What is Sales & Operations Planning (S&OP)?
Sales and operations planning (S&OP) is an integrated planning process that aligns demand, supply, and financial planning and is managed as part of a company’s master planning. S&OP is designed and executed to support executive decision-making related to approving a feasible and profitable material and financial plan.
The sales and operations plan uses global, aggregate demand1 as a starting point and compares that expected demand to available supply in terms of resources—such as machines and manpower—and material capacity. The level of analysis and the trade-offs presented allow the executive team to understand the decision criteria and come to a consensus decision on a plan the company should move forward with.
The sales and operations plan is part of both strategic and tactical planning. Strategically, insights into how demand may shift in particular geographies or for specific product lines can impact decisions such as increasing (or decreasing) manufacturing capacity, the need to increase (or decrease) the workforce, or determining longer-term supplier management. More tactically, the S&OP process creates a production plan, approved by executive management, which is used to create a master schedule and a material requirements plan (MRP).
Synonymous and sometimes slightly different processes have been created over the years with different naming conventions. Integrated Business Planning (IBP) and connected planning are two examples. In each, the role of finance can be considered more prominent, however, finance is always a participant as a feasible and profitable plan need to be approved by executive management.
The S&OP process considers planning horizons of 18 to 36 months, looking at weekly plans in the near term, monthly plans in the midterm, and sometimes, annual plans beyond a year from the date of the plan.