Sales and Operations Plan
Encyclopedia
Sales and operations planning (S&OP) is an integrated business management process through which the executive/leadership team continually achieves focus, alignment and synchronization among all functions of the organization. The S&OP plan includes an updated sales plan, production plan, inventory plan, customer lead time (backlog) plan, new product development plan, strategic initiative plan and resulting financial plan. Plan frequency and planning horizon depend on the specifics of the industry. Short product life cycles and high demand volatility require a tighter S&OP planning as steadily consumed products. Done well, the S&OP process also enables effective supply chain management.
A properly implemented S&OP process routinely reviews customer demand and supply resources and “re-plans” quantitatively across an agreed rolling horizon. The re-planning process focuses on changes from the previously agreed sales and operations plan. While it helps the management team to understand how the company achieved its current level of performance, its primary focus is on future actions and anticipated results. Companies that have an integrated business management process use the S&OP process to monitor the execution of the company’s strategies..
defines S&OP as the "function of setting the overall level of manufacturing
output (production plan) and other activities to best satisfy the current planned levels of sales
(sales plan and/or forecasts), while meeting general business objectives of profitability, productivity
, competitive customer lead times, etc., as expressed in the overall business plan
. One of its primary purposes is to establish production rates that will achieve management’s objective of maintaining, raising, or lowering inventories
or backlog
s, while usually attempting to keep the workforce
relatively stable. It must extend through a planning horizon
sufficient to plan the labor, equipment, facilities, material
, and finances required to accomplish the production plan. As this plan affects many company functions, it is normally prepared with information from marketing
, manufacturing
, engineering
, finance
, materials, etc."
Sales and operations planning has also been described as "a set of decision-making processes to balance demand and supply, to integrate financial plan
ning and operational planning, and to link high level strategic plans with day-to-day operations".
and supply
. Therefore, the sales and operations plans are a means to gradually accomplish the AOP targets - by linking monthly sales and marketing planning directly to the operations side of a business. The process for deciding upon the monthly S&OP is illustrated in the figure below.
A series of practical papers authored by Robin Goodfellow and Ian Henderson of MLG Management Consultants:
A properly implemented S&OP process routinely reviews customer demand and supply resources and “re-plans” quantitatively across an agreed rolling horizon. The re-planning process focuses on changes from the previously agreed sales and operations plan. While it helps the management team to understand how the company achieved its current level of performance, its primary focus is on future actions and anticipated results. Companies that have an integrated business management process use the S&OP process to monitor the execution of the company’s strategies..
Definitions
APICSAPICS
APICS The Association for Operations Management, is a not-for-profit international education organization, offering certification programs, training tools and networking opportunities to increase workplace performance...
defines S&OP as the "function of setting the overall level of manufacturing
Manufacturing
Manufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...
output (production plan) and other activities to best satisfy the current planned levels of sales
Sales
A sale is the act of selling a product or service in return for money or other compensation. It is an act of completion of a commercial activity....
(sales plan and/or forecasts), while meeting general business objectives of profitability, productivity
Productivity
Productivity is a measure of the efficiency of production. Productivity is a ratio of what is produced to what is required to produce it. Usually this ratio is in the form of an average, expressing the total output divided by the total input...
, competitive customer lead times, etc., as expressed in the overall business plan
Business plan
A business plan is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals....
. One of its primary purposes is to establish production rates that will achieve management’s objective of maintaining, raising, or lowering inventories
Inventory
Inventory means a list compiled for some formal purpose, such as the details of an estate going to probate, or the contents of a house let furnished. This remains the prime meaning in British English...
or backlog
Backlog
Backlog generally refers to an accumulation over time of work waiting to be done or orders to be fulfilled.Backlog may also refer to:*different kinds of backlogs exist for different time scales in Scrum...
s, while usually attempting to keep the workforce
Workforce
The workforce is the labour pool in employment. It is generally used to describe those working for a single company or industry, but can also apply to a geographic region like a city, country, state, etc. The term generally excludes the employers or management, and implies those involved in...
relatively stable. It must extend through a planning horizon
Planning horizon
The planning horizon is the amount of time an organization will look into the future when preparing a strategic plan. Many commercial companies use a five-year planning horizon, but other organizations such as the Forestry Commission in the UK have to use a much longer planning horizon to form...
sufficient to plan the labor, equipment, facilities, material
Material
Material is anything made of matter, constituted of one or more substances. Wood, cement, hydrogen, air and water are all examples of materials. Sometimes the term "material" is used more narrowly to refer to substances or components with certain physical properties that are used as inputs to...
