S&OP Process Framework: A Detailed Guide

Sales and Operations Planning (S&OP) is a critical process that aligns demand, supply, and financial plans to ensure a company meets its strategic objectives. This article provides a detailed framework for implementing an effective S&OP process, covering each step from performance review to the executive meeting.

1. Reviewing Performance

Product Review:

The first step in the S&OP process is reviewing current performance. This involves analyzing the product portfolio, including product categories, sales trends, and market performance. A detailed product review helps identify areas for improvement and guides decision-making for the rest of the process.

Life Cycle Phases:

Products go through various life cycle phases, from introduction and growth to maturity and decline. Understanding where each product stands in its life cycle allows for better planning. For example, products in the introduction phase may require more aggressive marketing, while those in the decline phase might need to be phased out.

New Products and Obsolete Items:

This step also involves evaluating new product launches and identifying obsolete items. New products must be integrated into the demand and supply planning processes, while obsolete items should be removed from inventory to optimize resources.

2. Demand Planning

Evaluate Demand Levels for Different Production Strategies:

In this step, demand planners assess the demand levels across various production strategies:

• Make-to-Stock (MTS): Products are produced based on forecasted demand and held in inventory. Demand planners must evaluate historical data to predict future demand levels and ensure adequate stock.
• Assemble-to-Order (ATO): Products are assembled only after an order is received. Planners need to assess demand for components and ensure that sufficient inventory is available for timely assembly.
• Make-to-Order (MTO): Products are manufactured only after an order is placed. Demand planning for MTO involves assessing customer demand and lead times, ensuring production can meet deadlines without compromising quality.
• Engineer-to-Order (ETO): Products are designed and produced based on specific customer requirements. Demand planners must work closely with the engineering team to align production capacity with customer specifications and timelines.

3. Supply Planning

Evaluate Supply Capability:

Once demand levels are established, supply planning begins. This step involves evaluating the company's ability to meet demand through available resources, including:

• Manpower: Assessing the current workforce, identifying skill gaps, and planning for any additional hiring or training needs.
• Machines: Evaluating equipment capacity, maintenance schedules, and any potential bottlenecks in production. Planning for machinery upgrades or additional purchases may also be necessary.

Supply planners must ensure that the company's resources can meet demand without overextending capabilities, leading to inefficiencies or increased costs.

4. Financial Review

Justify the Plan:

The financial review ensures that the proposed demand and supply plans are financially viable. This involves justifying the plan based on several factors:

• Overtime: Assessing whether overtime is required to meet production targets and its impact on labor costs.
• Maintenance Needed: Evaluating whether additional maintenance is required for machinery to meet production goals without downtime.
• Spare Parts: Ensuring that spare parts are available and budgeted for to prevent production disruptions.

Reconciling Demand, Supply, and Financial Plans:

This step involves reconciling the demand, supply, and financial plans to ensure alignment. The goal is to create a balanced plan that meets customer demand, optimizes resources, and stays within budget. This reconciliation process may require adjustments to demand forecasts, production schedules, or financial projections.

5. Pre-Meeting

The pre-meeting is an essential step in the S&OP process. This meeting involves key stakeholders from different departments, such as sales, operations, finance, and supply chain. The purpose of the pre-meeting is to review the proposed plans, identify any potential issues, and ensure that all teams are aligned before the executive meeting. This step helps avoid surprises and facilitates smoother decision-making during the final review.

6. Executive Meeting

Single Plan (Including Demand, Supply, and Financial):

The final step in the S&OP process is the executive meeting. This meeting brings together senior leadership to review and approve the consolidated plan. The goal is to finalize a single, integrated plan that includes demand, supply, and financial aspects. Once approved, this plan becomes the company's operational blueprint for the coming period.

During the executive meeting, leaders may also discuss long-term strategic goals and how the S&OP process can support them. The approved plan should be communicated to all relevant teams and implemented immediately.

SIPOC Diagram for S&OP

1. Suppliers

Internal Suppliers:

• Sales Team: Provides sales forecasts and customer demand insights.
• Marketing Team: Provides market trends and promotional plans.
• Finance Team: Provides financial constraints and budget information.
• Production/Operations Team: Provides production capacity and constraints.
• Supply Chain Team: Provides supplier performance and lead times.
• Product Management: Provides product lifecycle information and new product introductions.

External Suppliers:

• Raw Material Suppliers: Provide information on lead times, availability, and pricing.
• Logistics Providers: Provide delivery schedules and transportation constraints.

2. Inputs

• Sales Forecasts: Projected sales data based on historical trends, market analysis, and promotional plans.
• Demand Data: Actual sales orders, customer requirements, and market demand.
• Production Capacity: Current production capabilities, machinery availability, and workforce availability.
• Inventory Levels: Current stock levels and inventory turnover rates.
• Supplier Lead Times: Time required for suppliers to deliver materials.
• Financial Information: Budget constraints, cost targets, and financial performance metrics.
• Supply Chain Constraints: Information on supply chain disruptions or limitations.

3. Process

• Review Performance: Assess past performance, product review, life cycle phases, new products, and obsolete items.
• Demand Planning: Evaluate and adjust demand forecasts based on historical data, market trends, and promotional activities.
• Supply Planning: Assess supply capabilities, including inventory, production capacity, manpower, and machines.
• Financial Review: Analyze and justify the financial aspects of the plan, including cost, budget, and resource requirements.
• Reconcile Plans: Align and reconcile demand, supply, and financial plans to ensure consistency and feasibility.
• Pre-S&OP Meeting: Conduct a pre-meeting to review and finalize plans before executive review.
• Executive S&OP Meeting: Present and finalize the single plan including demand, supply, and financial aspects for approval.

4. Outputs

• Approved S&OP Plan: A comprehensive plan that integrates demand forecasts, supply capabilities, and financial constraints.
• Operational Plan: Detailed action plans for production, inventory management, and resource allocation.
• Financial Plan: Budget and cost forecasts aligned with the operational plan.
• Performance Metrics: KPIs and targets to measure the success of the S&OP plan.
• Communication Plans: Internal communication strategies to inform stakeholders of the approved plan and any changes.

5. Customers

Internal Customers:

• Sales Team: Uses the S&OP plan to align sales strategies and customer expectations.
• Marketing Team: Aligns marketing strategies with the S&OP plan.
• Finance Team: Uses the financial plan for budgeting and financial reporting.
• Production/Operations Team: Uses the operational plan for scheduling and resource allocation.
• Supply Chain Team: Coordinates with suppliers based on the S&OP plan.

External Customers:

• End Customers: Receive products and services based on the availability and fulfillment outlined in the S&OP plan.
• Retailers/Distributors: Depend on the S&OP plan for inventory levels and delivery schedules.

Conclusion

The S&OP process is a vital tool for aligning demand, supply, and financial plans to ensure organizational success. By following this detailed framework, companies can create a robust S&OP process that enhances efficiency, reduces costs, and improves overall performance. Each step, from reviewing performance to the executive meeting, plays a critical role in achieving a balanced and integrated plan that drives business growth.