Successful sales and operations planning requires committed, step-by-step process changes to fully leverage software applications.

The sales and operations planning (S&OP) process has been around for decades.
I have discussed it in most of my presentations on demand planning and forecasting
since the mid-1990s and have been polling audiences along the way. One-third
of the early audiences were composed of individuals from companies that had
implemented S&OP, while for recent audiences the number has been hovering over
80 percent. Clearly the S&OP process became more prevalent over the last decade
or so, with a crescendo of interest in the last few years.

An indicator of the interest in the S&OP process is the fact that, according
to AMR Research, companies have spent around $12 billion in supply chain planning
application software over the last six years. Yet while spending significant
sums of money on S&OPrelated software, they were not seeing the benefits they
expected because many did not change the process to fully leverage the enabling

This article provides a blueprint for helping companies improve their S&OP
processes. It covers the “ideal” process to evolve toward, the enabling technologies
needed and a four-stage maturity model developed to help companies diagnosis
their “as is” S&OP processes, as well as to help them develop a road map for
achieving their “to be” processes and technologies.

The Ideal Process

There are a dozen aspects of an ideal S&OP process. While they can never all
be executed to the fullest extent, they represent an ideal process toward which
companies should evolve, yielding improving supply chain performance. These
aspects are summarized below. (More detail can be found in my article “Sales
and Operations Planning, Part I: The Process” from The Journal of Business Forecasting
[Fall 2004]):

1. Ongoing routine S&OP meetings: A key aspect of an S&OP process is
that it is comprised of routine meetings. Three types of meetings are often
held. The first establishes an unconstrained demand plan and forecast; the second
meeting develops roughcut supply and constrained demand plans; and the third
finalizes the alignment of the demand and supply plans.

2. Structured meeting agenda: S&OP meetings should follow a fixed agenda
– in a pre-specified amount of time – that starts with a review of previous
plans and ends with a consensus-based alignment of demand and supply plans.

3. Pre-work to support meeting inputs: The baseline demand forecasts
and rough-cut demand and supply plans are inputs that need to be aggregated,
synthesized and translated for managers prior to all meetings.

4. Cross-functional participation: Multifunctional attendance and participation
during S&OP meetings is critical. Each member needs to represent his/her functional
area’s perspective and routinely show up or send a proxy.

5. Participants empowered to make decisions: Participants in the S&OP
process need to be empowered by the executive team to make decisions based on
their beliefs and interactions with other participants during meetings.

6. An unbiased, responsible organization to run a disciplined process:
The S&OP process needs to be organized and run by a responsible organization,
with the charter to schedule and run a disciplined process.

7. Internal collaborative process leading to consensus and accountability:
A collaborative process that leads to consensusbased plans is required.
Process participants need to be able to quickly create, review and revise plans.

8. An unbiased baseline forecast to start the process: Since a baseline
demand forecast forms the working draft from which S&OP participants develop
final demand and supply plans, it should be unbiased, unconstrained and incorporate
all known impacts to future demand.

9. Joint supply and demand planning to ensure balance: Often demand
plans are set in place before the S&OP meetings, so meetings are focused on
developing supply plans to meet virtually inflexible demand plans. An S&OP process
should involve give and take between supply- and demand-side managers, with
final demand and supply plans jointly developed.

10. Measurement of the process: The S&OP process itself need to be measured.
Metrics should cover more than the typical forecast errors, and should include
measures such as variance to baseline forecasts and budgets and the adherence
to prior sales, marketing and operations plans.

11. Supported by integrated supply-demand planning technology: Software
applications to support S&OP should include an integrated set of demand- and
supply-side planning systems, as well as workbench software that can support
S&OP meeting requirements.

12. External inputs to the process: Most S&OP processes in place today
are largely driven by internal demand and supply data. However, to the extent
available, information from co-managed inventory programs such as vendor and
supplier managed inventories, collaborative planning, forecasting and replenishment,
and the sharing of downstream and upstream data can add value and should be
inputs into the S&OP process.

The Need for Technology

First and foremost, one should recognize that software technology in and of
itself is not very useful. Without technology, however, a business process like
S&OP is cumbersome and can’t support the necessary scale to achieve its
full benefits. Thus technology becomes necessary, but not sufficient. Often
the S&OP process deals with a large, complex set of needs that require a
level of automation and computational sophistication that goes well beyond what
can be achieved with manual processes merely supported by computer spreadsheets.

