costs and expenses, environment ...

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 in consideration the target while the coordination takes it for granted. To achieve the integration the main precursors are: informational quality (it’s important that the information for the decisions is appropriate in terms of content and in the form), procedural quality (the rules at stake are clear for all the departments involved), alignment quality (the synchronization of the goals and the actions which gives to the company a best image to the eye of the customers, suppliers, stakeholder), constructive engagement (the participants are proactive in the process and defend their interests. A high level of constructive engagement leads to greater level of S&OP

effectiveness Effectiveness or effectivity is the capability of producing a desired result or the ability to produce desired output. When something is deemed effective, it means it has an intended or expected outcome, or produces a deep, vivid impression. Et ...

Goals of S&OP

The goals of S&OP could be classified in these categories: alignment and integration, operational improvement (improvement of the operational performance, improve forecast accuracy), results focused on a single perspective (for instance, improve

supply chain A supply chain is a complex logistics system that consists of facilities that convert raw materials into finished products and distribute them to end consumers or end customers, while supply chain management deals with the flow of goods in distri ...

performance, improve customer service), results based on trade off (for example, optimize customer service versus

inventory Inventory (British English) or stock (American English) is a quantity of the goods and materials that a business holds for the ultimate goal of resale, production or utilisation. Inventory management is a discipline primarily about specifying ...

), end results (such as

gross profit For households and individuals, gross income is the sum of all wages, salaries, profits, interest payments, rents, and other forms of earnings, before any deductions or taxes. It is opposed to net income, defined as the gross income minus taxes ...

, contribution margins). 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 (mechanisms) considered and the type and number stages of evolvement. The role of these models is three-fold: descriptive for the implementation, prescriptive (to understand which is the current state and which are the following stage to be reached), comparative (to benchmark the maturity stage of the company versus the competitors). A maturity model, suggested in the academic literature, is composed by five dimensions and five stages. The five dimensions are related to:

meetings A meeting is when two or more people come together to discuss one or more topics, often in a formal or business setting, but meetings also occur in a variety of other environments. Meetings can be used as form of group decision-making. Definiti ...

and collaboration, organization,

measurement Measurement is the quantification of attributes of an object or event, which can be used to compare with other objects or events. In other words, measurement is a process of determining how large or small a physical quantity is as compared to ...

information technology Information technology (IT) is a set of related fields within information and communications technology (ICT), that encompass computer systems, software, programming languages, data processing, data and information processing, and storage. Inf ...

and S&OP plan integration. The stages, along with these dimensions evolved, are: no S&OP process (stage 1), reactive (stage 2), standard (stage 3), advanced (stage 4), proactive (stage 5). There is another maturity model which suggests four dimensions and six stages of evolution. The dimensions are: process effectiveness (in terms on how the right things are doing for S&OP), process

efficiency Efficiency is the often measurable ability to avoid making mistakes or wasting materials, energy, efforts, money, and time while performing a task. In a more general sense, it is the ability to do things well, successfully, and without waste. ...

(how the things are doing right with minimum effort), people and organization and information technology. The stages of evolution are: undeveloped (level zero), rudimentary (level one), reactive (level two), consistent (level three), integrated (level four), proactive (level five).

Enablers and barriers

In the literature are pinpointed, not just for the implementation, but also during the conducting of the process, several enablers and barriers. The main enablers are the following: the capacity to learn from previous mistakes, the ability to make changes, the discipline, the existence of an S&OP department, the top management support, the cross-functional integration, the performance evaluation, the information system, the

training Training is teaching, or developing in oneself or others, any skills and knowledge or fitness that relate to specific useful competencies. Training has specific goals of improving one's capability, capacity, productivity and performance. I ...

on S&OP, the commitment of participants, well assigned roles and responsibilities, impartiality in the conducting of the process.The main barriers indicated are: the presence of siloed culture, inadequate information technology, lack of participation or irregular attendance at meetings, difficulty to reach a joint decision during the meetings.

References

External links

* * * {{cite web, url=http://www.stratabridge.com/2011/09/joined-up-decision-making-whats-your-perspective/, title=What's Your Perspective?, year=2011, access-date=2015-09-17, archive-date=2017-12-29, archive-url=https://web.archive.org/web/20171229015119/http://www.stratabridge.com/2011/09/joined-up-decision-making-whats-your-perspective/, url-status=dead An article outlining the different perspectives that should be considered when designing an S&OP process A series of papers authored by Dr. Larry Lapide of the MIT Center for Transportation and Logistics:
Sales and Operations Planning Part I: The Process

Sales and Operations Planning Part II: Enabling Technology

Sales and Operations Planning Part III: A Diagnostics Model
A series of practical papers authored by Robin Goodfellow and Ian Henderson of MLG Management Consultants:

* ttp://www.mlg.uk.com/html/mlg_papers.htm Brief article on the need for and ways to succeed with S&OP A series of infographic images authored by Jay Sharma of SupplyChainPro Consultants:
An Infographic of an example agenda in a S&OP Meeting

An Infographic of a S&OP Maturity Model detailing key elements of different S&OP phases

An Infographic of the key planning elements within S&OP and their inter-relationships

An Infographic on key questions to address before a company implements S&OP

An Infographic depicting key areas related to culture change for supporting S&OP
Supply chain management Sales Production planning