Sales and Operations Planning was a discipline first promoted as an important element of planning when Material Requirements Planning (MRP) evolved into Manufacturing Resource Planning (MRPII). One of the key aspects of this development was the fact that early MRP implementations were often plagued by the system being driven by unachievable plans. This in turn led to excess inventory being sucked into businesses, the development of arrears and the reversion from the ‘new’ approach of planning (as embodied within MRP) to the ‘old’ or ‘fire-fighting’ culture. Click here for details on MRP and MRPII if you want to read about the background before investigating S&OP further on this page.

This is one of the topics regularly featuring within our training services – click here to see a sample course outline on the subject.


A recent definition of S&OP is that it is a decision-making process, to balance demand and supply, to align volume and mix and to integrate financial and operating plans. We employ this definition within our own work in the field because it makes three fundamental points that have perhaps been ignored in the jargon-ridden past:

  • It most definitely involves decisions being made. It is not the merely a mechanism whereby a demand forecast is thrown into the company’s planning system.
  • The outcome of a successful S&OP process is a balance, a plan that the business can achieve. This balance is not only in terms of volume (we can produce 5000 units per month) but in terms of mix (. . . of which 2000 can be made of stainless steel and of which 1200 can be baseplate-mounted).
  • Although the name implies the meeting of Sales and Operations, it is essential that the agreed outcome is also the driver for the financial plan. Of course, the sales and operations plans will be different, if for no other reason than that they are offset by the difference in time between product being made and the completion of sales.
    • In many cases, the business will hold finished goods stock and this is what allows a relatively stable production level in times of seasonal, or varying, demand. The result of S&OP is a statement of “this is what we are going to make, this is what we are going to sell and this is the financial plan.”
    • Within this, of course, the manufacturing plan is achievable, the sales plan can be met from the projected stock which is supported by planned output and the two combine to produce the financial outlook. The accountants don’t have a separate process at which they pull numbers out of thin air. While ‘thin air’ may be an exaggeration, if the financial plan is assembled independently, what credence can it hold? By combining financial planning with the S&OP process we increase the probability of the financial figures being met.


Robin Goodfellow has written an excellent paper on S&OP in the form of a fictional story of the approach being implemented in a business making to stock – he chose the pharmaceutical industry as one with which any reader will feel comfortable. Presumably, we all recognise that painkillers are made in different forms, different types and sizes of packing and sold in different countries with different legislation and language requirements. To read this article <click here>

Robin wrote the article from the points of view of the Sales and Operations Directors of the company, who document the failings of the previous processes within the business. There was discussion within the MLG team about some of the problems that these two people identified within Widget Pharmaceuticals. Was Robin exaggerating the number of problems that might be faced? Could any business really manage this key area so badly? “Well,” said Robin, “we are trying to highlight real-life issues. We’ve seen all these problems, haven’t we?” This won the day; we have indeed seen all these problems, though perhaps not all at the same time.

One of the major problems is senior management failing to recognise that the S&OP process is their tool for steering the business. There will always be incompatibilities between the sales prediction of demand and the manufacturing resource plan, and there will be instances where the two just don’t meet the financial demands of the business plan. The over-riding pre-requisite, as noted above, is that the S&OP process leads to the agreed plan. This means that decisions must be made and sometimes arriving at these decisions will cause conflict. This doesn’t mean that they can be ducked. (Sometimes the fact that the business plan is exposed as being no longer realistic will be the great value of S&OP.)

One of the roles of the MLG consultant in assisting with the introduction of this approach may be to ask probing questions at the end of a review. “Do we really have agreement here? Does everybody understand and agree the actions upon them?” Sometimes client Chief Executives have suggested a more dynamic, demanding approach – our role has been to stand by the door making it clear that nobody is leaving until the actions are all clearly understood and agreed.

An attraction to be dangled as a carrot at the outset of the approach is that once S&OP team meetings have ‘settled down’ there shouldn’t be large swings in demand from one meeting to the next. So the meetings shouldn’t be too long – unless there were to be major developments in the market which need understanding by all. Such developments would hopefully result in long meetings even without a formal S&OP process but such a process acts as a safety net.

Step by Step

MLG has a standard approach to successfully implementing and operating S&OP which recognises that not all elements are universally applicable across all businesses. One of the failings of many methodologies we have come across is that they take a generic approach and encourage every business to introduce every technique within all applications of this approach. This is clearly nonsense as some techniques are not applicable and it leads to over-complicated solutions which people do not trust. The series of steps in the MLG standard approach (and options within these steps) was a key theme of a series of breakfast briefings that MLG undertook jointly with the Institute of Operations Management. The sessions attracted delegates from a wide range of industries and lead to some very interesting discussions. For details on these sessions click here.

S&OP is a monthly process by which senior management agrees the plan for the medium term. What we mean by ‘medium term’ can vary by industry but if the sales view of a product is that demand may double in the next eighteen months, which would require selection, negotiation, ordering, installation and commissioning of new plant, then the process has to look out at least that far. The S&OP meeting is the forum for decisions like “yes, we will install a new robot welding line to increase our capacity by the second quarter of next year”.

Sometimes people are concerned that the process is adding more work, whereas we would argue that it should reduce the overall workload in planning. By ensuring that the plan for the period outside the immediate horizon is valid and achievable, of course, senior management are doing their junior colleagues a service. If supply and demand for the future are in balance, then meeting the plan when we reach that point is much easier.

The standard view is that S&OP is carried out at the product family level. Totals by product type are forecast by Demand Planners within ‘Sales’ and then assessed by Resource Planners within Operations (may be ‘Production’ but the resources to be assessed may be logistical as well as manufacturing). There are then discussions between Supply and Demand to highlight issues and look at possible resolutions before the outcome of the discussions is presented to the senior management team as a series of issues to be resolved. These issues form the basis of the Executive S&OP meeting.

Key points here are:

  • The demand ‘forecast’ is a real assessment of demand, rather than simply a statistical forecast thrown out of a software package. In fact, the term ‘demand plan’ is now becoming more common – partly because some people tend to think of a forecast as a simple statistical projection of history. What we mean here is a real assessment of forward demand, which takes account of external factors such as interest rates, the state of markets which have a bearing on our own and our own sales resources in the market in question, all of which leads to a demand plan that Sales plan to deliver.
  • The term ‘plan’ implies a commitment to action. If we say “our sales plan in Sweden is 10,000 units” we are saying that we expect to sell this volume of product – which may only happen if we get our Northern European Sales Manager into Stockholm to find an agent to stock and sell the product.
  • Both Demand and Operations Planning have to take account of new product development. Whereas the New Product Development team may always have fed independent plans into manufacturing, and all major developments have had project plans that included manufacturing aspects, we need to recognise these as part of the bigger picture.
  • The information presented for senior management review has to be limited to the items requiring senior management input. Most problems can be resolved at the ‘planner’ level – such as resolving a forecast spike in demand by having a stock build programme in the period leading up to it. Obviously some level of discipline has to be established in terms of who has what authority in terms of inventory levels, but this can be addressed by the point below relating to the level of information presented to the senior management session.
  • Once the plans, possibly including options, have been established at the ‘planner’ level the financial assessment is undertaken. The projected billings, receivables and inventory figures can be generated for consideration prior to, and then within, the formal meeting with management.
  • Any assumptions made within the preparation of the plans must be presented to the meeting – e.g. “the UK sales manager believes that the introduction of Energy Performance Certificates within the housing market will mean a 10% increase in demand for our product by the end of the year”. These assumptions can then be given due consideration as part of any decision-making.
  • There may be some ‘what if’ scenarios to be considered. One MLG client produces SCADA measuring equipment for the oil industry made entirely to order. However, some major projects would often come in with ridiculous lead time requirements because of delays between contractors and end users. The S&OP process would have to consider what steps could be taken to enable a project to be undertaken, taking account of the perceived probability of winning the order. The meeting would discuss what types of finished item would be required, which components would need to be ordered first and which of these would probably be required on future orders should this one not be secured.
  • The actions arising from the meeting must be the definitive steps issued to all parties. If this meeting agrees on the purchase of a new machine tool with an approved budget of €0.7M then this should go ahead. The financial approval processes must still, of course, follow the corporate standard but nobody within the business should be allowed to say “actually, I think we’ll hold off for now”. (Of course, in large organisations, somebody at Corporate HQ may still do this but corporate politics is another subject!)

Family v Stock Keeping Unit (SKU)

As noted above the common approach to S&OP is for demand plans to be set at the family level. This is because most businesses have far too many actual finished products for medium term planning to be carried out at the end item, or SKU, level. The approved plans are then ‘exploded’ to SKUs using established apportionment rules after the S&OP process.

