At its most basic level, Sales and Operations Planning (S&OP) is about making sure there is enough demand and supply to support your organization’s financial goals. The goal is to make tactical business decisions to mitigate risks and leverage opportunities before they take effect, and evaluate actions you can take to reduce the impact of existing constraints.
There's an ongoing debate over whether there's a material difference between S&OP and Integrated Business Planning (IBP). Most supply chain leaders agree that while S&OP focuses on cross-functional planning to keep demand and supply in balance, IBP has a broader strategic reach. Going beyond the supply chain, IBP is defined as the process that connects your strategy and business plan to ensure both are delivered, with a focus on providing a framework for effective decision-making to drive growth. In recent years, some have adopted the term IBP for more mature, sophisticated versions of the S&OP process.
S&OP has two main objectives:
- Balance demand and supply
- Align plans to business objectives or strategy
S&OP processes have been around for years, often conducted on a monthly cadence. This typically starts with extensive, but often separate, data-gathering and planning activities by the sales, supply chain, operations, and financial organizations. It culminates in an executive-level S&OP meeting at month’s end to bring all that data together and get disparate functions to agree on a unified plan. The organization spends the next month executing that plan while gathering data for the next S&OP cycle.
This traditional S&OP process was designed for a time and place when the pace of business was a lot slower. Today’s marketplace moves faster and is a lot more complex. So, while today a number of organizations still use spreadsheets and ERPs and follow the traditional process, it’s becoming untenable. S&OP processes capable of keeping pace with the challenges of today and tomorrow can synchronize demand and supply more effectively and enable more strategic tradeoff decisions. Organizations need to be able to:
- Collaborate across functions
- Break down silos and get to a single version of the truth
- Run scenarios and make trade-offs
- Replan based on events and not just fixed timelines
- Support gap-to-close actions aligned to business strategy and financial goals
- Continuously orchestrate concurrent business activities and make rapid adjustments
Today’s S&OP consists of a cycle of 4 processes that pro-actively answer key questions:
- Product portfolio planning: Do we have the right product portfolio to meet our targets?
- Demand planning: How much are we planning to sell and does this match our ambition?
- Supply planning: Do we have the right inventory, capacity, and capabilities to meet demand?
- Executive S&OP: What decisions do we need to take to close the gaps between plan and ambition? What are the (financial) opportunities and consequences that stem from the choices we make?
Evolving Your S&OP/IBP Process
Moving from spreadsheets and ERPs to a true S&OP is the first step in evolving your S&OP process to better match today’s requirements. Adopting a skillfully designed S&OP that’s a part of a larger supply chain planning platform sets a great foundation for growing your S&OP capabilities from where they are today to where they need to go. It also enables you to continually evolve and grow your S&OP process without having to change out your application.
Taking Control: The earliest stages of software-enabled S&OP are all about bringing visibility, control, coordination, and collaboration to the process. These assets provide you with the building blocks to establish your S&OP plan and begin gaining input into the strategy across functions. You can start doing things like comparing revenue and financial targets and getting a high-level start in balancing demand and supply.
Moving Up: The next stage of S&OP maturity enables you to compare your proposed plan to the annual operating plan, and your revenue and profitability plans. Your supply chain decision making is becoming more integrated, accounting for the end-to-end supply chain impact of planning processes.
Achieving Maturity: The most advanced levels of maturity are often called IBP. Now your processes focus on business outcomes and business orchestration. It’s also about supporting growth plans, such as service, market opportunities, product commercialization, and competitive advantage. You’re working in longer time horizons and being more innovative and experimental to maximize shared value across your entire value chain.
According to research by McKinsey comparing mature IBP practitioners with organizations that lack a well-functioning IBP process, mature practitioners enjoy:
- 1 or 2 additional percentage points in EBIT
- 5- to 20-percentage point higher service levels
- 10% to 15% lower freight costs and capital intensity
- 40% to 50% lower customer delivery penalties and missed sales
- 10% to 20% more productivity from planners
It doesn’t stop there, though. Your S&OP processes will need to continue to evolve. To accelerate your transformation, you’ll need a world-class application like Atlas S&OP and John Galt Solutions’ Atlas Planning Platform to help.