The S&OP Process – What You Need to Know
The S&OP (Sales and Operations Planning) process is an integrated approach to planning sales and operations. I covered it in detail in the previous issue, but to summarize for those who missed it, the goal of the process is to enhance the predictability of a company’s financial results. This can be achieved by aligning the activities of the entire organization around a single plan.
How S&OP in FMCG Enhances Business Planning
A well-developed plan consists of customer demand forecasts and operational plans that are regularly (usually monthly) reviewed over a 12-18 month horizon. These plans are assessed for credibility, feasibility, and acceptability. In practice, the S&OP process is implemented as a four-stage monthly cycle comprising demand planning, resource planning, Pre-S&OP meetings (to align plans across key functions), and S&OP meetings where top management (e.g., the CEO, board of directors) approves the plan.
Challenges of Implementing S&OP in FMCG Companies
Why Companies Hesitate to Adopt S&OP
Many companies, after learning about the process’s details and hearing opinions about it, decide against implementing it. The reasons? They believe the process isn’t for them because they are too small, too dynamic, don’t have inventory problems, or think S&OP requires expensive, advanced software they cannot afford. Unfortunately, this last myth often prevents companies from adopting S&OP. It’s time to debunk it.
Debunking Myths About S&OP in FMCG
Why S&OP Seems Costly
Several factors contributed to this myth:
- First, S&OP is often seen as a decision-making process heavily reliant on KPIs and data analysis. Decisions are easiest to make based on numbers.
- Second, the need to forecast demand over an 18-month horizon can seem daunting.
- Third, companies with multiple branches, thousands of SKUs, and hundreds of customers find managing such a vast amount of data challenging, especially in industries like FMCG.
This is where software providers offering AI and ML-enabled tools, forecasting modules, resource planning, and production capacity analysis come into play. The implementation cost of such software starts at hundreds of thousands of zlotys, taking months to even two years to complete. At this point, many companies conclude they lack the resources and time, leading them to dismiss S&OP as an option. But is this the only solution?
Simplifications Are the Answer
I once came across a claim that 70% of companies worldwide use Excel for S&OP and do it successfully. While this statistic might be outdated, in my experience, 100% of companies I’ve worked with on S&OP implementation started with Excel—and it worked for them.
Regardless of the initial tool—be it Excel, a whiteboard, or existing software—it’s essential to utilize the resources the company already has. This enables the first S&OP cycle to launch within eight weeks of starting the project. But how can you manage thousands of SKUs and customers? After all, Excel has its limits.
The solution lies in simplifications. You don’t need to forecast every SKU initially. Start with product groups. Similarly, instead of planning for individual customers, plan by regions. S&OP focuses on the future, which is often abstract and unpredictable for many companies. Therefore, attempting to plan by SKU might be pointless. Planning by product groups makes more sense. While it might not extract the maximum value from the S&OP process, it enables the most important step—starting and developing the process. Analyzing and processing data in this simplified form becomes much more manageable.
How to Create Forecasts Without Advanced Tools and Algorithms
The next challenge is creating forecasts without advanced tools or algorithms. Once again, the answer is simplification. Start with greater data aggregation (e.g., product groups). Combine naive forecasting with expert judgment. How does this work in practice?
Take the last 12 months of sales data (broken down by month to reflect seasonality). Group it by regions or product groups. Add a 5% growth assumption (or another expert-based estimate), and you have a baseline naive forecast. Then, bring in experts (salespeople, sales managers, marketing, customer service, planning) and ask: Does this forecast make sense? Do they have insights or information suggesting the forecast will differ? If not, leave it as is. This forecast reflects the best available knowledge.
In reality, experts often make adjustments because they know the business, market, and customers. While such forecasts might not be perfect, they provide a starting point to work from and measure forecast accuracy over subsequent months. If you have experts on board who can create more accurate baseline forecasts using statistical models, leverage their skills. This approach delivers value to both small companies and multinational corporations generating billions in annual revenue. I know this from implementing S&OP in such organizations.
When Simplifications Aren’t Enough
To conclude, introducing simplifications into the S&OP process means advanced systems aren’t always necessary. Does this mean you can completely do without them? Sometimes, yes. However, I often recommend revisiting the level of simplifications and data aggregation after 4-5 S&OP cycles. By then, you’ll have a clear idea of whether your current approach meets your needs or if additional tools are required.
Why wait 4-5 months? By this time, you’ll know how the S&OP process should look, where automation is needed, and what requirements to set for a new system. Addressing these questions too early risks setting unnecessary or incorrect requirements, leading to wasted time and money. That’s why I suggest starting with a manual (e.g., Excel-based) process and testing it before automating.
Is S&OP in FMCG Right for Your Business?
I always advise against starting S&OP implementation with software, as it delays and complicates the process while incurring costs for future system modifications. Instead, begin with what you have, even with significant simplifications, to see if S&OP is right for you. If it is, determine where system support is most needed to unlock more benefits.
If you’ve previously dismissed S&OP due to the high cost of system implementation, I encourage you to revisit the topic and consider starting without a system.
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.
