S&OP 101

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.  Below is an explanation of this subject including responses to some frequently asked questions.

A Word About Terminology

The term Sales & Operations Planning (S&OP) originally referred to a decision-making process as described above. This is an executive-centered activity.

However, in recent years, common usage of this term has broadened to include tools and techniques that operate at a lower, more detailed level, for individual products and customer orders. These are not executive-centered processes; they carry too much detail

Throughout this site, we use the term Executive S&OP to refer to the executive activity. We use Sales & Operations Planning to refer to the larger set of processes, which include those for forecasting and planning at the detailed level as well as Executive S&OP.

Why Do Companies Use S&OP?

Many companies have difficulty in establishing a valid game plan for sales, production, procurement, and inventory levels - and then tying them to day-to-day scheduling and execution, and to financial planning.  As a result, performance suffers: customer service is poor, production, and procurement and inefficient, inventories are too high or too low, or all of the above.

Sales & Operations Planning has emerged as an essential management tool in this age of rapid changes, increasingly high demanding customers, and supply chains that extend half a world away.  It's rightfully been called "top management's handle on the business."

What is Executive S&OP?

Executive S&OP is top management's part of the overall set of Sales & Operations Planning processes.  It's a tool that enables the top management team to establish in advance the desired levels of customer service, inventory investment, and order lead times - and then manage the business pro-actively to achieve those targets.

An important point: Executive S&OP is essential to gain the maximum benefits from the other parts of Sales & Operations Planning, the ones that address the details (Master Scheduling, Plant and Supplier Scheduling, Outsourcing, Distribution, and other types of detailed planning and coordination).

The results from the monthly Executive S&OP process drive downward to impact directly the day-to-day activities in Sales, Purchasing, Productions, and Distribution - and also drive upward, so that the company's Financial Plans can reflect current realities and future operational plans.

What are the Benefits of Using S&OP?

"Hard" benefits -- ones that can be readily measured -- include:
     • higher customer service
     • lower finished goods inventories
     • more stable production rates
     • faster and more controlled new product introductions
     • reduced obsolescence
     • shorter customer lead times for make-to-order products.

"Soft" benefits resulting from Executive S&OP include:
     • enhanced teamwork in the executive and mid-management groups, resulting
        in the alignment of human energy
     • better decisions with less effort and time
     • one set of numbers, in both units and dollars, with which to run the business
     • a tight linkage between strategic plans and day-to-day activities
     • a "window into the future"
     • becoming master of your own destiny

Who's Using S&OP Successfully? 

Primarily, but not exclusively, companies with physical products. Large companies such as Coca-Cola, Caterpillar, Procter & Gamble, Eli Lilly, Dow Chemical, Honeywell, Allied Signal, Pfizer , Newell-Rubbermaid and many more - plus a large and growing number of mid-size and smaller companies.

Microsoft, among many others, also uses Executive S&OP and all of their manufacturing is outsourced.  Companies in this category may need Executive S&OP even more, because they have less control over their sources of supply.

In addition, S&OP is starting to take hold in retailing and banking, and in companies that produce products of a non-physical nature: product design firms, process engineering organizations, and so forth.

What Does it Cost?

In contrast to these sizeable benefits, the costs to implement Executive S&OP are small.  The primary "costs" in making the process work are not financial, but are in time, energy, and the need to change.

If your interest is deeper or more specific than that, go to the Implementation & Support page where we describe how to get started with an implementation or upgrade to your pre-existing practices. Or . . . send an e-mail with any questions that you may have.