In today's fast-paced, highly competitive global environment, companies must stay agile and dynamic to remain successful. To achieve this goal, Sales and Operations Planning (S&OP) can be an invaluable tool.
With rising customer expectations, shorter product life cycles, and supply chain disruptions becoming increasingly common, businesses need to produce quality goods at lower costs while getting them out into the market faster than ever before. A well-designed S&OP process will not only protect against disruption but also serve as a powerful catalyst for speed and innovation within your organization.
As globalization and advanced technology have accelerated, companies' operational strategies have dramatically increased in the past few decades. Business operations such as communication, infrastructure, and technology are now consistently being reinvented to keep up with this digital world or risk becoming obsolete. In both cases, there's a great deal of opportunity.
For the latter, it's typical that existing local-level processes haven't evolved enough to support (or even require) digitalization or automation. These companies often operate with outdated structures due to lengthy, manual processes incapable of scaling at the pace today's global business environment demands.
On the other hand, organizations that have been able to adapt (especially in recent years) often undergo such a monumental change that their processes have gaps and vulnerabilities keeping them from achieving consistent, sustainable success.
The standard focus of Sales and Operations Planning is to reduce inventory, delivery, and manufacturing costs while satisfying consumer demand – pricing decisions often aren't considered a key part of the planning process. If we consider maximizing profit to be the primary aim of most commercial enterprises, then the sole aim of S&OP is to achieve the highest level of customer service at the lowest feasible cost. Before we cover the how of S&OP, it's important to first have a contextual understanding of what the term means.
Most organizations have three distinguishable planning horizons, and at each planning level (horizon) the S&OP cycle serves or connects various functions of the business:
Strategic Planning
Long-range plans (+5 years) under the responsibility of top executives. Involves high-level objectives like R&D, new product plans, capital expenses, expansion and/or acquisition.
Strategic planning steers the business towards growing its market share.
Tactical Planning
Intermediate-range plans (6 to 18 months) under the responsibility of management. Involves mid-level objectives like rolling sales planning, forecasting, production planning and budgeting, and analyzing annual operating plans.
Tactical planning directs, reviews, and adjusts business activities to maintain alignment with the higher-level strategic plan.
Operational Planning
Short-range plans (daily to 3 months) under the responsibility of management and supervisors. Involves day-to-day objectives of typical job duties like ordering, scheduling, and dispatching.
Operational planning encompasses the execution requirements needed to meet and exceed all higher-level planning objectives.
While S&OP is typically viewed as a mid-level process, it serves a crucial role as the bridge that connects each planning horizon: high-level strategic objectives should be incorporated into S&OP and the final consensus plan needs to transfer to the shop floor to be executed.
Generally, five main review stages encompass a complete sales and operations plan. Although the process is inherently interdependent, it typically begins with a product review, moves to a demand review, then supply review, operational S&OP review, and finally an executive S&OP review.
Consumption history is used to generate a statistical forecast as the planning baseline, further augmented by other demand influencing factors; such as customer-specific inputs, planned promotions, events, and external data streams that impact demand.
Demand planners use these collective inputs to create an unconstrained demand plan that involves stakeholder review sign off. This unconstrained consensus demand plan is then used by the supply side to make the most sensible S&OP decisions.
Supply Review
A supply planner's main goal is twofold: blend the sales side of the business with the production and procurement side in the most efficient way possible.
For the latter, this implies cost-effective manufacturing, distribution, and optimizing lot sizes (with concern for any material shortages or resource limitations). For the former, the aim is to satisfy customer demand in full and on schedule, without error or operational disruption. Since these two objectives are frequently at odds, formulating a unified plan which balances both aspects is a challenge.
Ultimately, the outputs at this stage are high-level production plans, capacity plans, and material requirements plans that typically identify the most critical or high-variance materials and components needed.
A supply chain management solution capable of performing simulations and modeling several scenarios within minutes is a valuable, if not essential, interactive element that helps the S&OP team gauge the impact of potential solutions and decide on a path forward.
When the what of S&OP merges with the how, there's potential for companies to achieve a disciplined sales and operations plan that aligns both people and process. However, there is a third critical element to supply chain planning: technology.
Historically, businesses have relied on manual data integration across domain-specific systems (demand, supply, or revenue) to coordinate their Sales & Operations Planning procedures.
These data silos inherently create a time-intensive S&OP process where planners must extract data from separate systems and consolidate it via offline spreadsheets and databases before evaluation or action can even occur.
In large part, the most crucial aspect to S&OP success comes from leveraging an integrated platform that can facilitate a disciplined planning process and support the organization at scale for years to come. While companies have no control over market dynamics or the evolution of technology, the one thing they do have control over is the strength of their internal planning processes.
Even in an increasingly globalized world, the predictability of disruptions remains a dangling carrot; however, reducing the lag time between new information and direct action is within an organization's means. Having a Sales & Operations Planning solution capable of transforming those external inputs (e.g. a ship carrying crucial components delayed at port) into internal outputs (e.g. ordering products from a nearby supplier) is more essential than ever.
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