What is Sales & Operations Planning (S&OP)?

Sales and operations planning (S&OP) is an integrated planning process that aligns demand, supply, and financial planning and is managed as part of a company’s master planning. S&OP is designed and executed to support executive decision-making related to approving a feasible and profitable material and financial plan.

The sales and operations plan uses global, aggregate demand¹ as a starting point and compares that expected demand to available supply in terms of resources—such as machines and manpower—and material capacity. The level of analysis and the trade-offs presented allow the executive team to understand the decision criteria and come to a consensus decision on a plan the company should move forward with.

The sales and operations plan is part of both strategic and tactical planning. Strategically, insights into how demand may shift in particular geographies or for specific product lines can impact decisions such as increasing (or decreasing) manufacturing capacity, the need to increase (or decrease) the workforce, or determining longer-term supplier management. More tactically, the S&OP process creates a production plan, approved by executive management, which is used to create a master schedule and a material requirements plan (MRP).

Synonymous and sometimes slightly different processes have been created over the years with different naming conventions. Integrated Business Planning (IBP) and connected planning are two examples. In each, the role of finance can be considered more prominent, however, finance is always a participant as a feasible and profitable plan need to be approved by executive management.

The S&OP process considers planning horizons of 18 to 36 months, looking at weekly plans in the near term, monthly plans in the midterm, and sometimes, annual plans beyond a year from the date of the plan.

The challenges of sales and operations planning

S&OP is largely a company-wide, collaborative process performed on a recurring basis with participants from finance, operations, marketing, sales, and other groups as required. In addition to the challenge of coordination and communication across this diverse group during the planning cycle, the primary challenges of sales and operations planning are:

1) Establishing accurate and recurring reporting on key demand and supply inputs to support the decision-making process

2) Preparing a pre-work analysis which recognizes changes in demand or supply which will require management consideration prior to plan approval

3) Developing a succinct presentation of the decision criteria in terms of decision impact on key performance indicators, such as customer service, supply chain costs, and revenue

4) Planning for the introduction of new products, the end of life of existing products, or the incorporation of new (or divestiture of sold products and/or product lines) as a result of a merger and acquisition (M&A)

5) Transforming large data sets from multiple systems into actionable, decision-support information for reporting

Trends in sales and operations planning

Most companies run enterprise resource planning (ERP) software and enhance their material and resource planning through the use of supply chain management (SCM) software, which can be configured for planning and managing their specific supply chain challenges.

However, many planners still use spreadsheets for S&OP due, in part, to the widespread access to spreadsheet software and its flexibility. Spreadsheet technology, however, is incapable of taking advantage of modern advanced technology, such as artificial intelligence (AI), and is limited in the amount of data it can process. Additional concerns around spreadsheets as a secure mechanism for distributing company data create further challenges with this approach.

The following are other current trends to watch in the advancement of sales and operations planning:

1) How emerging technology, such as AI and the Internet of Things (IoT) are being incorporated into S&OP

2) The convergence of planning and execution data to support more frequent plan updates and improve a company’s ability to react to supply chain disruptions and manage risk

3) Supporting systems which enable flexible and rapid segment analysis of supply chain plans—for example, products (or product families) in similar lifecycle phases, products with similar supply sources, products with shared features or demand profiles

4) How to establish processes and technology to support multitier collaboration and visibility

S&OP, machine learning, and artificial intelligence

AI and machine learning technology are being used more successfully and frequently to support some of the automatable decisions that are done in S&OP. Examples of this include using machine learning to predict available capacity to drive promotion planning or to quickly discover and recommend no changes to highly stable and mature product planning, reducing analysis cycles.

There are several developing SCM applications that can make use of IoT technology to improve the outcomes of S&OP. For example, IoT could be used in predictive maintenance, providing executives with insights into why and when capacity will be rolled in and out of service and what the backup plan is to ensure continuity.

Advanced analytics solutions, implemented to work in concert with supply chain execution in logistics, manufacturing, and order management, are increasing the availability of information that provides supply chain managers with decision criteria related to performance to plan. This in turn, reduces the decision latency, which may have historically relied on the next S&OP planning cycle to adjust.

What’s next for sales and operations planning?

There is no rule that says S&OP should be run monthly. This guidance dates back at least 20 years, before modern data analysis and decision-support tools were available. In this environment, it took a team of people the full four weeks to collect, merge, analyze and report on the data required to support S&OP decisions.

Today, companies can take advantage of next-generation technologies to drive smarter predictions and better decisions across supply chain processes.

Advances in technology inform us that S&OP planners should take a hard look at how the process works in their company. Exploring answers to questions such as how and when should I partner with IT? Should we seek outside expertise for best practices and process design? What companies are leaders in S&OP in our industry? What is the business case to support this investment?