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 functions of the organization. The S&OP includes an updated forecast that leads to a sales plan, production plan, inventory plan, customer lead time (backlog) plan, new product development plan, strategic initiative plan and resulting financial plan. Plan frequency and planning horizon depend on the specifics of the industry. 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.
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.
While the sales and operations planning process can differ greatly between industries and organization, there are specific elements that are common to virtually all processes. A typical sales and operations planning process can be described in the following major steps:
- Updating demand, new product introduction (NPI), supply, and financial plans with the latest data.
- Analysis and reconciliation of the demand, NPI, supply, and financial plans. Assumptions are recorded, risks and opportunities identified, recommendations are made.
- Senior management reviews the consolidated plans and alternatives. Decisions are made and put into action.
However, in practice, different companies will have varying practices and time frames for the process, ranging from a high-level, strategic process to a more short-term, operational focus. Sales and Operations Planning’s flexible design allows you to map your existing sales and operations planning process. The following diagram illustrates the typical sales and operations planning business process:
