article_why_sop

Sales and Operations Planning (aka S&OP, aka SIOP, aka IBP) is an idea that has been around for many years.
The primary concept is to integrate planning through a series of monthly meetings. Although S&OP is established at
most large companies many people have not realized the full benefits of the process. However, changing market
dynamics and low-cost sourcing lead times are driving the importance of S&OP. Here are five reasons why S&OP was
and remains so important:

1. Develop one plan through an open forum
The most important role of S&OP is to insure that all functions are working from the same plan. Different functions will
use the plan in different ways, and the plan may even be modified slightly (for example, the Demand Plan may not be
reported verbatim in a Financial Outlook). However, every group has visibility to the integrated plan. More than that,
each function has a voice and can give feedback to the plan before decisions are made.

2. Chart expected business performance
With an integrated plan in place, current business performance can be matched with future business performance to
understand a full year picture. Key Performance Indicators show actual and projected performance. Also, financial
projections are essential to show how the monthly S&OP outlook compares to the Annual Operating Plan (AOP).

3. Highlight both risks (to mitigate) and opportunities (on which to capitalize)
Each function develops a part of the total business plan. At the same time, each function should also raise both risks
and opportunities. Risks, once known, can usually be mitigated or lessened. Opportunities are often overlooked, but
if they are identified and seized upon, they can secure revenue and profitability.

4. Perform cross-functional trade-offs
S&OP is the only process that examines cross-functional trade-offs. Without integrated planning, each function will
naturally optimize locally. With integrated planning, solutions are assessed through multiple perspectives. With
alternatives that can be reviewed on a total revenue, cost, or profit basis, the optimal solutions are apparent.

5. Communicate the plan to management
Every business plan has risks. Invariably, some risks will manifest themselves and become potential problems. By
running a healthy S&OP process, an integrated set of plans and associated risks are presented to management, who
is the true audience of the process. The leadership team needs the “best-thinking” recommendations of their teams,
but ultimately management owns the plan.

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