S&OP step-by-step: how to adopt this method in your company

S&OP is another extremely important process for the manufacturer. Traditional, yet, not fully used by companies. In this post, you’ll understand what this acronym means, as well as learn how to design an S&OP process step-by-step.

What is S&OP?

S&OP is an acronym that stands for Sales and Operations Planning. In Brazil, there is another equivalent acronym, PIVO, in Portuguese “Planejamento Integrado de Vendas e Operações”.

The concept focuses on more effective management and decision-making through integration among the different sectors that make up a company. This synergy enables full visibility of the processes, helping to balance demand and supply.

Having this outlook is critical for the manufacturer, which is now able to align its production pace with demand, avoiding product shortages or excess inventory – scenarios that compromise the company’s cash flow and financial health.

In order to ensure more productive S&OP practices, historical sales data must be considered, adding value to the demand estimate, as it takes into account actual consumption information.

S&OP example

To better explain the concept, let’s use an example with a jelly factory (with a very simplified structure).

Imagine that this jelly factory has three departments: purchasing, production and sales. The purchasing team acquires and provides the raw material, which is fruit. The production team, in turn, uses the supplies to produce the jams. Finally, the sales team will offer the manufactured jams to resellers.

What happens if all these teams are not aligned?

For starters, the purchasing sector may end up buying too much fruit, which will generate waste. If it buys too little, inventory is compromised. In this case, the manufacturing team may not be able to produce enough jam or become idle due to lack of raw material. Without understanding how much jam was produced, the sales team will not know how much they can sell, and this will inevitably leave some retailers without the product.

None of these problems would happen if the different departments were integrated, working in an S&OP system. In this scenario, everyone would know what their colleagues were doing, would align expectations and production would be guided by a number that was agreed by everyone.

This would involve estimating a demand, based on several factors, and then this number would be taken to a committee formed by representatives from several areas who would debate this forecast and make some adjustments until reaching the final value. From there, each sector would know what to do to deliver its share to meet this expected demand.

5 S&OP objectives

By adopting S&OP practices, a company is able to achieve goals that contribute to increasing the level of service of all departments. Among them, we can highlight five major advantages:

1. Support the business strategic planning through periodic analysis and reviews, ensuring its feasibility and effectiveness.

2. Ensure that operational plans are realistic, considering the existing integration among different company areas.

3. Manage finished goods inventories and/or order portfolio in order to ensure the best delivery performance (product availability).

4. Assess the performance of the sales and inventory planning process. This allows identifying and separating activities that cannot be controlled from those that are under control.

5. Develop teamwork by creating conditions for each department to participate in the company’s global planning.

S&OP step by step

For an S&OP strategy to be effective, it is important that it is planned and respects a modus operandi. Below, you can see step-by-step how to implement S&OP in your business:

Step 1 – Portfolio management

Analyzing your portfolio is essential to understanding what’s working and what needs some adjustments. Some products may undergo improvements, be discontinued, or reused in new projects. Based on this, the definition of new demands will be more effective.

Step 2 – Demand forecasting

At this stage, the company needs to estimate what is the demand for its products in a specific period, which can vary according to needs. For this, several factors are considered, such as history and seasonality. This generates a mathematical projection of how much the company expects to sell in this time frame. The idea is that this enables basing the operation on more concrete data than just guesswork.

Step 3 – Event management

Another important step in the S&OP process is event management, that is, including in the demand forecasting everything that can impact this number, such as competitor actions, exchange rate changes, crises, in short, any factor that can be decisive to affect this value. These items help getting the forecast even closer to reality.

Step 4 – Collaboration among areas

With this number in hand, it is time to bring together different company areas to reach a consensus on this demand and align expectations and capabilities. After all, everyone must speak the same language so that there are no discrepancies. The production area must be able to deliver what was forecast, as well as the financial area must ensure that there is a budget and marketing must guarantee that conditions are in place to generate this demand.

Representatives from these sectors analyze this information, hold meetings, and adapt the initial forecast to the company’s reality, ensuring that something will be delivered according to the reality of the business.

Step 5 – Operational plan

After the demand is aligned among everyone and with the help of the company’s directors, it is time to design an operational plan to put into practice what was defined in the S&OP process. This moment is critical for shaping strategies, costs, and other determining factors.

Step 6 – Monitoring of results and adjustments

Demand established, plan developed and operation running, with sales taking place. From there, the company needs to monitor the results daily or weekly to see if what was planned is really being delivered. And then adjustments are made to correct deviations, improving strategies. The company will probably commit errors in this process. But it’s important to get to the end with the highest number of successes possible.

S&OP and technology

Now that we understand what Sales and Operations Planning is, how it is implemented, and how S&OP can help the manufacturer, we just need to figure out how to make the process even more efficient.

Here, technology can help. An S&OP solution can automate much of the work, optimizing the most bureaucratic steps – such as gathering information and making the work of the teams involved much more dynamic, centralizing information in a single, accessible interface.

Some of the largest companies in the world have already benefited from this type of tool. To stay on top of other ways that technological solutions can help your business, keep following our blog.