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What is Sales and Operations Planning (S&OP)?

It is a monthly process in which the business (unit) considers it’s medium term plans in terms of sales/demand, supply to meet that demand, the resources needed to deliver that supply to meet that demand, and the financial numbers that arise from those plans – are we meeting the annual budget/business plan, do we need to take any actions to better hit the plan? It is about getting demand and supply into balance in the medium term.  If you can plan that balance in the medium term, then short term planning must become easier.

5 Steps

Typically there are 5 steps in the monthly process – but there can be less, there can be more. The process is to fit your environment, not a standard model. The 5 steps are:


1.  New product update, portfolio planning

2. Demand planning

3. Supply and resource planning

4. An integration and reconciliation meeting (sometimes called the pre-S&OP meeting)

5. Executive S&OP meeting


The number of steps will be influenced by the number of business units to be included, the hierarchy of the organisation, the geographic spread and more.


The process provides to the executive team an overall, high level, big picture of the business in the medium term, covering demand, supply, resources and finances. From this view, the executive can take important decisions that will affect the success of the business in the future. It is not about sorting today’s or tomorrow’s problems and issues, but about planning for the medium term to work, so that, when the medium term becomes the short term, as it undoubtedly will, there are realistic plans to hit the numbers.


Why do we need S&OP? What benefits should we see?


It is about planning to hit the numbers in the annual budget/business plan, and then hitting them consistently. It should lead to improved customer service, with improving on-time, in full deliveries, leading to every customer order being shipped becoming an ‘efficient, perfect order’. This should be achievable with fewer inventories and reduced lead times. The company will more consistently achieve the revenue and profit numbers, and funds can be invested as planned. The management team feels in control of the business, and is steering the business in the planned direction. Most activities become proactive, rather than reactive.


Where do we need S&OP?


It can be implemented in all your operations around the world, whether sales, supply or development business units. Each business can have its own process and cycle, and the local numbers can be accumulated into worldwide numbers for the top level executive to review. This global dimension of S&OP is becoming much more common and MBE has been involved in 2 such projects. A worldwide monthly timetable is established and everyone works to that one schedule, to get the numbers done for the end of each month.


What timeframes are we looking at?


The horizon for S&OP is typically the medium term, the 12 to 18 month horizon. Business planning is more about the long term : 3 to 5 years. Master scheduling and detailed material / capacity planning are more about the short term, often just the next 1 to 3 months. S&OP connects these plans together in the medium term, so that the long term strategic objectives can be planned and delivered, and the short term plans can be executed effectively and efficiently.


The process is a monthly process, just like the financial and management accounts. Would you miss one of those financial cycles? No, of course not. It is the same for S&OP. The executive needs the medium term view every month, to maintain control and to know when to turn the numbers up or down. You need to start now. The longer you leave it, the more time your competition has to get ahead, and leave you behind. The sooner you start, the sooner you can get your medium term plans under control, the sooner you can hit those plans when they become the short term numbers.


Who should be involved?


First, the top management team from the business unit. They need to be committed, they need to want the numbers and need to be convinced that they will run the business better from the extra numbers. They need to be involved in the process from the beginning. Middle management also need to be involved. They are the ones who collate the numbers together every month, make recommendations to the executive, and who finalise the agenda each month. Sales teams, project teams, planning teams and more will also get involved to provide some of the numbers to middle management. All will need education and training, and will need to participate in the development of the process for your particular environment. People lead to success.


What do we do next?


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