The essence of a lean supply chain, in a nutshell, is to cut wastes whenever possible in the overall supply chain processes. Feel free to read Lean Supply Chain Reduces Product or Project Costs if you’re interested in knowing more.
Different from lean supply chain management, sales and operations planning (S&OP) is more about striking a balance between the supply and demand while aligning various functions in a company.
That said, to build a highly efficient supply chain with great performance, lean supply chain management and sales and operations planning (S&OP) are two indispensable aspects.
Why would we say that? Read on and you’ll see.
What is S&OP?
S&OP stands for sales and operations planning. To make it easier to understand, S&OP is about piloting your daily operations and monthly plans toward your long-term business goals.
It’s about getting everyone headed in the same direction, including your contract manufacturers, suppliers, distribution partners, and customers.
To do so, 4 of the following ingredients need to be found in S&OP:
- People: Every one in the company needs to pitch in, from the CEO to the sales rep;
- Process: The way you make decisions and management meetings. The bigger your company is, the more you need than just Excel and PowerPoint;
- Information: The data of your supply chain and the market;
- Technology: The systems that support planning and decision making.
What does S&OP look like?
Although the S&OP process could be quite different for different industries, there are, however, some core components in the S&OP process.
Here is a typical S&OP process that you’ll see in most companies:
1) Data gathering: review current plans and field sales ;
2) Demand planning: review current demand and create a demand plan for marketing and sales forecasts;
3) Supply planning: identify capacity and component shortages, and create an operation plan to satisfy the demand plan;
4) Pre-S&OP: do a financial review, propose recommendations for executive S&OP and make sure the scenarios meet financial targets;
5) Executive S&OP meeting: review the proposed scenarios and decide which plans best meets the company’s goals.
That said, S&OP can go far beyond the goal of balancing supply and demand in the supply chain. It’s more of a way for the whole company to work together to reach a consensus about what’s best way for the company and how to execute it.
Benefits of S&OP
S&OP has been around since the 1980s, and it has gained its place in many major companies’ operations, such as Coca-cola, Dow Chemical and Procter & Gamble. This is achieved by its distinct benefits that old-school business plans can’t achieve:
- More comprehensive data gathering among departments allows for more volatile changes in the supply chain, which would help to balance the supply and demand;
- With data gathered, decisions about optimizing resources to reduce waste and increase efficiency are made possible;
- With greater efficiency and less waste, the company will be able to maximize the profitability;
- S&OP helps you see potential problems ahead of time, so you can take proactive and corrective actions accordingly;
- Unbiased, more actionable data lead to better key performance indicators for each department,which means better company KPIs;
- Faster response to market changes due to shared data and information.
The above article concludes what we have to say about S&OP. Feel free to let us know if you’re interested in knowing more about it.