Sales and operations planning

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Integration between the departments, with suppliers and customers. A company's supply chain (en).png
Integration between the departments, with suppliers and customers.

Sales and operations planning (S&OP) is a business management process used by companies to determine what they expects to sell and whether they can make and deliver those products and/or services with their available resources. [1]

Contents

The process brings together sales forecasts, production capacity, inventory levels, and budgets so that different parts of the company work from the same assumptions. [2] These plans are reviewed and updated as conditions change.

By comparing expected customer demand with available supply, S&OP helps managers understand how the business is performing now and what is likely to happen next.[ citation needed ]

When used well, S&OP also helps companies manage their supply chains [3] [4] more effectively.

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. [5] 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. [6]

APICS defines S&OP as the "function of setting the overall level of manufacturing output (production plan) and other activities to best satisfy the current planned levels of sales (sales plan and/or forecasts), 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." [7]

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." [8]

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 [9] with the addition of a preliminary step at the beginning (event plans), [10] two additional steps at the end of the process in case of a multinational company (global roll-up and global executive meeting) [11] and a critical revision step as the conclusive step of the S&OP cycle. [12]

It is a tactical process with a planning horizon that covers up to 18 months, at product family level (or sku) and it is typically performed monthly (or driven by events in case it is used as a tool to respond quickly to the uncertainty of the context). [3] [13]

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. [14]

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 plan, supplier lead time, constraints from the supplier and other information, supply capacity, production and capacity plan, Inventory, 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. [3]

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 (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 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). [15]

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 performance, improve customer service), results based on trade off (for example, optimize customer service versus inventory), end results (such as gross profit, contribution margins). [5] Many authors, including Patrick Bower have written on how S&OP creates value in the supply chain. [16]

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. These models serve three purposes: 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). [17]

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 (stage 1), reactive (stage 2), standard (stage 3), advanced (stage 4), proactive (stage 5). [13]

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 (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). [9]

Enablers and barriers

There are several enablers and barriers that aid or harm S&OP implementation. Key enablers include a capacity to learn from previous mistakes, an ability to make changes, discipline, a person/team accountable for the S&OP process, top management support, cross-functional integration, performance evaluation, supportive information systems, training on S&OP, commitment of participants, well assigned roles and responsibilities and impartiality in the conducting of the process. The main barriers include: the presence of siloed culture, inadequate information technology, and difficulty reaching agreed cross-department decisions. [18]

