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!
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What is S&OP?
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).
The highlights of an S&OP process are as follows:
- A S&OP process links the business strategy to execution
- It is a decision process on tactical and aggregated level
- The horizon of the decisions taken typically extend between 6-24 months. This depends on how quickly a company can adapt their capacity and supply constraints.
- The S&OP process aligns and balances supply and demand. Therefore sales, marketing, operations, purchasing and supply chain management should be involved in the process.
- In a more advanced setting even finance is involved. It is then called Integrated Business Planning (IBP).
The S&OP process
The sales and operations planning process contains the following steps:
- Data gathering at the end of the month
- Demand planning; also based on new assortment and distribution channels
- Supply planning; including current and future capacity constraints internal and external
- Pre – S&OP meeting; solve everything possible upfront
- Executive meeting; escalate unsolved issues
Why is S&OP important?
S&OP is important for many businesses, but why?
- It creates cross functional alignment, breaking down the silos
- It bridges the gap between strategy and execution
- It allows you to have one set of numbers and plans
S&OP, simple but not easy
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 really not that complicated. The complexity is that you try to align several departments, who are not used to speak each other’s language.
Six common pitfalls in implementing S&OP
While implementing S&OP, you should be aware of the following pitfalls:
- There can be lack of commitment in some of the needed departments
- Department politics doesn’t help to create a clear picture
- Targets and forecast are mixed
- Discussion about numbers instead of the underlying assumptions
- Discuss only short horizon instead of midterm
- Too detailed plans and discussions
You might want to learn more about
Business games
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.
The Cool Connection
The Cool Connection is an innovative web-based business simulation game. It engages participants in making strategic decisions in the management of a manufacturing company of personal care products. Working in teams of four, participants will represent the functional roles of sales, purchasing, supply chain management and finance. They will be confronted with various real-life, real-time dilemmas.