The 6 Steps of the S&OP Processes

The 6 Steps of the S&OP Processes

Sales & operations planning (S&OP), is a monthly integrated business management process that empowers leadership to focus on key supply chain drivers, including sales, marketing, demand management, production, inventory management, and new product introduction.

The primary purpose of sales and operations planning is to link strategic and tactical plans across the organization and align operations with the business plan. Effective (S&OP) is most likely to result in better customer service. Implementing a unified cross-functional plan and process is critical to successfully using a sales and operations planning process. The six steps of the S&OP processes are:

Product Review:  In this first phase, planners involved in R&D, product development, and new product introduction analyze the health of products in the market, examine product pipelines, and arrive at decisions about product planning. These decisions might include setting dates for new production or sunsetting to determine project prioritization and resource allocation. Other topics discussed in this phase may include the impact on existing products when a new product is introduced, also known as cannibalization, or supersession.

Demand Review:  The goal of this phase is an unconstrained forecast or consensus demand planning, incorporating a holistic picture of independent and dependent demand. Factors influencing independent and dependent demand may include marketing, new product introduction, consumer trends, product hierarchy, customers plan and interplant part demand. The consensus demand plan is based on a combination of sales, marketing, and product plans. The demand plan is measured either in units or revenue.

Statistical forecasting is combined with input from customers and marketing plans to estimate, refine, and arrive at a consensus plan. Historic performance will be factored into the plan, and eventually the demand plan will be compared to the results of the finance review to find any revenue or demand gaps. Sales force input about customer plans typically is most important for a product line that is made to customer order.

Supply Review:  The goal of this phase is a supply plan that syncs with the consensus demand plan (Capacity planning occurs at this stage). Ideally, these two plans work in unison. The supply plan should balance customer service and minimize inventory as well as operating costs. A baseline production plan and rough-cut capacity plan are developed, along with alternate supply plans that factor in capacity, demand variations and identify future cash needs.

“What-if” scenarios play a key role in this phase of the process, so it’s essential to have a technology platform with the capability to run them using real-time data. These scenarios vary from more tactical “what-if” questions to longer-term scenarios, but the function of both is the same: to reduce risk and understand the up and downsides of a wide range of adjustments. Examples of more straightforward scenarios include inventory or workforce re-balancing, and more complex scenarios such as on-boarding a new supplier, new capacity, or workforce training. Ideally, as these scenarios develop, they’re automatically connected to budgetary needs so financial risk projections can be made.

Finance Review:  There’s some debate around the position of this stage in the process. Some insist that it falls after the first three phases are complete, and others preach that it should be “always on.” Either way, the mission remains the same: to produce a set of baselines that then become adjustments to product, demand, and supply review, along with input used in pre-S&OP and executive S&OP reviews.

In this phase, financial performance for the previous month is consolidated to provide inputs for analyzing the current month’s S&OP cycle. Finance owns this process and it can include different categories or views, including product, geography, customer, and channel.

Actual costs are compared with budgets and forecasts to analyze forecast accuracy over a rolling time frame. A connected approach to S&OP means that no matter where this step in the process falls, financial analysis plays a key role in producing inputs into pre-S&OP and executive S&OP.

Pre-S&OP:  Pre-S&OP is a series of meetings conducted with leaders at various levels that showcase the connectivity of plans across product, demand, supply, and financial view of the business. The primary purpose of a pre-sales and operations planning meeting between representatives from different business functions is to reconcile differences in recommendations.

Ideally, these meetings center around a cloud-based platform that houses all the plans in a single place. The purpose of pre-S&OP is to identify key gaps and disconnects and create strategies to handle those issues. The plans are reviewed in shared dashboards and actual vs. variance is analyzed, keeping targets and budgets in mind.

Metrics like revenue, profit, and inventory are analyzed by both rolling up to the corporate level and down to the product-line level to gain an understanding of the financial and operational implications of decisions. Adjustments to the product, demand, and supply plans are made in real-time. The primary outputs of the pre-sales and operations planning (S&OP) meeting are the recommendations and agenda for the executive S&OP meeting.

Executive S&OP:  The finish line is in sight. The final phase of S&OP brings all plans and data together in a unified, cloud-based platform to be used in executive S&OP meetings. “What-if” scenarios and the associated risks are reviewed, and decision points are noted so leadership knows when they will need to make the appropriate choices.

Any key decisions that weren’t resolved in the first five phases are addressed in this phase, the reasons for escalation are examined, and decision deadlines are set. The management participation in sales and operations planning involves the resolution of broad trade-offs by top management.

The decisions made in this phase can have far-reaching implications across the business, so when using the right technology platform, the impacts of those decisions can be analyzed and applied to key metrics in real-time. In the end, the goal of executive S&OP is to generate a final, aggregated plan that’s sent to cross-functional owners and distributed downstream to all affected areas.

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