Supply Chain Best Practices Sales & Operations Planning (S&OP)
Institute of Business Administration
University of Dhaka May, 2013; Dhaka
Presented By:
Ejazur Rahman CSCM MBA AIMM PgDMC
Sales & Operations Planning
Lecture Notes
Understanding The Roles of Sourcing in a Supply Chain
Session Outline
What is Sales & Operations Planning
Key components of a well run S & OP
Demand Planning process – best practise
Critical success factors and key challenges
What Is S&OP?
Sales and operations planning (S&OP) is an integrated business management process developed in the 1980s by
Oliver Wight through which the executive/leadership team continually achieves focus, alignment and
synchronization among all functions of the organization.
The Purpose of S&OP
The purpose of S&OP is to achieve the optimal balance between supply and demand. A streamlined planning
process will result through increased communication and teamwork between departments within an organization.
This collaborative approach will align the sales and operational processes and ensure that the in demands of the
marketplace are met.
The S&OP Process
The evolution of demand and supply balancing (S&OP)
How S&OP helps any business
1. Know your current position
2. Set your destination
3. Plan the best route
4. Autocorrect in real time when things go wrong
Why invest in S&OP for each industry type?
Manufacturing Align supply chain resource to demand
Deliver consistent target service at target margins
Distribution Align inventory levels to demand
Maximise availability and target working capital levels
Service Align human resource capacity to demand
Deliver target service at target cost of sales
Retail Align on shelf inventory to demand
Maximise sales, with minimum write off costs and at target inventory
A typical S&OP Process Can be applied to all industries!
Review Meeting – Demand Review
• Input :
– Actual performance ; variance ; root cause
– bottom up demand plans
– Key assumptions
– Marketing plans : new product / promotions
• Output :
– Signed off demand plan from sales & marketing
(unconstrained)
• Owner of the process – chair review :
– Sales & Marketing
• Key behaviour / success factors :
– Focus on assumptions
– Outline “truth as you know it”
– Be open about “opportunities” and “vulnerabilities”
Review Meeting – Supply Review
• Input : – Actual vs previous plan ; variance ; root cause
– Demand Plan
• Output : – Machine, labour inventory and material plans to achieve demand plan
– Constraints (where Supply Chain cannot achieve demand plans)
• Owner of the process – chair review :
– Supply Chain
• Key behaviour / success factors : – Review past performance and ensure variance to plan is addressed
– Demand Plan should be unconstrained, thus push to find cost effective solutions
– Actions plans in place to react if the demand “opportunities” or “vulnerabilities” become a reality.
Review Meeting – S&OP Review
(Reconciliation and final sign off)
Input :
Demand Plans with constraints and resource requirements
Supply Plans with constraints and resource requirements
The “truth” as we know it and risks / upside.
Output :
Signed off demand & supply plans
ONE Number, thus one set of plans the organisation will work towards.
Owner of the process – chair review :
Ideally the CEO / Managing Director
Facilitated by head of supply chain
Key behaviour / success factors :
Focus on gap closing (actions)
Minimise finger pointing ; thus transparency is important
Ensure if resources are not available, the plans are adjusted.
Plans must always be achievable
Why S&OP Important
• The organisation works toward one achievable plan
• For todays customer’s requirement we have in place
– The machine capacity
– The labour
– All material
• A good S&OP reduces supply / demand imbalances
– Thus helps to deliver target service consistently
– Help achieve target supply chain margin
– All this within target working capital levels.
Other Important Consideration to achieve a successful S&OP process
• This has to be a structured process
– Repeatable
– Fixed calendar for the year
– Should be considered a core process in the organisation
• The process should be simple and very well understood by all stake holders
• The process must have template input and output
• Focus should be on the “future” not the past
• Most importantly, it has to be sponsored and owned by the Senior team.
Demand Planning
• Accuracy, the biggest input for a successful
S & OP
• One of biggest root cause for cost escalation in the supply chain
• Accuracy improved through
– Statistical forecasting
– Understand factors influencing demand
– Planning assumptions
– Collaboration
• There is one known fact of all demand plans?
– They are always wrong
– Objective of Demand Planning process is minimise variances
Building an organization’s Demand Planning
(Science, Process, Discipline)
Typical Benefits from Implementing S&OP
• Forecast error reduction : 20% - 25%
• Inventory reduction : 5% to 10%
• Service level increase : 5% to 10%
• Top line revenue growth : 2% to 5%
• SKU rationalisation : 10% to 20%
Impact of Demand Planning Accuracy
• High forecast accuracy cuts costs from the entire supply chain
• Companies that are best at demand forecasting average;
– 15% less inventory
– 17% higher perfect order fulfilment
– 35% shorter cash to cash cycle
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