There has been a good deal of discussion on the topic of Sales and Operations Planning (S&OP) in APICS circles. In fact, there is a national conference on this topic being held in Chicago later this month. So, what is this discipline, and why is it in forefront of professional discussion? Sales & Operations Planning is a process that helps top management implement the corporate business plan. In many companies, each department has its own set of objectives and measurements. These objectives are, many times, not coordinated with other, neighboring departments. These departmental objectives create dissension, confusion and poor communications between departments. The end result is a corporation that works at a less than optimum profitability.
In the S&OP process, management coordinates the plans for sales, marketing, production, supply chain, finance, and human resources into a single comprehensive plan that sets the direction of all departments and forms the basis for their decision making over a given time period.
Remember that S&OP is a process. It is not just a meeting, or a series of meetings. It is a collection of decisions that drives every manager in his role in the corporation. The S&OP is a planning tool at the next level above the Master Schedule in its time frame (the S&OP usually covers a longer time frame than the Master Schedule); and in its detail (the S&OP deals with product families rather than individual products). As a result of the final S&OP, the production department will create the Master Schedule to implement its actions in support of the approved S&OP. The S&OP is not the process to use to develop a corporate strategic plan. Rather, it is the tool for implementing the strategic plan throughout the year.
Because it is a process, the S&OP is assembled and reviewed every month. If you are reviewing the S&OP more frequently that monthly, you may be actually developing a master schedule rather than a broader view corporate plan. The S&OP process usually starts with a measure of the actual results from the previous month with analysis of the reasons for success or failure. The S&OP management team looks at the results and incorporates remedial actions in the next S&OP. Then the new plan is reviewed for validity (can the goals really be achieved or are they just a “wish list”) and cost factors.
The final S&OP will look out over a time period from 3 months to 6 months. In some companies it has to look out to a 12 month period because of long lead time materials or production expansion time frames.
The second phase of the S&OP is the implementation by the middle management team and the reporting of results and problems. Implementing the S&OP guides the departments to accomplish their objectives in support of the corporate plan.
One of the key benefits from an S&OP is the improvement in top management team work. It helps top management to see business issues with a holistic, corporate viewpoint rather than getting caught up in parochial infighting between departments. This corporate view strengthens interdepartmental communications.
Using the S&OP process drives the company to utilize a single set of data to measure performance across all departments. Top management will insist that each department measure their performance to the S&OP with data that shows corporate impact of their actions.
Finally, the S&OP process improves the ability of the company to react quickly to potential problems or issues. Many times these problems arise in the second phase as the middle managers uncover issues that were not seen earlier in the process. By raising these issues and showing the potential impact, the S&OP can be modified in the next round of meetings.
The S&OP is a management tool that is worth study and investigation by any company seeking to improve communications, react to a fluid environment and execute its strategic business plan.
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