, and finances required to accomplish the production plan. As this plan affects many company functions, it is normally prepared with information from marketing
Marketing
Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...
, manufacturing
Manufacturing
Manufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...
, engineering
Engineering
Engineering is the discipline, art, skill and profession of acquiring and applying scientific, mathematical, economic, social, and practical knowledge, in order to design and build structures, machines, devices, systems, materials and processes that safely realize improvements to the lives of...
, finance
Finance
"Finance" is often defined simply as the management of money or “funds” management Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created...
, materials, etc."
Sales and operations planning has also been described as "a set of decision-making processes to balance demand and supply, to integrate financial plan
Financial plan
In general usage, a financial plan is a series of steps which are carried out, or goals that are accomplished, which relate to an individual's or a business's financial affairs. This often includes a budget which organizes an individual's finances and sometimes includes a series of steps or...
ning and operational planning, and to link high level strategic plans with day-to-day operations".
The planning process
S&OP is the result of monthly planning activities. It is usually based on an Annual Operations Plan (AOP) that acts as the company's annual target in terms of salesSales
A sale is the act of selling a product or service in return for money or other compensation. It is an act of completion of a commercial activity....
and supply
Supply (economics)
In economics, supply is the amount of some product producers are willing and able to sell at a given price all other factors being held constant. Usually, supply is plotted as a supply curve showing the relationship of price to the amount of product businesses are willing to sell.In economics the...
. Therefore, the sales and operations plans are a means to gradually accomplish the AOP targets - by linking monthly sales and marketing planning directly to the operations side of a business. The process for deciding upon the monthly S&OP is illustrated in the figure below.
S&OP best practices
S&OP best practices share a common set of approaches:- Rely on a phased approach : S&OP is much more an integrated set of business processes and technologies than a single, all-encompassing process or technology. If you just focus on the implementation of a new technology and think that S&OP will miraculously take shape, you’re wrong.
- Develop an “outside-in” sequence of S&OP initiatives : typically, the events that will have the most profound and negative impact on your sales and operations planning are those outside of your control. For the most part, these are due to the decisions and actions of your customers, partners, and competitors, which have a direct impact on your revenue and your competitor’s strategy.
- Focus on more information, less data : another key to successful S&OP is clean, current, and accurate data. Plans are often slowed down by the effort of gathering data that has minimal importance to the overall project. It is important to ensure that you know exactly what business problem you are trying to resolve and understand the minimum data necessary for the project.
See also
- DemandDemand- Economics :*Demand , the desire to own something and the ability to pay for it*Demand curve, a graphic representation of a demand schedule*Demand deposit, the money in checking accounts...
- Demand chainDemand chain-Concept:Analysing the firm's activities as a linked chain is a tried and tested way of revealing value creation opportunities. The business economist Michael Porter of Harvard Business School pioneered this value chain approach: "the value chain disaggregates the firm into its strategically...
- Demand chain managementDemand chain managementDemand chain management is the management of upstream and downstream relationships between suppliers and customers to deliver the best value to the customer at the least cost to the demand chain as a whole. The term demand chain management is used to denote the concept commonly referred to as...
- ForecastingForecastingForecasting is the process of making statements about events whose actual outcomes have not yet been observed. A commonplace example might be estimation for some variable of interest at some specified future date. Prediction is a similar, but more general term...
- Supply and demandSupply and demandSupply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...
External links
A series of papers authored by Dr. Larry Lapide of the MIT Center for Transportation and Logistics:- Sales and Operations Planning Part I: The Process
- Sales and Operations Planning Part II: Enabling Technology
- Sales and Operations Planning Part III: A Diagnostics Model
A series of practical papers authored by Robin Goodfellow and Ian Henderson of MLG Management Consultants: