Sales and operations planning (S&OP) is an integrated business management process 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 Production planning is the planning of production and manufacturing modules in a company or industry. It utilizes the resource allocation of activities of employees, materials and production capacity, in order to serve different customers.Fargher ...

, inventory plan, customer lead time (backlog) plan, new product development 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 bud ...

. Plan frequency and planning horizon depend on the specifics of the context. Short product life cycles and high demand volatility require a tighter S&OP than steadily consumed products. Done well, the S&OP process also enables effective

supply chain management In commerce, supply chain management (SCM) is the management of the flow of goods and services including all processes that transform raw materials into final products between businesses and locations. This can include the movement and stor ...

The Sales and Operations planning process has a twofold scope. The first scope is the horizontal alignment to balance the supply and demand through integration between the company departments and with suppliers and customers. The second aim is the vertical alignment amid strategic plan and the operational plan of a

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

. A properly implemented S&OP process routinely reviews customer demand and supply 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 primary focus is on future actions and anticipated results.

Definitions

S&OP was born 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 firm Oliver Wight.

APICS APICS, currently known as the Association for Supply Chain Management is a not-for-profit international education organization offering certification programs, training tools, and networking opportunities to increase workplace performance. Fo ...

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 secondary sector of the economy. The term may refer to a r ...

output (

) 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. The seller, or the provider of the goods or services, completes a sale in r ...

(sales plan and/or

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

), while meeting general business objectives of profitability,

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 proces ...

, 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 t ...

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

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 The workforce or labour force is a concept referring to the Pooling (resource management), pool of human beings either in employment or in unemployment. It is generally used to describe those working for a single types of companies, company or ...

relatively stable. It must extend through a

planning horizon The planning horizon is the amount of time an organization will look into the future when preparing a strategic plan. Many commercial companies use a five-year planning horizon, however a general Planning horizon is around one year. Other organiz ...

sufficient to plan the labor,

equipment Equipment most commonly refers to a set of tools or other objects commonly used to achieve a particular objective. Different job Work or labor (or labour in British English) is intentional activity people perform to support the needs and ...

, 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 process of exploring, creating, and delivering value to meet the needs of a target market in terms of goods and services; potentially including selection of a target audience; selection of certain attributes or themes to emph ...

engineering Engineering is the use of scientific method, scientific principles to design and build machines, structures, and other items, including bridges, tunnels, roads, vehicles, and buildings. The discipline of engineering encompasses a broad rang ...

finance Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fina ...

material Material is a substance or mixture of substances that constitutes an object. Materials can be pure or impure, living or non-living matter. Materials can be classified on the basis of their physical and chemical properties, or on their geologi ...

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 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 additional 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 se ...

with a

which covers up to 18 months, at product family level (or

sku In inventory management, a stock keeping unit (abbreviated as SKU and pronounced or ) is the unit of measure in which the stocks of a material are managed. Or to put it another way; is a distinct type of item for sale, purchased, or tracked in ...

) 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).

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 method of discovering and agreeing to terms and purchasing goods, Service (economics), services, or other works from an external source, often with the use of a tendering or competitive bidding process. When a government agenc ...

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 (American English) or stock (British English) refers to 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 the shap ...

, 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 play, 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, environmenta ...

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 Stakeholder may refer to: *Stakeholder (corporate), a group, corporate, organization, member, or system that affects or can be affected by an organization's actions *Project stakeholder, a person, group, or organization with an interest in a proje ...

), 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 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. Etymology The ori ...

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 In commerce, a supply chain is a network of facilities that procure raw materials, transform them into intermediate goods and then final products to customers through a distribution system. It refers to the network of organizations, people, acti ...

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

inventory Inventory (American English) or stock (British English) refers to 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 the shap ...

), end results (such as gross profit,

contribution margins Contribution or Contribute may refer to: * ''Contribution'' (album), by Mica Paris (1990) ** "Contribution" (song), title song from the album *Contribution (law), an agreement between defendants in a suit to apportion liability *Contributions, a ...

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 Homo sapiens, 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 Decision-making, ...

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 ...

information technology Information technology (IT) is the use of computers to create, process, store, retrieve, and exchange all kinds of data . and information. IT forms part of information and communications technology (ICT). An information technology system (I ...

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 wasting materials, energy, efforts, money, and time in doing something or in producing a desired result. In a more general sense, it is the ability to do things well, successfully, and without ...

(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 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