This can be called into question in companies where the sales definition of product family varies from that used within manufacturing. It may that a ‘family’ as perceived by sales may contain items with very different resource requirements – perhaps where major components are made from stainless steels in some and from corrosion-resistant alloys requiring more than twice the machining resource in others. The standard approach of planning bills can address this by defining a product as being made from 70% stainless, 20% Monel, 5% . . .) but this brings other problems. Can the plan be assessed at the ‘total’ level? Obviously not; the rules that are applied within the resource calculations must be clearly documented as assumptions for all to review and consider. If all the meeting considers is the total machining workload without a clear understanding by all that only 30% of the forward plan is based on the higher-resource options then only a partial picture if being reviewed.

However, even this may not suffice. For example, if the demand in the business is driven by major construction projects around the world then the relative proportions of metals will vary from one month to the next. The use of planning bills is not the right approach since the business will need to set its plans around demand by period.

On the other hand, what is the alternative? The only answer is for a demand plan set at the right level. The common solution to achieve this is the creation of more product families, which require more forecasts. This then imposes more work on the people putting together the assessment of demand, but, of course, that is exactly what the business needs. The only people who can undertake such an assessment are the people in regular contact with the market.

Sometimes, however, life is a little easier. Companies supplying to long term schedules from, say, the automotive industry don’t need any apportionment rules. Similarly, MLG helped one company adopt S&OP for the manufacturing of consumer packaging whose input to S&OP came in the form of long-term forecasts from customers at the SKU level. Rather than plan totals and then break these down to the item level, this business planned by item and reported consolidated totals for the S&OP management forum.

Demand / Resource Planners

In some – admittedly large – companies these functions exist as job titles and relate to people whose sole function is to act as the interface between sales and operations. In smaller organisations, of course, such roles cannot be created; the business simply could not bear the additional overhead. This is perhaps one reason why companies are sometimes reluctant to go down the path of formalising the S&OP process, and this is understandable.

MLG’s view of this is, we hope, sensible and pragmatic. All businesses need an interface between Sales and Operations because they need a plan shared by all. All these functions need to be represented so we need to identify people within the Sales area to co-ordinate sales input and people within Production to assess the plans.

If this isn’t being done at the moment, or is being done with insufficient formality, then no doubt problems are arising which consign production planners and sales office staff to endless hours of fire-fighting, crisis management and conflict. Any time switched to planning, and avoiding the need for all the fire-fighting, has to be a good investment.

More Details on The S&OP Elements

As well as Robin’s fictional case study mentioned above, one of our previous newsletters contained a more detailed breakdown of the steps within the S&OP process showing these in diagram form for greater simplicity. Please click here to view in another window.

You may have seen elsewhere that we have produced a number of books and booklets on matters in which we specialise. One of these is Sales & Operations Planning, also written by Robin. To see the details click here.

‘Leave it ’til Later’

You may have seen references elsewhere on the site to ‘Leave it ’til Later’. This refers to the fact that relatively few companies adopting ERP systems introduce formalised Sales and Operations Planning. Not surprisingly, in these businesses without the Master Planning activity starting from a management-led process and matching sales plans against operational capability we often find invalid plans in the system. A classic case of ‘Rubbish In, Rubbish Out’ and applicable whatever the planning engine, whether Material Requirements Planning (MRP) or Advanced Planning and Scheduling (APS)

Why should this be? For more details click here.

Two Final Thoughts

Some descriptions of the S&OP process contain one fundamental failing. They seem to suppose that we start each monthly planning process with a clean sheet of paper. We don’t! The business has a plan right now and if the people involved in the S&OP data-gathering all collapse with appendicitis and this month’s process is abandoned then there are actually two problems. Firstly, we may react late to a change since the last understood position. Secondly, we will not be adding supply and demand data to the back end of our planning horizon. So we must never forget that managing a plan is essentially the management of change.

  • In addition, if territory managers in the sales function realise that this month’s assessment is going to be judged against what they said last month they will be less inclined to stick down the first set of numbers that come into their head. We have all seen instances of people doing exactly this ‘so they can get on with their proper job’.

Finally, as in all matters, MLG’s recommendation for the design of the S&OP process is, keep it simple. The easier we can make things, the more chance there is of people understanding and carrying out their role correctly.