How to Select a Sales and Operations Planning (S&OP) System

Mature sales and operations planning (S&OP) is more than a sales forecasting or tactical planning tool. S&OP is a decision-making mechanism for aligning strategic plans with sales, operational, and financial plans. Download this TEC executive brief for pointers on selecting an S&OP system, information about how mature S&OP processes can help tackle critical business issues, and key S&OP system capabilities to look for.
In this report, we provide key pointers on selecting a sales and operations planning (S&OP) system, by exploring:

  • how a mature S&OP process can help tackle key business issues,
  • why technology is required for success on the S&OP front, and
  • key S&OP system capabilities to look for.
At the base level, S&OP is simply a tactical or sales forecasting process for aligning production with demand. But mature S&OP processes are more than sales forecasting or tactical planning tools. S&OP is a decision-making mechanism for aligning an organization’s strategic plan with its sales, operational, and financial plans. Advanced S&OP processes provide organizations with top–bottom views, as well as the ability to collaborate bidirectionally across multiple business inputs within and outside the organization.


The Scope of S&OP

S&OP addresses and impacts a range of scopes and timeframes: strategic (multiyear), tactical (quarterly), operational (weekly or daily), and execution-level (real-time). These ranges and interdependencies are depicted in figure 1.


 
Figure 1: S&OP—the bi-directional information pyramid

The S&OP process sits in the middle of all business processes, thanks to the way it feeds and provides information to multiple layers of the organization. Information is captured at different stages, from yearly scoping to daily execution. S&OP streamlines the information flow between all departments and levels, so that a single consensus plan can be generated via both vertical and horizontal collaboration.

By way of broad generalization, the strategic, tactical, operational, execution layers break down as follows:

  • The strategic layer answers “what?” and “who?” questions; the typical scope is multiyear.
  • The tactical layer answers “how much?” questions; the typical scope is quarterly.
  • The operational layer answers “where?” and “when?” questions; the typical scope is weekly or daily.
  • The execution-level layer answers “here and now” questions; the typical scope is real-time.

Why Is Technology a Vital Component of Successful S&OP?

The complex needs addressed by S&OP processes require automated data-crunching mechanisms that largely exceed the capabilities of spreadsheet manipulations. Indeed, one traditional challenge to wider S&OP process adoption has been the lack of advanced IT to facilitate workflow-based data and process integration across all the functional areas involved. A staggering number of companies are still using pedestrian tools such as Microsoft Excel or Access to manage their departments.

As contemporary supply chains extend further and increase in complexity (e.g., via mergers and acquisitions, global sourcing, off-shoring, and the use of contract manufacturing), it is critical (for profitability’s sake) that organizations develop appropriate mechanisms and processes to respond to demand fluctuations faster (thereby ensuring that, for example, manufacturing does not set up to produce product X while sales has promised product Y).

Organizations typically experience a significant pain point when they address the question of how to efficiently analyze, communicate, and synchronize responses to these challenges across all departments, horizontally and vertically within the organization, i.e., from product development and production, to sales, marketing, and financials.

Traditional tools and software applications such as spreadsheets or enterprise resource planning (ERP) can help address internal departmental needs for budgeting, financial planning, resources planning, supply chain optimization, and scheduling, but they typically lack the ability to provide the insight necessary for high-level decision-making processes.

Using spreadsheets or silo applications to run S&OP processes leads to significant and unavoidable constraints, including:

  • lack of data integrity and difficulty in maintaining data sources,
  • inability to understand the implications of changes within demand or supply feeds,
  • inaccurate operational/financial risk assessments with respect to demand or supply changes,
  • customer impact “blind spots” subsequent to changes to operational plans,
  • inability to generate actionable product plans based on what-if scenarios that incorporate market and customer demand,
  • inability to incorporate demand changes based on geographical/regional requirements,
  • sluggish response to planned/actual variance, and
  • a lack of role-based alert mechanisms for exceptions.
Without the ability to understand the impact of demand, supply, and product/volume mix decisions on revenue and profit margins, planning accuracy remains limited. Organizations can overcome such limitations by integrating mature S&OP processes throughout and across all functional areas, so long as the technology selected is a good fit for the organization (in other words, so long as the cure is not worse than the disease).

Mature technology-enabled S&OP processes can provide organizations with such benefits as:

  • reduction of the gap between financial and operational plans,
  • minimal discrepancy between actual and budgeted financial plans,
  • production plans that fulfill customer requests and sales objectives,
  • the ability to develop reliable indicators for forecast accuracy, inventory turns, product launches, production capacity, and transportation costs, and
  • promotional planning activity that is integrated with operational and financial plans.

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