Consider the planning needs of a typical Global 1000 manufacturing company.
Its S&OP process might need to develop weekly plans 12 to 18 months out for
thousands of stock-keeping units that are stocked and shipped from more than
10 distribution centers, as well as plans for the component/material needs of
more than 10 plants. There could be over 10 million planning elements that need
to be generated. Coupled with the fact that constraint-based planning might
need to be done using computationally-intensive algorithms, it is often virtually
impossible for the manufacturer to support the S&OP process with spreadsheet
technology alone.

The S&OP Technology Architecture

The S&OP process needs to be supported by three types of software applications
– demand-side planning, supply-side planning and an S&OP workbench. The components
and the integrated supplydemand planning technology architecture for these are
displayed in Figure 1. They depict how the components need to be integrated
among themselves, as well as with other transaction-oriented business systems
such as ERP, manufacturing execution and material requirements planning systems.

The components for each of the three types of software applications are described

1. Demand-side planning systems: These systems support the development
of demand plans and an “unconstrained” baseline forecast that are used as demand-side
inputs to the S&OP process. The role of a demand planner system is to support
users in generating the baseline forecast and adjusting it based on market intelligence.
A demand collaborator system is used to capture, assemble and process market
intelligence gleaned from a variety of sources, such as from field sales and
marketing personnel, as well as from downstream customers that share their demand
signals and are involved in co-management inventory programs. To facilitate
information collection from remote locations and external sources such as customers,
a demand collaborator is usually Web-based so that information can be transferred
around the world.

2. Supply-side planning systems: These systems support the development
of supply plans that are used as the supply-side inputs to the S&OP process.
As such, they help to generate the inventory, production and procurement plans
to meet unconstrained baseline demand forecasts. Inventory management and distributed
requirements planning systems support users in generating expected inventory
replenishment of finished goods warehouses, such as customer-facing warehouses
and centralized warehouses. In constrained supply environments, multi-facility
advanced planning and scheduling systems are used to produce more accurate plans
that account for limitations in plant and distribution capacity, as well as
for any short supply of components, materials and other production resources.
Inventory optimizer systems support these types of systems by helping users
set inventory targets that optimally trade off customer service targets against
component, material, sub-assembly and finished goods inventories. Lastly, supply
collaborator systems are used to capture, assemble and process supply capabilities
from a variety of sources, such as purchasing personnel and upstream suppliers
(including contract manufacturers). To facilitate information collection from
remote locations and external sources, a supply collaborator is usually Web-based
so that information can be shared.

3. S&OP workbench: This system supports two types of information. First,
the workbench needs to generate dashboards that portray the planned supply versus
unconstrained demand situations. These include supply-side metrics like expected
plant utilizations, production capacity shortages and critical component shortages/surpluses,
as well as demand-side metrics such as expected unfulfilled customer demand
and customer order backlogs. The dashboard functionality also allows S&OP participants
to quickly conduct what-if analyses of potential changes to the supply and/or
the demand plans. A second type information that is needed during the S&OP process
is how well the process itself is performing. The workbench needs to generate
scorecards of key performance indicators that reflect how well the S&OP process
has been working, to foster learning and improvements to the process over time.

As shown in Figure 1, the demand-side and supply-side planning systems need
to be integrated and synchronized so that a change in either the demand or the
supply plans can be quickly reflected in the overall supply-demand picture.
The S&OP workbench also needs to be integrated and synchronized with these and
other planning components so that any changes made in plans during or between
S&OP meetings can be reflected in the workbench’s supply-demand picture as well.

All these systems are needed to support the ideal S&OP process. However, the
mix of systems required depends upon current and evolving S&OP processes – and
these will vary greatly across companies. It is the process changes that dictate
the types of enabling technology needed, since business processes dictate the
enabling technologies required for supply chain improvement.

An S&OP Maturity Model

The S&OP process at many companies is far short of the ideal. To move closer,
companies need to follow an evolutionary path. The first step would be to assess
the S&OP process as is. This as-is process would then be compared to the ideal
process. Last, a road map would need to be developed identifying what gaps would
be addressed and when.

Maturity models are generally useful in going through process change. Often
the last maturity stage is practically unachievable; hence, it becomes the ideal
to which companies strive to achieve, as well as is the benchmark over time
against which to compare progress. The S&OP maturity model is comprised of four
stages described below and depicted in Figure 2.

