It seems like almost everybody’s doing it: Sales & Operations Planning
Beware that gaps don’t become pitfalls
One-way transmission has the upper hand in many companies. The sales department fulfils its duty by issuing a forecast every month, and then it’s up to supply chain colleagues to see how they go about meeting the demand. There’s no sign of interaction, let alone integrated decision-making. Sales & Operations Planning (S&OP) is intended to change all that. The art is to identify – and close – the gaps between demand, supply and financial planning. Many companies claim they are working
on S&OP, but to what extent? By Marcel te Lindert
ver Wight. That was back in 1981. Now, some thirty years later, Sales & Operations Planning (S&OP) appears more popular than ever. “The idea fell out of favour in the nineties, but is enjoying a renaissance now,” explains Dave Manning, a consul- tant from Oliver Wight. Manning can only speculate as to the reason behind this new-found interest. “I guess, in challeng- ing economic times, companies look for ways to gain more value from their activi- ties. A recession forces companies to re- examine themselves.”
In The Netherlands, the consultancy Involvation has emerged as one of the advocates of S&OP, not least thanks to its popular online business game, The Fresh Connection. When asked about the cause of S&OP’s current popularity, Alfons Wil- lemsen from Involvation likewise cites the economic crisis and, perhaps more importantly, the subsequent recovery. “When the crisis hit, most companies’ first reaction was to reduce stock levels in order to free up working capital. As the state of the economy began to improve, it became apparent that many companies
he first people to mention sales, operations and planning in one breath were consultants from Oli-
had reduced stocks too rigorously and they then had problems supplying. It’s obviously not as easy as it would seem.”
Nowadays, instead of S&OP, Oliver Wight prefers to use the term ‘Integrated Busi- ness Planning’ (IBP). “The cynics among us might call IBP just a new way of selling S&OP,” said Manning during a congress in Prague in June 2010. “And in a way they’d be right. But we’ve rebranded it to make sure that the idea has really evolved, which it has. IBP is the next generation.” It is evolutionary insofar as it completes the circle in a cyclical process. As the term suggests, S&OP is primarily about align- ing the sales planning and operations planning, whereas IBP is broader. “It is a management process carried out on a monthly basis which sees the integration of product management, demand man- agement, supply management, financial management and business strategy. It may not be the only management process within a company, but it is certainly the most important one,” Manning explains now.
Both terms are often used interchange- ably, but whether you call it S&OP or
IBP, two elements are essential. The first is the focus on the medium to long term, with the ideal planning horizon being 24 months. “We need to be able to foresee the consequences for the next financial year at any point within the current financial year. We’re not interested in the problems for the next three months – there are other business processes that do that,” claims Manning. The second element is what Manning calls ‘gap closure’. It is about signalling any gaps between the various disciplines’ expectations, and then closing them. And it’s that last step in particular that compa- nies can forget. “They’re happy if they can get everyone to agree on the fact that there is a gap. But it’s all about actually making decisions.”
Why does he think S&OP is necessary? “Because without S&OP, there’s no inte- gration between the different disciplines – everyone is focused on doing their best for their own department, but that isn’t automatically the best for the company as a whole,” replies Manning.
Echoing Oliver Wight, Involvation also regards S&OP first and foremost as a deci-