Sales and Operations Planning (S&OP) is a business management process where organisations make efforts to balance demand and supply to improve inventory management. S&OP integrates sales, operations and finance to enable quick decision making and efficient business planning.
Demand forecasting is one of the most crucial steps in S&OP. When an organisation understands the demand of a product, creating a more accurate supply plan becomes easier and provides a framework within which business stakeholders are able to plan, review the demand and supply plans to increase profitability.
A brief history
S&OP came into existence in the early 1980s, prior to this, organisations focused on ‘Production Planning’. Organisational efforts to balance supply and demand were the precursor to today’s S&OP. In the late 1980s, financial plans were incorporated as a common practice with the demand and supply plans.
Steps in Sales and Operations Planning
S&OP aims to fulfil customer’s demand in the most efficient way through the following steps:
1. Gathering data
Collection and analysis of historic data provide an indication of demand for a product. Insights can be obtained through a review of planned activity vs actual activity and understanding reasons for any positive or adverse performance. Accuracy and timeliness of key input data across multiple functions (inventory, sales, production etc.) are vital for the plan.
2. Demand Plan
The inputs into the demand planning process consist of market intelligence, sales forecasts, internal demand and customer orders. Generating a new forecast and documenting assumptions and risks associated with it, is also a part of demand planning. Generally, the sales and marketing department creates a demand plan.
3. Supply Plan
Manufacturing and logistics departments develop and review production and supply chain plans. They assess the demand plan, inventory level and capabilities to formulate a supply plan for the company.
4. Pre-S&OP
Identification and resolution where demand & supply imbalances arise require decisions to be made in the pre-S&OP stage in order to achieve a balance. At this stage, financial information is added to the plan and an agenda is developed for executive review highlighting any points where decisions remain outstanding.
5. Executive review
The agenda for the executive review meeting is to review and approve the recommended plan and to provide guidance and answers on any points where a decision remains outstanding.