How To Unify Your Organization With An Integrated Sales & Operations Plan

Updated January 02, 2023

Published March 03, 2022

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.

New Challenges Means New Opportunities For Supply Chain Management

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 These companies often operate with outdated structures due to lengthy, manual processes incapable of scaling at the pace today's global business environment demands.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.

Breaking Down The S&OP Process

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.

What's on the (Planning) Horizon?

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.

How Many Reviews Does It *Really* Take to Finalize an S&OP Plan?

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.

  • Product Review
    The performance and strategic alignment of existing products are evaluated and confirmed during this stage, and an initial forecast for new products launched over a 6- to 18-month S&OP horizon is created. Since new items lack historical data, they can't be managed in the same way as existing ones – while this may require more effort and time, it's necessary to incorporate their potential magnitude and business impact.
  • Demand Review
    This stage establishes an unconstrained demand plan for the S&OP horizon and rounds off the product planning part of the S&OP process. To achieve the most accurate picture of demand, inputs from key departments are required. 

    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.
  • Operational S&OP Review
    To ensure alignment with strategic business goals, the above plans are converted from volumes to values. The objective at this stage is for the S&OP team to evaluate and resolve constraints as a result of finite capacity or supply.
  • Generally, cost and revenue values are only considered relevant in the S&OP cycle if they enable the team to make better decisions - meaning total inventory investment could be considered a relevant value while fixed production costs would not.

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.

  • Executive S&OP Review
    The executive S&OP meeting secures executive buy-in, and can be as simple as a sign-off on the proposed plans. Other times the operational S&OP review stage results in planned actions that involve strategic level planning or a degree of risk outside management's ability to approve, requiring input from executive leadership.

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.

  • If you would like to discuss how ifm Supply Chain can support your unique S&OP process, click here.

Organizations Can't Spreadsheet Their Way To Digital Transformation

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 the context of supply chain planning technology, Sales & Operations Planning solutions have established a pivotal value-add as an impetus to more accurate, accelerated planning. Designed to perform a wide array of supply chain planning tasks, the hallmark benefit of these solutions is real-time integration and decision-making: a single operating plan is built and agreed upon using consolidated information – accessible across the organization – to establish a single version of the truth.

The Rule Of Three: A Disciplined Process, Aligned People, And Integrated Technology

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.

Demand Forecast Chart

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