S&OP 101
Sales & Operations Planning (S&OP) is 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. Lets walk through this subject question by question.
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. As a result, performance suffers: customer service is poor, production and procurement are 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 global operations, increasingly 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 proactively 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, Distribution, and other types of detailed replenishment planning).
The results from the monthly Executive S&OP process drive downward to impact directly the day-to-day activities in Sales, Purchasing, Production, and Distribution - and also drive upward, so that the company's Financial Plans can reflect current realities and future 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
• better decisions with less effort
• one set of numbers, 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"
Who's Using S&OP?
Primarily, but not exclusively, companies that make things. 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.
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: less than $100,000 for a business of average size - sometimes much less. The primary "costs" in making the process work are not financial, but are in time, energy, and the need to change.
How To Get Started?
We have resources to help you. An essential early step is to gain knowledge. To that end, try to match your situation with one or more of our resources:
"I'm brand new to this field and want a quick introduction." See the book: Sales & Operations Planning: The Executive's Guide
"I know a bit about S&OP but need to learn more. See: Sales & Operations Planning: The How-To Handbook.
"I need to introduce our top management team to Executive S&OP." See: Sales & Operations Planning: The Executive’s Guide.
"We're having problems with forecasting. If we don't fix them, we'll never get S&OP to work." See: Sales Forecasting: A New Approach.
"I want an implementation road map." See: Sales & Operations Planning: The How-To Handbook.
"We've been operating S&OP for some time but aren't happy with the results. How can I find out what to do to make it better?" See: Sales & Operations Planning: The Self-Audit Workbook.
"Our people are not readers. Are there tools other than books to introduce them to S&OP?" See the video CD: Sales & Operations Planning: A Visual Introduction.
"Do we need new software to do Executive S&OP?" See: Sales & Operations Planning: The How-To Handbook.
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We also provide live tailored education to supply executives and managers with what they need to know about Sales & Operations Planning, and also consulting support for implementing the processes.
