What is S&OP? An Overview and Purpose
The most frequent clients for S&OP (Sales and Operations Planning) implementations are presidents and senior managers who have recently changed jobs and implemented S&OP in their previous company but do not have it in their new organization. And they miss it. Why?
Key Benefits of S&OP
The S&OP process ensures business control, while also providing a sense of security and an early warning system. Thanks to this, managers can anticipate threats and make proactive decisions. It gives confidence that the organization does not focus solely on the current month but also plans ahead and regularly updates its plans. S&OP also integrates departments, breaking down silos and ensuring that the entire company operates according to a unified plan approved by management.
Ideal Companies for S&OP
Large and medium-sized manufacturing companies primarily use S&OP. However, smaller manufacturing companies and service companies also successfully use it. The S&OP process is not tied to any specific industry, as my experience has shown through collaborations with companies in sectors like aerospace, automotive, fuel distribution, and FMCG.
Recently, I have noticed that over half of my S&OP implementation projects involve food industry companies, including both large multinational corporations operating in multiple markets and Polish companies with one or several production plants.
S&OP is an incredibly flexible process that can bring numerous benefits to any company, provided it is tailored to the company’s business model.
How Does the S&OP Process Work?
The S&OP process, or Sales and Operations Planning (known in Polish as the Integrated Sales and Operations Planning Process), involves the regular, monthly verification of sales forecasts for the next 12-18 months. But what exactly does this process entail? The S&OP process, or Sales and Operations Planning, ensures that operational resources are appropriately secured.
Core Stages of the S&OP Process
The S&OP process typically consists of four stages, although some sources in the literature list five.
Stage 1: Demand Planning
This is the stage where functions responsible for shaping and fulfilling demand (and those who may have key information on future demand trends) jointly agree on the forecast for the next 12-18 months. This typically includes sales, marketing, and the department responsible for new product launches. The primary task at this stage is to confirm that the forecast is reliable. The team achieves this by using forecast performance indicators, comparative analyses, market trend analyses, statistical forecasting methods, and expert assessments.
Stage 2: Resource Planning
Next, the team hands over the forecast to departments responsible for ensuring resources. Typically, these include production, logistics, planning, procurement, HR, and maintenance. These departments must assess and demonstrate that they have sufficient resources to fulfill the sales forecast. They must also ensure that their resources are at optimal levels and do not generate unnecessary costs. This is often done through production capacity analyses, workforce load assessments, inventory level assessments, warehouse space availability analyses, and evaluations of suppliers and subcontractors.
It is crucial at this stage to identify areas where there may be insufficient production capacity, which could pose a risk to fulfilling the sales plan. Conversely, identifying resource surpluses may represent unnecessary costs and financial risk for the company. At this stage, production plans, or MPS (Master Production Schedule), are often created for the next few to several months. The final goal is to assess whether the forecast is feasible.
Stage 3: PreS&OP Review
This is the stage where departments exchange feedback on forecasts, production plans, and operational activities, facilitating better coordination of actions. At this stage, the departments involved in stages 1 and 2 meet. It’s a space for departments to exchange feedback on forecasts, production plans, and operational activities.
Here, the team resolves dilemmas regarding forecast quality, preparation plans for high seasons, or points where there is a significant discrepancy between operational plans and the sales forecast. At this stage, the financial assessment of the presented plans is also carried out. Key questions include: how does the product structure in the forecast affect profitability? Does a reduction in the sales forecast also lead to reduced operational costs? Will the additional investments necessary to meet the increased forecast prove profitable? These and many other potential dilemmas aim to assess whether the plan is acceptable and if all functions agree with it.
One scenario that is not uncommon may conclude that the stage ends without full agreement among departments, requiring arbitration. In such cases, different plan scenarios may also be developed.
Stage 4: Final S&OP Review
Top management approves the plan. Depending on the organizational structure, top management may mean the president, board, board of directors, or other decision-making bodies that should approve the plan. At this stage, the forecast, operational plans, action plans, potential scenarios, and any pending decisions are presented to management. The purpose of this S&OP stage is to convince senior management that the plan is reliable, feasible, and acceptable.
The entire process is repeated monthly.
Benefits of Implementing S&OP in Your Business
Where is the “magic” that, according to legend, delivers benefits such as a 10-25% reduction in inventory, a 5-15% improvement in on-time delivery to customers, a 30% improvement in forecast accuracy, and improved profitability, among others? There is no magic or special techniques involved. The mere fact that we enable an organization to regularly review forecasts, respond to changing conditions, check resource alignment with forecasts, and address inconsistencies, while ensuring synchronization between key departments and providing certainty that key decisions are based on well-chosen and reliable data, allows us to react faster, work more efficiently, and reduce room for errors and wrong decisions.
I often say that, from my observations, 90% of problems in organizations are related to communication: delays, lack of information, misinterpretation, assuming others are responsible, missing data… the list goes on. Therefore, S&OP mainly focuses on improving communication and creating conditions for good decision-making and opportunities to correct those decisions if circumstances change.
Getting Started with S&OP Implementation
It’s best to start with education to fully understand what S&OP entails and assess whether it’s the right solution at this moment. There are three ways to begin:
- Self-education – there are plenty of materials on S&OP available online (though most are unfortunately in English);
- Training – in Poland, several companies offer S&OP training;
- Consulting with a firm specializing in S&OP topics. A good consulting firm will be able to assess, as a first step, whether S&OP is even worth considering. Initial consultations in most cases are free of charge.
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.