See also

References

  1. ↑ Lapide, Larry (2004). "Sales and Operations Planning Part I: The Process, Massachusetts Institute of Technology". MIT Center for Transportation and Logistics. Retrieved December 2, 2025.{{cite web}}: CS1 maint: url-status (link)
  2. ↑ Kristensen, Jesper; Jonsson, Patrik (2018-02-22). "Context-based sales and operations planning (S&OP) research: A literature review and future agenda" . International Journal of Physical Distribution & Logistics Management. 48 (1): 19–46. doi:10.1108/IJPDLM-11-2017-0352. ISSN   0960-0035.
  3. 1 2 3 Tavares Thomé, Antônio Márcio; Scavarda, Luiz Felipe; Fernandez, Nicole Suclla; Scavarda, Annibal José (July 2012). "Sales and operations planning: A research synthesis". International Journal of Production Economics. 138 (1): 1–13. doi:10.1016/j.ijpe.2011.11.027.
  4. ↑ Jesper Kristensen, Patrik Jonsson (2018-02-22). "Context-based sales and operations planning (S&OP) research: A literature review and future agenda (10.1108/IJPDLM-11-2017-0352) ppg 19–46". Emerald Publishing.{{cite web}}: CS1 maint: url-status (link)
  5. 1 2 Márcio Tavares Thomé, Antônio; Felipe Scavarda, Luiz; Suclla Fernandez, Nicole; José Scavarda, Annibal (1 January 2012). "Sales and operations planning and the firm performance". International Journal of Productivity and Performance Management. 61 (4): 359–381. doi:10.1108/17410401211212643.
  6. ↑ "No pain, no gain". Manufacturing Management. 16 July 2007. Retrieved 2022-08-01.
  7. ↑ Dougherty, J.R., "Getting Started With Sales & Operations Planning", text available here Archived 2007-12-03 at the Wayback Machine
  8. ↑ Wallace, Tom, author of textbooks on sales and operations planning, see for example S&OP 101 Archived 2007-10-13 at the Wayback Machine
  9. 1 2 Wagner, Stephan M.; Ullrich, Kristoph K.R.; Transchel, Sandra (March 2014). "The game plan for aligning the organization". Business Horizons. 57 (2): 189–201. doi:10.1016/j.bushor.2013.11.002.
  10. ↑ Dreyer, Heidi Carin; Kiil, Kasper; Dukovska-Popovska, Iskra; Kaipia, Riikka (2018-02-28). "Proposals for enhancing tactical planning in grocery retailing with S&OP". International Journal of Physical Distribution & Logistics Management. 48 (2): 114–138. doi:10.1108/IJPDLM-01-2017-0018. ISSN   0960-0035.
  11. ↑ Seeling, Marcelo Xavier; Kreuter, Tobias; Scavarda, Luiz Felipe; Thomé, Antônio Márcio Tavares; Hellingrath, Bernd (2021-09-21). Margherita, Alessandro (ed.). "Global sales and operations planning: A multinational manufacturing company perspective". PLOS ONE. 16 (9) e0257572. Bibcode:2021PLoSO..1657572S. doi: 10.1371/journal.pone.0257572 . ISSN   1932-6203. PMC   8454961 . PMID   34547059.
  12. ↑ Rota, I. S.; De Souza, F. B. (2021-04-30). "A proposal for a theory of constraints-based framework in sales and operations planning". Journal of Applied Research and Technology. 19 (2): 117–139. doi: 10.22201/icat.24486736e.2021.19.2.1580 . hdl: 11449/221753 . ISSN   2448-6736. S2CID   236572210.
  13. 1 2 Grimson, J. Andrew; Pyke, David F. (13 November 2007). "Sales and operations planning: an exploratory study and framework". The International Journal of Logistics Management. 18 (3): 322–346. doi:10.1108/09574090710835093.
  14. ↑ Bower, Patrick (Summer 2015). "S&OP in the Service Industry". The Journal of Business Forecasting. 34 (2): 4–7, 9–16, 18. ProQuest   1702626994.
  15. ↑ Oliva, Rogelio; Watson, Noel (2011). "Cross-functional alignment in supply chain planning: A case study of sales and operations planning" . Journal of Operations Management. 29 (5): 434–448. doi:10.1016/j.jom.2010.11.012.
  16. ↑ "How The S&OP Process Creates Value In The Supply Chain | How The Sop Process Creates Value In The Supply Chain 763 | IBF". ibf.org. Retrieved 2023-02-14.
  17. ↑ Danese, Pamela; Molinaro, Margherita; Romano, Pietro (4 March 2018). "Managing evolutionary paths in Sales and Operations Planning: key dimensions and sequences of implementation". International Journal of Production Research. 56 (5): 2036–2053. doi:10.1080/00207543.2017.1355119. S2CID   117187253.
  18. ↑ Pedroso, Carolina Belotti; da Silva, Andrea Lago; Tate, Wendy Lea (2016). "Sales and Operations Planning (S&OP): Insights from a multi-case study of Brazilian Organizations" . International Journal of Production Economics. 182: 213–229. doi:10.1016/j.ijpe.2016.08.035.

A series of papers authored by Dr. Larry Lapide of the MIT Center for Transportation and Logistics:

A series of practical papers authored by Robin Goodfellow and Ian Henderson of MLG Management Consultants:

A series of infographic images authored by Jay Sharma of SupplyChainPro Consultants:

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