sales and operations planning (S&OP)
Sales and operations planning (S&OP) is a process for better matching a manufacturer's supply with demand by having the sales department collaborate with operations to create a single production plan. The broader goal is to align daily operations with corporate strategy.
In practice, other departments closely involved in the demand and supply sides of the equation typically participate in S&OP, including marketing, procurement, manufacturing, transportation and finance.
Sales and operations planning process
S&OP consists of several steps, usually carried out in monthly meetings. The names and numbers of the steps in each company's planning process vary, but all have the following in common, in order:
- Data gathering: collecting existing forecasts and information on key variables, such as inventory, recent sales and cash on hand;
- Demand planning: processes for analyzing, forecasting and influencing demand, including demand sensing and demand shaping;
- Production (supply) planning: assessing production and distribution capacity and constraints;
- Reconciliation: aligning demand and production plans, ensuring that they meet financial requirements and company objectives and preparing recommendations; and
- Executive meeting: receiving final input from the S&OP team, reviewing the plan and approving a final version.
S&OP is closely related to, and often a component of, integrated business planning (IBP), a more comprehensive and long-term planning process that collects the plans of every department and ties them to the company's financial performance and strategy.
Benefits of S&OP
Besides improving forecast accuracy, S&OP can cut inventory costs, which, in turn, can boost working capital by tying up less money in inventory. S&OP can also increase revenue and market share by improving the effectiveness of new products and marketing initiatives.
The improved on-time delivery rates made possible by S&OP can lead to increased customer satisfaction and the further benefits that arise from it, such as higher sales.
Better visibility into sales, marketing, operations and finance data is another benefit touted by S&OP proponents. In addition, using specialized S&OP software to automate the process can shorten planning cycles, thereby reducing labor costs and boosting productivity as employees are relieved of the cumbersome, often manual work involved in preparing forecasts and collaborating on a unified plan.
While S&OP is first and foremost a process, not a technology, several types of software often play important roles in automating the process and facilitating collaboration among sales, marketing, finance and operations, making relevant data more accessible and providing analytics and simulation of what-if scenarios.
The sales forecast might be prepared in specialized analytics or forecasting tools, or in demand planning software, but many companies still handle this stage in spreadsheets. Production planning is often handled in a dedicated module in ERP or material requirements planning (MRP) software.
However, because much of this specialized software exists in silos and doesn't necessarily connect data, plans and departments, some vendors offer S&OP software for handling all of the steps in an integrated system. S&OP software is often sold as an optional module of an ERP suite, though there are some stand-alone products. Some ERP vendors, including Infor, Oracle and SAP, offer S&OP modules or support S&OP in IBP or supply chain management (SCM) products. Many ERP systems provide the function by integrating with S&OP software sold by third-party developers. Some demand management software also comes with S&OP functions.