Sales & Operations Planning is indispensable in organizations with a large flow of goods. Yet many companies are struggling with it. Understanding what S&OP is all about, why it is important, and what pitfalls your business needs to avoid is crucial in leading successful company!Topics in this article
According to Tom Wallace, one of the leading people behind the important initial development of S&OP, “Sales & Operation Planning (S&OP) is a set of decision-making processes to balance demand and supply, to integrate financial planning and operational planning, and to provide a forum for establishing and linking high-level strategic plans with day-to-day operations” (Wallace, nd).
Some decades ago, S&OP started as simple as balancing supply and demand. This so-called “horizontal S&OP” was the beginning of linking Marketing and Sales with the supply chain and manufacturing of the business. However, the real world taught us that these departments have different goals and ambitions. Let’s look at the following dilemma:
These different set of eyes brings a different set of numbers. An advanced S&OP process aims to get one consensus plan for the business.
S&OP melts all business planning (operations, customer service, development, production, etc.) into one oiled machine, ensuring businesses meet various benefits like:
However, it isn’t easy to implement S&OP for many businesses. Many directors and executives struggle with (mainly) the lack of alignment. Further down this article, we’ll:
Involvation researched the significance of implementing S&OP amongst 20 leading multinationals:
S&OP is essential for many businesses, but why?
It bridges the gap between strategy and execution
Before the S&OP initiative, a company must consider the following four aspects of The Involvation Change Model:
Dr. H. van der Drift explains this model in his webinar “S&OP competency development: the power of simulation.”
You can watch the entire webinar here to learn how simulations and serious gaming can educate your managers in S&OP!
The sales and operations planning process contains the following steps:
Data is used to make data-driven decisions. Data is gathered about prior sales, and forecasts are made for future sales.
This is the first time in the process where cross-functional collaboration comes to play. Therefore, it is also considered one of the most frustrating parts of the S&OP process. Scenario analysis is one of the methods used by senior management to understand the impact of supply-chain-side volatility and demand uncertainty.
With supply planning, the capacity side of the business is evaluated. Planning of manufacturing, operations, and materials come here to play.
All department heads come together during the pre-S&OP meeting to evaluate the planning and execute where possible. The financial impact of the demand and supply chain planning is being considered during this meeting.
Some issues can’t be solved during the pre-S&OP meeting. That is why during this meeting, executives evaluate the recommendations made by the department heads to approve final decisions and the overall S&OP plan.
The diagram below shows the process described above:
The sales and operation planning process diagram.
The highlights of a Sales & Operation Planning process are as follows:
In a more advanced setting, even finance is involved. It is then called Integrated Business Planning (IBP).
Selecting software is never an easy task. When is a software suitable for your business? Hans van der Drift and Martijn Lofvers discussed this question in their article: “The DNA of S&OP software”. According to their research, they suggest that you must select several simple and high-level criteria to build a robust shortlist of potential solutions. Here are some of the thoughts shared in the article, which can be requested here:
Many solutions are developed with a set of functionalities for a particular industry. Sometimes, these solutions can also be applied to other sectors and markets. However, there is often a mismatch when using these solutions in industries they aren’t designed for.
Every solution has references within a sector in which the solution excels. These references can help you determine the leading software in the industry.
The size of your business is essential in terms of maintaining a solution. The most advanced and extensive solution might not fit your business best.
The complexity of the market is essential to determine the flexibility of a solution needed. To what extent do you need collaboration in your business? The answer to that question can help you choose the required complexity of a solution.
The specific criteria are different per business. These questions should help you to get started on building your robust shortlist!
Nowadays, S&OP has made it into the top-level agenda of most leading firms around the planet, even though many companies still struggle to get it right. On the one hand, this might be surprising since the process steps are not that complicated. The complexity is that you try to align several departments that are not used to speaking each other’s language. Dr. Lapide (Research Director at MIT’s Center for Transportation and Logistics) published in “The Journal of Business Forecasting” (fall 2004) 12 success factors of the S&OP process:
While implementing sales and operations planning, you should be aware of the following pitfalls:
As mentioned in the previous paragraph, one of the most common pitfalls of implementing S&OP is the lack of alignment. Forbes said in its article “Five Ways Sales and Operations Planning Enables Success and Drives Business Integration” the following:
A strategic view, which sees the mission as one of driving lasting value for all parties in the supply chain, will be more sustainable and deliver advantages far beyond the basic benefit of cost savings. Many of the challenges the C-suite faces are therefore cultural and stem from a lack of alignment of the various functional pieces into an integrated whole. – Steven Bowen, CEO Maine Pointe
Inchainge offers three different learning solutions powered by our business simulation games:
All our business games are made with the principles of experiential learning. It covers developing hard and soft skills. The picture below demonstrates The Fresh Connection. Get in contact with us, and we’ll provide you with a customized learning experience for you and your team.
S&OP in the early days meant only bringing supply and demand together. These days S&OP evolved into one consensus plan across departments and from the top-down. This alignment is hard to achieve due to common pitfalls, like a lack of commitment. The process of S&OP exists of five steps: data gathering, demand planning, supply planning, pre-S&OP meeting, and executive meeting. This process can be measured by the 12 success factors of Dr. Lapide. Educating managers in S&OP and IBP can be done with The Fresh Connection and The Cool Connection, business simulation games about supply chain management.
A high-performing value chain needs the collaboration of team members from across the organization. Tearing down silos and creating the right cross-functional mindset, however, can be a serious challenge. So, what do you need in order to achieve success? Ideally, you’d like your team to experiment with different scenarios wherein they learn to overcome various obstacles.