In today’s fast-paced business world, where flexibility and the ability to swiftly adapt to market changes are becoming key success factors, the Sales and Operations Planning (S&OP) process is gaining increasing importance. In previous articles, we discussed the basics of this crucial management process, but it’s worth deepening our knowledge and taking a closer look at the various adaptations and evolutions of this process that have developed over the years in response to the changing needs of organizations. This is important because the variety of processes under the S&OP banner can create the misleading impression that they are entirely different.
What is S&OP?
Main Goals of S&OP
Sales and Operations Planning (S&OP) is integrated sales and operations planning, with the primary goal of increasing the predictability of a company’s financial performance. This is achieved by coordinating the actions of the entire organization around one cohesive plan. This plan includes forecasts of customer demand and operational plans, which are regularly reviewed over a 12-18 month horizon. A key aspect of this process is the monthly evaluation of these plans for their reliability, feasibility, and acceptability.
The S&OP Process in Action
Four-Step Monthly Cycle
The practical implementation of the S&OP process occurs within a four-step, monthly cycle consisting of the following steps:
- Demand Planning
At this stage, market trends, historical sales data, and other factors influencing demand are analyzed to create the most accurate demand forecast. - Resource Planning
Based on the demand forecast, the necessary production, logistics, and personnel resources are planned to meet the anticipated demand. - Pre-S&OP Meetings
The goal of these meetings is to align the plans between key functions in the organization, such as sales, marketing, production, logistics, and finance. - S&OP Meetings
This final stage involves senior management (e.g., CEO, board of directors) approving the final plan.
Variants of the S&OP Process
Although the basic structure of the S&OP process remains unchanged, various variants have emerged over the years, tailored to the specific needs and challenges of different industries and organizations. It’s important to emphasize that, regardless of the name or specific modifications, the essence of the process remains the same – integrated planning aimed at improving business outcomes. Let’s take a closer look at some of these variants:
1. SOP (Sales and Operations Planning)
This is the simplest form of the term, where the “&” symbol is omitted. While this may seem like a minor difference, it’s worth noting that such simplification can sometimes lead to confusion or doubts about whether we are dealing with the same process. Therefore, it’s recommended to consistently use the full S&OP name to avoid potential ambiguities.
2. SIOP (Sales, Inventory, and Operations Planning)
SIOP, or sales, inventory, and operations planning, is a variant of the S&OP process that places a special emphasis on inventory management. This approach is particularly popular in companies for which optimizing inventory levels is a key factor for success. It can apply to industries with high seasonality, companies producing perishable goods, or organizations operating in sectors with high storage costs.
Including “I” (Inventory) in the process name highlights the importance that the organization places on effective inventory management in the context of overall business planning. In practice, the SIOP process may involve more detailed analysis of inventory levels, account for inventory management strategies in different market scenarios, or focus on optimizing the flow of goods across the supply chain. But S&OP can achieve the same goals.
3. S&OPE (Sales & Operations Planning and Execution)
This variant of the S&OP process goes a step further by combining long-term planning (12-18 months) with short-term planning and execution of plans in the current month or even on a daily or weekly basis. This approach aims to create a smooth transition between strategic planning and daily operational reality.
However, it is important to note that combining these two time horizons carries some risk. There is a danger that the team may start focusing primarily on current challenges, neglecting the long-term perspective. Therefore, many organizations choose to separate these processes, maintaining traditional S&OP for long-term planning and a separate S&OE (Sales & Operations Execution) process for the execution of current plans.
4. DP S&OP (Demand Planning | Supply and Operations Planning)
This approach splits the S&OP process into two distinct stages: demand planning and integrating that plan with operational capabilities (Supply and Operations Planning). This division can be beneficial in organizations where demand forecasting is particularly complex or represents a critical element of business success.
In this approach, an organization may choose to assign responsibility for these two stages to different teams or departments. For example, the sales and marketing department may be responsible for demand planning, while the operations department handles the integration of these forecasts with production and logistics capabilities.
However, it’s important to remember that despite this division, maintaining the consistency and integrity of the entire process is critical. Therefore, it’s advisable to have one coordinating function overseeing the entire DP S&OP process to ensure smooth communication and collaboration between all parties involved. Ultimately, S&OP can operate in the same way.
5. AS&OP (Adaptive Sales & Operations Planning)
Adaptive S&OP is a response to the growing need for flexibility in business planning. This variant of the process places particular emphasis on the ability to quickly adjust to changes in the business environment. AS&OP introduces a more dynamic approach to planning, allowing for more frequent revisions of plans and quicker responses to unexpected market changes.
A key element of AS&OP is its integration with the Master Production Planning (MPS) concept and Demand Driven MRP (DDMRP). The combination of these elements within AS&OP enables organizations to plan more flexibly and responsively, better handling market uncertainty and variability. However, it is important to note that despite the introduction of these adaptive elements, the basic assumptions and goals of the S&OP process remain unchanged.
6. IBP (Integrated Business Planning)
Integrated Business Planning is the most advanced form of the S&OP process, integrating financial planning with operational and sales planning. IBP is often associated with the SAP system module of the same name, which has contributed to the popularity of this term.
Some experts consider IBP to be simply a rebranding of traditional S&OP, and in practice, this is often the case. The main difference lies in the greater emphasis on financial aspects in the planning process. In traditional S&OP, finance also plays an important role, but in IBP, it is the central element of the process.
IBP seeks even closer integration of all business functions, including strategic planning, product portfolio management, human resource planning, and risk management. The goal is to create one cohesive business plan that combines all aspects of an organization’s operations. Ultimately, this is the same process as S&OP.
Conclusion
Understanding the various variants of the S&OP process is important for managers and specialists involved in business planning. This knowledge can help better tailor the process to the specific needs and challenges of a given organization. However, the key is to recognize that, regardless of the name or specific modifications, the essence of the process remains the same – integrated planning aimed at improving business outcomes and increasing the predictability of an organization’s activities.
Choosing a specific variant of the S&OP process may be purely illusory because, in the end, we are implementing the same process, only under a different name. Regardless of the approach, it is crucial to ensure the process adds real value to the organization. This includes better coordination, more efficient resource use, and improved financial results.
As business evolves and new challenges arise, we can expect further development and adaptation of the S&OP process. However, regardless of the name, organizations that can flexibly adapt their planning processes to changing market conditions will have a competitive advantage in the increasingly complex and dynamic business environment.
Where to Find S&OP Materials
I encourage you to deepen your knowledge of S&OP. You can easily find educational materials online, including my YouTube channel, IBF’s (Institute of Business Forecasting and Planning) YouTube channel, MPM webinars (recordings on YouTube), the first Polish book on S&OP by Roman Wendt, and a free S&OP e-book available for download from my website (PAWELBIRECKI.COM).
Paweł has worked in various industries and held a wide range of roles throughout his career. He’s been a manager, a planner, a lecturer, and even a shift supervisor in a coffee shop. Each of these experiences has taught him how to work effectively with people and how to ensure that processes run smoothly and efficiently.
His core expertise lies in Sales and Operations Planning (S&OP), inventory optimization, production planning, and process management, enabling businesses to align their operations, improve their KPI performance, and enhance financial predictability. Paweł focuses on improving communication between departments and implementing strategic solutions that drive measurable results.
