Review our in-depth S&OP guide complete with a step-by-step process, best practices, and software evaluation tips.
is a supply chain planning process to help business leaders make decisions on a wide range of topics including:
- Balancing demand plans with supply plans
- Making planning adjustments in sales and operations execution (S&OE)
- Introducing new products and phasing out of old products
- Examining proposals and investments related to markets and suppliers
- Ensuring annual operating plans and company KPIs are met
While the process is designed and executed by supply chain leaders, interdepartmental communication is critical to success. Data support from partners in finance, sales and marketing, procurement, engineering, and operations are usually required.
With an eye on financial and business impact, the goal of S&OP is to enable executives to make better-informed decisions through a dynamic connection of plans and strategies across the business. Often repeated on a monthly basis with weekly touch points by key participants, S&OP enables effective supply chain management and focuses the resources of an organization on delivering what their customers need while staying profitable.
Keep reading to learn how effective S&OP works and how you can elevate your organization’s S&OP process to drive tangible profitability.
The six steps of the S&OP process
1. Product review:In this first phase of the S&OP process, planners involved in R&D, product development, and new product introduction analyze the health of products in the market, examine product pipelines, and arrive at decisions about product planning. These decisions might include setting dates for new production or sunsetting to determine project prioritization and resource allocation.
2. Demand review:The goal of this phase is an unconstrained forecast or consensus demand planning, incorporating a holistic picture of independent and dependent demand. Factors influencing independent and dependent demand may include marketing, new product introduction, consumer trends, product hierarchy, and interplant part demand.
3. Supply review:The goal of this phase is a supply plan that syncs with the consensus demand plan. Ideally, these two plans work in unison. The supply plan should balance customer service and minimize inventory as well as operating costs. A baseline production plan and rough-cut capacity plan are developed, along with alternate supply plans that factor in capacity and demand variations.
4. Finance review:In this phase, financial performance for the previous month is consolidated to provide inputs for analyzing the current month’s S&OP cycle. Finance owns this process and it can include different categories or views, including product, geography, customer, and channel. Actual costs are compared with budgets and forecasts to analyze forecast accuracy over a rolling time frame.
5. Pre-S&OP:Pre-S&OP is a series of meetings conducted with leaders at various levels that showcase the connectivity of plans across product, demand, supply, and finance. Ideally, these meetings center around a cloud-based platform that houses all the plans in a single place. The purpose of pre-S&OP is to identify key gaps and disconnects and create strategies to handle those issues. The plans are reviewed in shared dashboards and actual versus variance is analyzed, keeping targets and budgets in mind.
6. Executive S&OP:The finish line is in sight. The final phase of S&OP brings all plans and data together in a unified, cloud-based platform to be used in executive S&OP meetings. “What-if” scenarios and the associated risks are reviewed, and decision points are noted so leadership knows when they’ll need to make the appropriate choices. Any key decisions that weren’t resolved in the first five phases are addressed in this phase, the reasons for escalation are examined, and decision deadlines are set.
S&OP best practices to follow
Executive support and participation
The most important S&OP vital sign is whether your executive stakeholder is directly involved in the process by participating and providing leadership in each S&OP meeting. In this context, the executive leader is the head of the organization in the position of CEO, president, managing director, general manager, or P&L owner.
S&OP is successful because it aligns planning across functions in order to meet company objectives and improve performance. Compromise is often required between functional areas, and at times, functional leaders may disagree on the best approach. The S&OP meeting provides a forum for routine decision-making where the executive leader considers team recommendations and decides the course of action. When the executive leader is not committed to this decision-making forum, functional leaders will find other ways to resolve their issues and the result is friction, confusion, and under performance.
Cross-functional scope
The S&OP process drives cross-functional alignment and collaboration. S&OP success depends on participation by all functional leaders — such as VPs of product, sales, marketing, supply operations, and finance — to provide a synchronized effort to reach the company’s goals. Just as the competitiveness of an eight-person rowing crew would be compromised by an empty seat, the absence of any functional area from the S&OP process handicaps the ability to deliver customer value and financial performance.
The consequences of an empty S&OP seat show up in many ways depending on the seat’s owner and can result in poor coordination on new product introductions, unexpected sales, unexpected promotions, material constraints, or capacity constraints. The result is mismatched product volume, mix, location, or timing, all of which negatively affect the company’s performance. If a check of your S&OP process reveals an empty seat in a team that at a minimum should include the leaders of product, sales, marketing, supply operations, and finance, you have likely found an opportunity to improve S&OP performance.
Constructive issue resolution
By its very nature, S&OP produces disagreement. After all, it is the process of developing the tactical plans necessary to achieve the corporate strategy. Functional heads are certain to have different opinions about the best approach. The S&OP team needs to be able to have candid and constructive discussions about issues and challenges, otherwise, tactical plans will not align with strategy, compromising the S&OP program and corporate performance.
Don’t let your tech hold you back
The selection of an S&OP software solution typically includes an initial evaluation of functional and technical criteria to determine what the solution does and whether it fits company requirements. More difficult to evaluate, but equally important, is the question of how a solution works and how it fits with a company’s unique business operations.
Key points to consider when evaluating S&OP software
Process compromise
Place high priority on the solution’s fit to your business operations. Depending on the solution type, more time (and in some cases, a pilot) may be required for fit confirmation.
Ease of deployment
Longer implementation times increase the risk that the solution will be outdated upon completion because of changing business conditions or opportunities. Minimize time to value in both the solution selection and project planning phases. Plan for demonstrable value in 8–12 weeks. Avoid anything longer.
Ease of change
Change is inevitable. Technology must flex with the business or it becomes a friction point and slows the business down. Be cautious if minor modifications require more than an hour to get into production. Avoid those that take more than a day.
Business-user administration
Modern solutions can be administered by a business user without significant support from IT. This is a welcome development since most IT departments operate at capacity. Avoid a solution if technical resources are needed for application administration.
No change orders
Business user self-service eliminates the need for change orders to the technology provider or system integrator. Change orders are expensive and time-consuming and place a formal project justification and approval process between you and flexibility.
The bottom line
With Anaplan,is unified across all relevant business units into one cloud-based, connected platform. When plans and data from sales performance management, financial planning and analysis, product, marketing planning, and supply chain work in sync, executives can make better-informed decisions that maximize profitability.
Continue your deep dive with these additional S&OP resources
- 2022 Gartner Magic Quadrant for Supply Chain Solutions
- 2022 Forrester Total Economic Impact of Anaplan
- The Digital Twin: Supply Chain Planning Revolutionized
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