S&OP process - 5 steps and rules to follow (2024)

The S&OP (Sales & Operations Planning) process has two main objectives:

• Align operations/supply chain and demand with strategic challenges.
• Anticipate recurring events (such as seasonal sales peaks) and one-off events (such as crises or new usage trends), inside or outside a company.

This article is intended to be concrete.We’ll avoid using catchy terms like performance, efficiency or optimization.Instead, we’ll give you everything you need to make the concept your own.

The 5 stages of an S&OP process

Stage 1 – Gathering data to achieve completeness and unite stakeholders.

This stage guarantees data quality, accuracy and consistency. It is therefore essential to keep this phase separate from the others in order to :

• Avoid missing data,
• Prevent bias,
• Ensure the reliability of information.

In addition, this data collection enables transparent communication and improved collaboration with all stakeholders for the remainder of the S&OP process.From sales to logistics, via production, research, customer service, purchasing, accounting and HR, all company functions are involved in this exercise.

The main data to be collected for an S&OP process :

• Demand projection.
• Actual sales.
• Product inventory.
• Production capacity, both internally and externally (suppliers and subcontractors).
• Available resources.
• Market, competitor and customer data.
• Product catalog information (production cost, price, margin, storage costs, transport costs).
• Etc.

What if data is difficult to collect or non-existent?

In this case, it is important to set up appropriate measurement systems in conjunction with the stakeholders concerned.These may include :

• Functionality or configuration of existing or new business software.
• Use of third-party solutions via APIs.
• Data collection by robots using RPA software.
• Use of an automation platform.
• Or (temporarily, while a permanent solution is put in place) manual data collection.

Furthermore, to enrich your company’s internal data, don ‘t hesitate to help yourself via Open Data.Since the Law for a Digital Republic in 2016, many databases have become available, structured and free of charge, such as the SIRENE database, the National Address database,INSEE data…

What if the volumes of data to be processed are enormous?

Excel is quickly limited in its ability to handle large volumes of data.Fortunately, data analysis tools such as Dataiku and KNIME are more suitable.These tools have the following advantages:

• Preview operations on sample data before applying them to the entire data set.
• Be applied to multiple data sets.
• Facilitating collaborative work

Step 2 – Demand forecasting or Demand Review

This analysis is based on collected data, in particular sales forecasts.It is then processed using statistical models.

The analysis raises questions about :

• The landing of past sales forecasts.
• Causes of unanticipated fluctuations and variations.
• The constants and influences of the market or societal events.

The combination of endogenous or exogenous, recurring or one-off data, the product vision or the stock vision, enables us to establish a demand forecasting plan.

Stage 3 of the S&OP process – Operations planning or Supply Review

This stage consists of a cross-analysis of production capacities, product inventories, resource availability, access to raw materials, maintenance levels and customer satisfaction.

In addition, the following elements will need to be studied:

• Existence of errors leading to excessive inventories.
• Level of unsold stock.
• Cost of waste if unsold perishables.
• Level of product returns and impact on inventory.
• Cost of overstocking.
• Shortage analysis.

This analysis leads to the planning of operations/production lines and the implementation of preventive actions.The latter must take into account various impacts (breakdowns, absences, shortages, economic crises, subcontracting problems, etc.).

Step 4- Review and reconcile Application and Operations

This is the collective consolidation of information from the demand forecasting and operations planning plan.Various analyses and simulations are then carried out.

It enablesdifferent hypotheses and scenarios to be established through collaborative work between the company’s various stakeholders (Finance, Sales, Marketing, Production, Logistics, Customer Service, HR, etc.).

Stakeholders may also decide to produce a risk/opportunity matrix to inform their future decisions.

Step 5 – Validating the S&OP plan

This is the final stage in the S&OP process.It consists in validating one of the scenarios presented by general management.If necessary, it can lead to further studies.

Once validated, monthly monitoring procedures are defined:

• Definition of S&OP plan governance.
• Definition of S&OP process performance indicators (KPIs) and measurement systems.
• Monthly follow-up meetings (Director/Manager level).
• Organization of forecast adjustment committees (Directors/Managers and General Managers), followed by the landing committee.

The difference between a good S&OP process and a bad S&OP process?

1- Not carrying out the S&OP process in a fully collaborative way.

Of course, the greater the number of people involved, the longer it takes to reach a decision.But if you don’t include certain business departments in the S&OP process, you’re shooting yourself in the foot by underestimating a function in the value chain, or missing out on important elements.

It will be important to create a common framework to prevent the S&OP process from being impacted by independent operational or relational problems.For example, if the sales manager is unable to supervise the HR manager, it will be necessary to control this point to prevent it from impacting the analyses.

In fact, don’t hesitate to invite key partners (suppliers, subcontractors, transporters) or customers into the design process, to get as close as possible to reality.

2- Not mastering your company’s data

Data is fundamental to the S&OP process.As mentioned in “Step 1 – Gathering data”, it is important to identify and structure data, and if necessary, to set up appropriate measurement systems with stakeholders.

Various performance indicator measurement tools are available.Those included in existing business software.And if there are none, or if the software is compartmentalized different solutions are possible:

• Change of business software
• Use of third-party solutions via APIs
• Using RPA (Robot Process Automation)
• Use of automation platforms
• As a temporary solution, do it by hand (even if it’s not much fun).

3- Not following the monthly follow-up rhythm

The person in charge of an S&OP process generally has other activities.They can easily find themselves underwater, or caught up in their daily routine.Many elements need to be anticipated to avoid breaking the rhythm of the process:

• Replace the wrong tools.If you’re using software that requires too many clicks or is too time-consuming.Replace them.
• Define a clear, costed job description for the manager and assess the risks of cannibalization between his or her missions.
• Anticipate the urgent needs of stakeholders, who legitimately may not be able to transmit data or participate in monthly monitoring committees at certain times.Upstream, for each company function and director/manager, it will be important to be able to answer the following question: For a given month, what are the alternatives if management XX does not participate in the S&OP process?
• Avoid lack of stakeholder motivation.Even if stakeholders are obliged by top management to participate in the process.Some, for various reasons, may not put in the effort required to ensure the success of operations.It’s up to the person in charge of the S&OP process to federate the stakeholders and, if necessary, to alert general management to a possible failure.

4- Use the right S&OP software

Two requirements are fundamental in the choice of S&OP software, but they are relatively difficult to cover.

The two main requirements :

• The software must be as flexible as possible and take your specific needs into account.
• The software must integrate with your existing digital landscape, so that data can be easily collected.

In practice, however, this search is much more complex, and software publishers don’t hesitate to use marketing tricks to give you the illusion that they cover these requirements.

If you’re looking for help, we can put you in touch with trusted partners in our network.Contact us at paul@lapala.io.

Now you know all about S&OP processes. Now it’s your turn! See you soon for more content!