S&OP
Strategy
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Sales
Logistics
Items Availability Batch Size Initial Inventory Safety Stock Maximum Stock Final Stock Transport capacity in modals Inbound DC Capacity Outbound DC Capacity
Production
Bill of Materials Resource Assignment Number of Resources Hours Available in the Period Preventive Maintenance Resource Consumption Resource Efficiency Production Yield Extra Capacity
Finance
Product Prices Tax rates on products Procurement Costs Resources Fixed Costs Extra Capacity Cost Product Variable Costs Inventory Costs Transportation costs
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Integrated Plan Financial Report Social Responsability Environmental Responsibility Supply Procurement Plan Production Components Consumption Plan Production Plan Inventory Plan Production Plan by Resource Resource Usage Plan Extra Capacity Usage Plan Logistics DCs Input Plan DCs Output Plan Inventories on DCs Plan Component Transport Plan Product Transport Plan Modal Usage Plan Sales Delivery Plan Non-Delivery Plan
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S&OP helps strategy

A strategic plan is a broadly-defined scheme with financial, customer trends, processes, people, environmental, and cultural perspectives that creates a desired future state. To be implemented, the strategic plan requires a Sales & Operations Planning strategy (S&OP). A strategy, therefore, consists of the tactics to achieve the strategic plan.

S&OP is a business process that integrates the tactical into the strategic plan. The approach consists in creating a tactical plan from the strategic view and setting the goals and timed deliverables for sales, marketing, production, logistics and finance plans. In other words, the S&OP is a business plan that brings strategy into tactics. Further, it is a closed-loop planning scheme and a feedback system that enable the negotiation of reasonable expectations through a focused and exception-driven monthly re-planning process. As a result, decision-makers get a single integrated tactical plan over a 12-18 month rolling horizon which senior executives use to guide their teams to execution.

S&OP-online system forces breakthrough thinking by provoking the sales & marketing, logistics, production, and finance teams to agree once a month to one set of numbers for sales, production and inventory plan.

The S&OP-online system is the driver of tactical planning and execution with a financial view of this period budget. It helps clarify thoughts and actions on integrated planning enriching business practices. The leading team can reach its business objectives by making the right choices to achieve sustainable profitability in turbulent scenarios. Therefore, it shows how an organization can align its business activities to strategy.

Traditionally, S&OP is modeled with 12-18 months. However, S&OP-online has a didactic purpose. It provides a two-month practical case that enables leaders to share their different views (sales and marketing, logistics, production, finance) into a single integrated strategy.

In practice, organizations fail to achieve strategic goals due to unclear vision and strategy, lack of alignment, disjoint planning, and inability to monitor, test and adapt the plan. Market research revealed that only 5% of the workforce understood the strategy, only 25% of managers had incentives linked to overall strategy achievement; only 40% of organizations linked budgets to strategy; only 15% of executive teams spent more than one hour per month discussing tactics. Moreover, many companies are stuck on old paradigms with business planning, sales planning, and production planning conceived as absolutely separate exercises. In such companies, finances are a neutral function used as a referee for disputes between sales, manufacturing and supply.

On the other hand, many companies gain tangible benefits from implementing S&OP. The primary objective of S&OP is to achieve a medium-term stable sales, production, supply and finance plan. However, with the advance of optimization technologies, it has changed. Companies embrace the S&OP method as a dynamic management process to change strategic direction and achieve their goals even in turbulent scenarios.

S&OP-online shows that the business evolves to a broader audience on integrated planning. On S&OP-online, leadership learn the following:

(i) the process is led by finance and operations jointly. The direction of the process begins with sales and marketing. The leadership of functional areas agree with the results, not with the process. The results also include social and environmental responsibility.

(ii) the value plan is not be separated from the volume plan. In practice, however, many businesses do not plan on an integrated medium-term view working with separate spreadsheets that lead to confusion and poor execution.

(iii) the adopted and recommended approach for integrated planning is "roughly right, not precisely wrong". We use aggregate planning. The obsession for detailed forecast and operational plans is unhealthy for integrated planning. It diverts the business management to a local-focus process.

(iv) the gain of knowledge from a shared understanding of the resulting integrated plan is more relevant than just debating the numbers. The planning process joins up functions into an interconnected process. Different views of the same plan add value and give a richer understanding of the business.

(v) S&OP-online show the global view for excellence. Companies may need a fast re-planning strategy and the ability to cope with ambiguity due to their high level of risk, innovation and uncertainty.

(vi) successful implementation of S&OP is achieved focusing on fast results and "learn by doing" strategy. There is no "one size fits all" system. The organization has to tailor S&OP to their needs redesigning the planning process before joining things up. Business leaders should be involved from the start to avoid the pain of a supply-driven process.

S&OP lead the business to a robust operational foundation. The resulting business plan may differ from the budget plan. Each plan is credible, so leaders must reconcile and find what the organization need to do differently to meet the integrated business plan. This process updates the company strategies changing the budgeting process.

The S&OP-online is a tool that aid business to involve in the S&OP process. Leaders can understand organizational roles and correct eventual gaps to achieve successful integration. All functional areas' integration and the reconciliation of plans is more important than excellence on each step of the S&OP process.

Source: Bain management tools, Mckinsey quaterly survey, Oliver Wight white papers.


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