Stage 1: Marginal Process

Companies that have an S&OP process in Stage 1 have some type of planning processes
going, but they tend to be less formal and sporadic, and often display a chaotic
nature. This type of process can be viewed only marginally as a genuine S&OP
process. Meetings take place on a sporadic basis and even if they are pre-scheduled
they are frequently not high priority.

Also under this type of S&OP process there are disjointed planning processes
taking place. Multiple demand plans are independently developed by the demand-side
organizations for their own operational planning purposes. There is little attempt
to develop demand plans that are consensus-based or that incorporate inputs
from other departments in the company. In addition, multiple supply plans might
be independently developed by the supply-side organizations with little effort
given to aligning them with each other or with the demand plans developed.

Companies with a Stage 1 process need to begin to move to Stage 2 by first
installing a more formal process that everyone agrees to support and participate
in, and one in which some attempt is made to consolidate and harmonize the multitude
of planning spreadsheets various departments may have.

Stage 2: Rudimentary Process

Companies that have a Stage 2 S&OP process have formal planning processes going
on, but they are not fully participated in or integrated. This type of process
has some of the very basic or rudimentary elements of an S&OP process. Meetings
are scheduled and routinely held. However, attendance is spotty. Under this
type of S&OP process the planning processes are interfaced. Multiple demand
plans are developed by the demand-side organizations; however, they are shared.

Since the demand and supply plans are separately developed each organization
uses their own stand-alone enabling software technology. Frequently, the demand-side
organizations use a demand planner system, the outputs of which are transmitted
to the systems being used by the supply-side organizations. Meanwhile the supply-side
organizations use multifacility advanced planning and software applications
to develop supply plans that are predicated on the demand plans shared with
them. The supply plans generated are typically not transmitted to the demand-side

Companies with a Stage 2 process can begin to move to Stage 3 by first getting
executive management buy-in and then having the executives ensure that S&OP
meetings are taken seriously, and that people are well recognized for their
participation. These companies should also begin to adjust both the demand and
supply plans during the S&OP meetings to move closer to consensus-based integrated

Stage 3: Classic Process

Companies that have a Stage 3 S&OP process have formal planning processes that
follow many of the basic elements of the ideal process. This type of process
has all the by-the-book elements of an S&OP process. Meetings are routinely
held and fully attended.

Under this type of S&OP process the planning processes are integrated so that
demand and supply plans are aligned jointly by demand-side and supply-side organizations.
Rough-cut demand plans are developed and brought into the S&OP meetings. In
addition, supply plans are aligned to demand plans.

In more advanced Stage 3 processes collaborative information drawn from a limited
number of major customers about their future demand needs is manually brought
into the S&OP process. Possibly collaborative information from a few critical-component
suppliers that highlight scarce materials might also be brought into the S&OP
meetings. In this stage the demand-side and supply-side systems are integrated.

Companies with a Stage 3 S&OP process can begin to move to Stage 4 by increasing
the frequency of S&OP meetings and continuing to increase and enhance their
collaborative relationships with suppliers and customers.

Stage 4: Ideal Process

A Stage 4 S&OP is a process that can never fully be achieved by any company,
but should be used as a benchmark for guiding the continual improvement of the
process. S&OP meetings in this stage are event-driven. They are scheduled on-demand
only when someone wants to change any of the existing plans or when a supply-demand
imbalance is detected. This implies that the process is supported by systems
that constantly keep track of supply and demand in real time. Meetings would
be conducted on a virtual basis so no one has to travel, thus enabling a global

An advanced S&OP workbench system would support global meetings. In Stage 4,
processes are extended externally, so that collaborative information is drawn
from most customers and suppliers and enabled by demand collaborator and supply
collaborator systems that are fully integrated to all the internal planning

Using the Maturity Model

The S&OP maturity model should be used as a diagnostic tool to improve planning
processes and technology assessment. Users should use the model to diagnose
what stage their companies are currently in – with the caveat that many will
overestimate their current stage.

Comparing the current processes to the processes of the next stage will identify
the gaps that need to be closed over time. Initiatives aimed at closing each
gap should be analyzed on a cost/benefit basis that accounts for the process
and technology changes needed. Based on the analyses, the company should then
develop a road map that specifies when each initiative would be undertaken.