SALES AND OPERATIONS PLANNING (S&OP)

APICS (American Production and Inventory Control Society) defines Sales and Operations Planning (S&OP) as the “function of setting the overall level of manufacturing output (production plan) and other activities to best satisfy the current planned levels of sales (sales plan and/or forecasts), while meeting general business objectives of profitability, productivity, competitive customer lead times, etc., as expressed in the overall business plan.
 
One of its primary purposes is to establish production rates that will achieve management objective of maintaining, raising, or lowering inventories or backlogs, while usually attempting to keep the workforce relatively stable. It must extend through a planning horizon sufficient to plan the labour, equipment, facilities, material, and finances required to accomplish the production plan. As this plan affects many company functions, it is normally prepared with information from marketing, manufacturing, engineering, finance, materials, etc.”

The wholesales, distribution and retail businesses can also use the S&OP Process; the only major difference will be that their supply plans will not include production plans and associated considerations such as labour and equipment capacities.

Sales and Operations Planning is typically is a monthly process with well defined steps. The broad process steps are shown in the diagram** below.
 

**The diagram courtesy of http://en.wikipedia.org/wiki/File:Monthly_S%26OP_Process.jpg
 
The S & OP process is typically carried out at product family level rather than individual product level as it is impractical for the management team to review product by product plans as there may be hundreds or even thousands of products the company may be supplying. So deciding on appropriate families for S & OP process is sometimes a challenge. Sales and marketing tend to think of families based on what the products are used for by their customers whereas manufacturing people tend to think of families which undergo similar manufacturing process.
 
 
The companies with effective Sales and Operations Planning Process typically have well defined steps, responsibilities for each step and a monthly time table of when the various steps are expected to be completed.
 
A series of papers authored by Dr. Larry Lapide of the MIT Centre for Transportation and Logistics describe the process and related issues very well. Here are the links to these papers.

SALES AND OPERATIONS PLANNING TOOLS
 
The tools required for carrying out effective Sales and Operations Planning process can be classified under three categories: