S&OP - Best Practices
When done effectively, S&OP (Sales and Operations Planning) creates a shared understanding across functions such as sales, marketing, operations, finance, and supply chain, enabling businesses to meet customer demand while controlling costs and maintaining efficiency. The truth is that, for many organizations, this critical foundation of Supply Chain is performative only, ineffective or in some cases ignored altogether - I argue that the fundamental reason behind this is that successful S&OP is a result of cross-functional collaboration and an ability to agree on Mission Consensus.
7 Key Steps to Best-In-Class S&OP
1. Align S&OP with Business Strategy
A frequent mistake is to have S&OP as a standalone process, however it should a tool that supports and drives business strategy. Being aligned with a clearly defined business strategy helps ensure that tactical decisions are made with a long-term view, improving overall performance and supporting key goals. I like to refer to this as Mission Consensus - ensuring that every team is on the same grander mission as opposed to aiming to achieve function specific targets only.
Link Financial and Operational Plans: Ensure that sales and operations plans are aligned with the company’s financial targets, budget, and growth objectives. The integration of finance, sales, and operations is crucial to understanding the financial implications of demand and supply decisions.
Establish Clear KPIs: Set key performance indicators (KPIs) that are tied to strategic goals, such as profitability, customer satisfaction, on-time delivery, inventory turnover, and capacity utilization. As is common in other Supply Chain processes, creating KPI’s is often the easiest part - to be successful these KPIs should be monitored regularly to gauge the effectiveness of the S&OP process.
2. Create Cross-Functional Collaboration
A successful S&OP process should break down silos between departments such as sales, marketing, production, supply chain, and finance. Each department has unique insights that are valuable for creating a balanced plan and have an important role to play in the process.
Regular Cross-Functional Meetings: There needs to be regular cadence of S&OP meetings to a set cycle, that involve representatives from all relevant departments. These meetings should focus on reviewing demand forecasts, supply capacity/constraints, inventory levels, and financial goals, while discussing any risks, challenges or opportunities.
Collaborative Forecasting: Work together to generate a consensus forecast that blends the insights from Sales, Demand, Marketing and Operations to ensure that all relevant information is in the final view. This collaboration ensures not only that all stakeholders contribute to and buy into the final plan but that it’s also holistic in its view.
Define Roles and Responsibilities: Ensure that each department and individual involved knows their responsibilities. For example, sales may be responsible for providing the demand forecast, operations for assessing production capacity, and finance for reviewing financial impact. Establish a clear decision-making hierarchy for resolving issues.
Document and Standardize Processes: Create clear documentation that outlines the steps involved in the S&OP process, including data gathering, forecasting, collaboration, review, and approval. Standardization reduces confusion and ensures consistency across the organization, as well as improving velocity.
3. Data-Driven Decision Making
Forecasting, planning, and decision-making rely on high-quality, timely, and consistent data. Poor data or outdated information can lead to misalignment, inefficiencies, and missed opportunities.
Invest in Integrated Systems: Use enterprise resource planning (ERP) systems, advanced planning systems (APS), and S&OP software that can integrate data from different functions into one central platform. This reduces data discrepancies and enhances the ability to make real-time, data-driven decisions.
Improve Demand Forecasting: Leverage historical data, market trends, customer insights, and predictive analytics to develop more accurate demand forecasts. Incorporate factors such as seasonality, promotions, and market conditions to fine-tune forecasts.
Scenario Planning: Use data to model different scenarios (e.g., changes in demand, supply disruptions, or price fluctuations) to better understand the potential impact of various outcomes. Scenario planning allows businesses to prepare for unexpected events and manage risks proactively.
4. Focus on Integrated Demand and Supply Planning
S&OP is about balancing demand with supply. Creating a fully integrated approach to both demand and supply planning will help ensure that resources are optimized to meet customer needs while avoiding overproduction/supply, stockouts, or capacity constraints.
Balance Supply and Demand: Regularly review demand forecasts alongside supply capacity to ensure that the organization can meet customer expectations without overstretching its resources. This may involve adjusting production schedules, procurement strategies, or inventory levels.
Inventory Management: Use S&OP to optimize inventory levels, avoiding both stockouts and excess stock. By having the right inventory at the right time and in the right place, organizations can manage cost more effectively while optimizing sales oportunities.
Capacity Planning & Mitigation: Evaluate production capacity and attainment to ensure that the supply chain can meet demand fluctuations. Mitigation can include modal transport changes, additional production capacity or simply outsourcing supply.
4. Incorporate Continuous Improvement
Best in class S&OP is not a one-time event but an ongoing cycle of planning, execution, and review:
Monitor Performance: Regularly assess how well the S&OP process is meeting its KPIs, including forecast accuracy, inventory levels, order fulfillment, and customer satisfaction to identify areas of opportunity for improvement.
Learn from Past Mistakes: Trial and Error is too strong a term, but every organization needs to learn from previous errors. Conduct post-mortem analyses of past S&OP cycles to understand where forecasts went wrong, what went well, and where the process can be enhanced. This feedback is critical and should be used to make adjustments and improve future planning cycles.
Adopt a Culture of Flexibility: The business environment is always changing—whether due to market shifts, new competitors, or supply chain disruptions. A strong S&OP process should be flexible enough to accommodate change while maintaining focus on key business objectives - this comes back to the firs point of aligning to overall Business Strategy.
6. Develop a Strong Executive Review and Decision-Making Process
While the day-to-day S&OP process involves cross-functional collaboration, a successful S&OP process requires strong executive involvement to make final decisions, especially when conflicts arise between departments or when trade-offs are necessary.
Executive Reviews: Conduct regular executive reviews where senior leadership can provide input on critical decisions, such as trade-offs between cost and service levels, capacity allocation, or prioritization of strategic projects.
Decision-Making Framework: There must be a structured framework for decision-making that allows an LT to evaluate and make informed decisions based on the latest data, forecasts, and strategic priorities. This ensures that decisions are aligned with the company’s goals and objectives, tying back once more to Business Strategy.
7. Foster a Culture of Transparency and Communication
This is probably the hardest part of S&OP in any business - putting ego and defensiveness aside and being able to have open and transparent conversations about Supply, Demand and Attainment.
Transparent Reporting: Ensure that key metrics, performance data, and decisions are communicated clearly across the organization. Transparency helps everyone stay aligned on goals, expectations, and progress. From experience, aligning on a Single Source of Truth is critical - S&OP meetings will always be a snapshot in time and therefore the consensus on what data is being used and when will define success.
Proactive Issue Resolution: Foster an environment where teams feel comfortable raising concerns or issues as soon as they arise. The earlier problems are identified, the easier it is to find solutions and minimize their impact. Meetings and conversations cannot fall into ‘Us’ and ‘Them’ thinking or terminology and instead maintain focus on the Mission.
Best Practicel S&OP process requires a commitment to transparency, clear roles and responsibilities, and strong executive involvement. Most of all, however, an organization needs to have clear Mission Consensus before even starting.
With these practices in place, organizations will create a more agile, responsive, and resilient planning process that not only meets current business needs but is also well-equipped to address future challenges.