S&OP and its impact on logistics processes

Coordinating and communicating across a company’s various departments to shape its operational plan — i.e., S&OP — is a best practice that fosters more resilient supply chains. But what exactly is S&OP?

What is sales and operations planning?

S&OP is an integrated business management process that aligns demand, supply, and finances. It plays a crucial role in a company’s overall strategic planning. Designed to support decision-making, it serves as an operational road map to balance supply with demand.

S&OP near-term planning typically takes place monthly. It encompasses all operational areas — sales, marketing, manufacturing, product development, and accounting — to ensure cooperation in fulfilling the company’s financial and organizational objectives. S&OP offers a comprehensive view by sharing the organization’s goals with all departments so they can contribute their perspective. Long-term planning typically extends to between 18 and 36 months.

Optimizing resources and maximizing profits leads to more efficient and resilient supply chains. S&OP uses overall aggregate demand as a baseline and compares the expected demand with the available supply of resources, equipment, labor, and capacity. This enables the business to reach a consensus decision on what steps it should take.

What’s the purpose of S&OP?

Taking time to develop S&OP helps answer questions such as what resources you’ll need to meet your targets, how the expected demand compares with the projected supply, and what actions are required. S&OP objectives can be divided into two major groups:

Strategic objectives

• Improve inventory management. A warehouse management system (WMS) is a valuable tool for this goal.

• Establish synergies between different departments.

• Anticipate possible complications to solve them more proactively.

• Build customer loyalty through excellent service.

• Increase company competitiveness.

Operational objectives

• Plan product launches, end-of-life cycles, and the introduction of new items or business lines.

• Standardize operations, promotions, and events in the coming months (in the short, medium, or long term).

• Reduce inventory when necessary and avoid shrinkage.

• Eliminate stockouts to improve service.

• Obtain more accurate forecasts through information sharing.

What are the benefits of S&OP?

According to Micheal Youssef, a senior director analyst with Gartner, “S&OP is the single most important and critical cross-functional process. If S&OP is done properly, it leads to significant returns, including increased revenue and profitability.”

Moreover, this practice enhances the planning structure of businesses. Maintaining good communication throughout your organization so that teams focus on achieving a common goal can be challenging. But S&OP integrates all needs into a single road map that also incorporates company strategies. Here are some advantages of implementing this model:

• Greater profitability. Having a cohesive plan translates into first-rate customer service with shorter delivery times. It reduces inventory, waste, and shipping and maintenance costs. At the same time, it results in lower costs per item sold and drives sales growth.

• Shorter planning cycles. By accelerating decision-making, the time to market for new products speeds up, increasing competitive advantage and revenue growth.

• Better interdepartmental communication. S&OP fosters consensus and keeps the various company areas focused on achieving the same goal.

What are the key elements of S&OP?

S&OP can be developed in very different ways depending on the nature of each organization. However, they all tend to follow certain steps outlined by Thomas Wallace and Robert Stahl in Sales and operations planning: The how-to handbook.

• Data gathering. This consists of collecting information on sales and trends. It also involves incorporating new items, discontinuing others, and applying the Pareto law for forecasting.
• Demand planning. In this phase, it’s necessary to validate forecasts and consider promotions, special events, and product launches.
• Supply planning. Evaluate available capacity, inventory, and required operations.
• Pre-S&OP meeting. Once supply and demand plans are created, they must be reviewed by decision-makers from each functional area to adapt and improve them. The goal is to agree on necessary changes to achieve financial targets and objectives.
• Executive S&OP meeting. Once completed, this plan integrates all planning activities with a focus on consensus and collaboration among teams.

Tips for a successful S&OP

Well-executed S&OP is highly beneficial for supply chain managers. US consulting firm Gartner proposes five recommendations to make the process as effective as possible. S&OP must:

1. Be decision-oriented. These meetings focus on deciding and managing exceptions, not on reviewing what happened during the previous week. Analyses and data sheets should be reviewed beforehand. To make decision-making the core element, ensure that at least 80% of the topics to be discussed include some form of resolution.
2. Focus on delivering company objectives. All meetings must align with executive priorities and add value to the organization.
3. Be a medium-term process. Although the process can extend over longer time frames, at the latest, S&OP should focus on what will occur within 18 to 24 months. This will make it possible to plan operations in good time and at a reasonable cost.
4. Be scenario-based. Business leaders anticipate potential events before they occur to respond to them quickly.
5. Always evolve. Although some improvements may be gradual, changes can also occur more rapidly if the situation calls for it.

Plan your warehouse with Interlake Mecalux

Nowadays, businesses no longer have to wait weeks to execute their next S&OP cycle. Digital tools provide them with up-to-date information in real time. WMS software, for example, continuously collects data on stock, including its origin, location, and destination.

Are you thinking about digitalizing or automating your warehouse? At Interlake Mecalux, we can help you. Contact us, and we’ll analyze your logistics needs to offer you the solution that best meets them.