Sales & Operations Planning (S&OP) has been around since the early 1990s but its definition has changed over the years, says Infor director of solutions Andrew Kinder. Depending on the book that you’re reading, the process is defined in many different, often over-engineered, ways. Perhaps the cleanest definition is courtesy of Tom Wallace, who describes it as ‘a set of decision-making processes to balance demand and supply, to integrate financial planning and operational planning, and to link high level strategic plans with day-to-day operations’.
The key issue is that the term ‘Sales and Operations Planning’ conjures up different images depending on who you are talking to. Manufacturers use the term willingly, distributors less so and retailers hardly ever. Attitudes also differ according to industry and size. A key source of difference is the maturity of the organisation when it comes to its supply chain processes.
It’s important to acknowledge that organisations have evolved their use of S&OP and what they expect from it. Thus far the greater benefits have fallen to those who see it as a journey and not as a ‘project’ with a definitive end date. There have been at least three iterations of S&OP. This evolution has been driven by advances in technology acting as catalyst or point of inflection for what is possible.
Classic S&OP described the balancing of supply with the best expectation of demand. This is the coordination of an inventory, production and procurement plan to meet demand, balancing supply with demand at the stock keeping unit (SKU) level.
This remains an essential component of any planning process, but lacks a financial view of the plan. Does the plan meet with the financial goals of the business in terms of matching forecast to sales revenue expectations? Is the supply plan affordable in a way that delivers the expected margins of the business?
What followed was an updated definition?the one used in the Tom Wallace quote above. This is still where most organisations are, or strive to be, in their S&OP maturity curve. Planning is more strategic?12-24 months out?and operational plans are expressed in financial terms: revenue, costs and margins. There is a greater emphasis on scenario management to evaluate alternative demand or supply plans, matching the financial impact of each with the strategic plan of the business.
So with at least two definitions in place?is there really room (or a need) for a third? In recent times advanced practitioners of S&OP have started to talk in terms of ‘Integrated Business Planning’ as the next logical step. The goal is an executive planning process that seeks to define the total strategic plan for the business and completely align strategy with execution.
For example, a business may incorporate product portfolio planning into their S&OP processes, scrutinising when products are retired and when new ones are brought on- stream. Other considerations will include pricing options, channels to market, expansion and consolidation plans, mergers and acquisitions, and network design changes. To reflect this?and to differentiate the strategic intentions of this process and the day-to-day detail of operational planning?supporters prefer the term ‘Integrated Business Planning’.
IBP is still finding it tough to gain acceptance as a term. However, in non-manufacturing organisations where the term ‘S&OP’ is not as prevalent, it may prove to be more acceptable in describing a process that should be an essential activity to all businesses, large and small alike.
Is it worth it? The evidence from independent research says it is, with significant competitive advantage for S&OP leaders in the key areas of customer service, profitability and cash-to-cash cycle times. The latter criterion in emerging as a new barometer for the overall health of the supply chain.
The take-away for business leaders?especially manufacturers who are by far the largest subscribers to the S&OP process?is to look anew at your internal S&OP processes and check where you are on the S&OP maturity curve. If the description of your processes sounds more like classic S&OP?confined to the demand manager and absent from the desk of the CFO?then it’s time to re-assess.
Sales, operations, development and finance all have to be in lock-step with each other and with the strategy of the business to reap the greater rewards. Sales and Operations Planning and its new incarnation, Integrated Business Planning, is the way to achieve it.