Next-Generation Sales and Operations Planning: Tracking the Evolution from Tactical to Strategic Operational Excellence

A look at how progressive companies are taking a strategic, best practices-based approach to S&OP to enhance operations with increased visibility, reduction of costs and improved business performance


The concept of sales and operations planning (S&OP) has been around for decades, primarily as a collaborative supply chain planning process designed to drive more accurate demand forecasts and align that demand with production capabilities to ensure timely fulfillment of customer orders. Many manufacturers still adhere to that view.

Today, however, as companies face increased global competition and supply chain challenges, along with rising transportation costs and volatile economic and market conditions, a transformation of S&OP is occurring.

Many industry-leading manufacturers — as well as consumer goods distributors and their retail partners — have been working towards elevating their S&OP processes to an enterprise-wide global scale in order to enhance supply chain visibility, reduce costs and achieve more integrated business planning and management. As a result, businesses of all types and sizes are now discovering how this next generation of S&OP can actually become a mission-critical element of an integrated business management strategy.

Traditional S&OP: Focused on Supply Chain Operations

S&OP, comprising a set of managerial tools and techniques used for manufacturing supply chain planning and control, has traditionally been viewed as a business process geared towards unifying plans across different internal functional departments. Its objective is to balance and synchronize supply and demand by reconciling predicted sales, or unconstrained demand forecasts, with supply plans in terms of volume, plant capacity, inventories, available labor, equipment and other constrained resources.

To maximize operational efficiency, traditional S&OP relies on coordinating planning efforts across multiple functional departments such as sales, marketing, distributors and business partners, customers and forecasters on the demand side, and inventory, procurement, plant management, production planners and schedulers on the supply side.

Many companies using S&OP typically perform this collaborative planning exercise on a relatively short-term basis — typically on a rolling monthly basis with a time horizon of at least three to 12 months. Planning may be done on a SKU- or item-level basis or may be done on an aggregated product line level if the process is more strategic and has an executive-level review with time constraints. The goal of most S&OP initiatives to date has been purely tactical — namely, to achieve supply chain balance and operational excellence. For some, this goal has been realized; others have fallen short, for a variety of reasons.

The Limitations of Tactical S&OP

One challenge facing companies seeking to support an S&OP process is a lack of advanced technology to drive process and workflow integration across the functional areas involved. A surprising number are still using PC desktop tools such as Excel or Access to manage their departments. Others have a virtual array of automated technology systems in place to manage various functions. Their internal and field sales organizations may use customer relationship management (CRM) or sales force automation (SFA). Production planners may use enterprise resource planning (ERP) or materials resource planning (MRP). And their forecasting and demand planners may use any number of supply chain planning (SCP) and supply chain management (SCM) application solutions.

Yet, without an enterprise-wide integrated information platform, this non-cohesive mix of data systems can lead to incorrect assumptions, not to mention the need to move and manipulate numbers between disparate systems — which can raise doubts about the accuracy and integrity of the data used to formulate the S&OP consensus plan.

Another major concern that has surfaced more recently around S&OP is its purely tactical near-term focus and disconnect from a company's overall business strategy, which can result in missed opportunities. Too often, while the teams involved in creating sales and operations plans are executing according to one set of numbers, top corporate and financial management may be setting, expecting and communicating a completely different set of financial plans and projections to the board and other key stakeholders. Disparate plans that do not incorporate key functional and trading partner insights can create a credibility gap for a company and its key executives when performance falls short and customers are left unsatisfied.

A perfectly balanced unit-based supply and demand plan could achieve the key objectives of functional leaders from the demand and supply organization but could fail to deliver what the company has committed to the market and key stakeholders from a business plan perspective. This realization is the foundation for the transformation that is now occurring within the process.

Some enterprises struggle with achieving success with S&OP because of the coordination that involves multiple stakeholders across multiple organizations — operations, sales, marketing, finance, as well as outside trading partners — that must unify to determine a cohesive strategy. The path to the next-generation process will require key changes in behavior, process and tools to transition to higher levels of performance.

Next-Generation S&OP: Linking Operations to Business Performance

Industry analysts and leaders in the manufacturing, distribution and retail industries have come to recognize that the gaps that exist between tactical operations planning and strategic business management need to be reconciled if S&OP is to contribute to more profitable business performance. A few of the S&OP best practices that industry-leading firms have been implementing to pave the way to the new ideal of integrated business management include:

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