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The basics of S&OP

Today’s business environment is undergoing changes at ever faster intervals. Leaders of today are constantly challenged, and it requires them to act and stay in control. How can an S&OP process benefit the company?
In this blogpost we will investigate the basics of S&OP; why it is needed, what it is and how the process benefits from technology.

S&OP – why is it needed?

A well-known and recurring challenge among manufacturing companies is to secure that the Business Plan is reflected in execution. There is inevitably a gap between a Business plan made on a yearly/ biyearly cadence from top down data, and Detailed planning, made weekly, from bottom up data and with previously planned and unplanned unknowns known. Moreover, the gap between business plan and detailed planning / execution may be further reinforced by misaligned incentive schemes, local KPI definitions and use of parallel, non-harmonized data sources:

  • Sales strive to operate with maximum flexibility towards customers and hold possibilities open if possible. Also, they want to be able to offer non-standard solutions
  • Supply Chain wishes to create productivity through stability and automatization of processes, products, and customer portfolio
  • Finance wishes to create transparency in processes so the business can create the right bottom-line impact on products and customers, while at the same time bringing down working capital

S&OP is the planning layer bridging the disconnect between Business and Detailed Planning. S&OP when performed right, tear down organizational silos, create pre-conditions for proactive decision making, as well as unite the company around one plan and one target. Typically, S&OP drives performance within Sales, Service, Liquidity (increase) and Cost (decrease).

 

S&OP – what is it?

S&OP is an exception focused mid-term decision-making process, creating pre-conditions for the short-term planning to be executed in line with the Business Plan. The S&OP process identifies and resolves gaps between Sales Plan and Actual demand, Demand and Supply as well as Supply targets and Actual output. Gaps between plans are identified through the process of making the plans comparable, translating between different Unit of Measures (Monetary vs. Qty vs. Hrs) and aggregation levels (Volume vs. SKU).

In practical terms S&OP is a cyclic, sequential process at its core structured around 4 forums:

  • Demand review
  • Supply review
  • Pre-Executive meeting
  • Executive meeting

Each forum makes decisions to close identified gaps, as far as their mandate reach. Non-resolved gaps outside the mandate are escalated for final decision in the Executive Review. The sequential aspect of the process means that decisions and feedback from current cycle is fed into the next cycle. A vital part of the process is to follow up on previous actions and track progress through KPI monitoring, to secure that previous decisions have had intended impact and if not finetune the action.

There are two key enablers for S&OP:

  • Top-management commitment
  • To reflect the planning environment in a single unified data model that is recognized across the company

S&OP – how technology drives process efficiency and decision quality

The historical disconnect between Business planning and execution is best bridged by a single, up-to-date unified data model. The data model bridges the disconnect between the Business Plan (top-down) and Operational Plan (bottom-up) by creating preconditions to transfer Business strategy down to the shop-floor. Many companies try to set up the data model and drive the S&OP process in non-integrated spreadsheets. However, we believe that S&OP efficiency, impact, and sustainability is best achieved leveraging a fit-for-purpose technical platform; automatizing input data collection, generating a forecast, enabling what-if scenarios and steering workflow.

Would you like to learn more about our approach to Supply Chain planning from an end-to-end perspective, then we encourage you to take a closer look at our whitepaper, which you can download here: https://optilon.com/optilon-academy/stay-in-control-by-implementing-end-to-end-planning/

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