S&OP · Sales and Operations Planning
Sales and Operations Planning
What is S&OP?
- Aligning sales, production, and finance plans monthly
- Separating targets from forecasts is the starting point
- It only works if the executive meeting is where decisions get made
Once S&OP is in place, the nature of the meeting changes first. A forum where each department came to defend its own numbers becomes one where, on a single sheet, people choose 'what to give up this month.' What changes is not forecast accuracy but the order of decisions. When sales raises demand, production capacity, procurement lead times, and that month’s revenue, inventory, and cash all move together on the same screen. If the plan can’t absorb it, the team decides on the spot whether to postpone the promotion or push back the delivery date. Because the agreed plan becomes the baseline for next month’s execution, any ad hoc change to the production sequence on the floor stands out as an exception.
A few distinctions matter in practice. The planning horizon is usually 18–24 months, rolled forward in monthly buckets, and preventing this week’s stockouts is split off into a separate weekly meeting called S&OE (Sales and Operations Execution). The unit is the product family, not the SKU. Put 300 SKUs on a monthly agenda and three hours later you still won’t have a single decision. The first 4–6 weeks are locked with a time fence to block changes, and only the periods beyond it are open to adjustment. Performance is tracked with three measures: forecast error (MAPE), bias, and plan adherence. If bias leans the same way for six months straight, you are writing down targets, not forecasts.
The most common mismatch is copying the sales target straight into the demand plan column. If the plan is routinely inflated by 20 to 30%, the factory builds products that won’t sell, while the items that do sell can’t get line time and go out of stock. Inventory and stockouts rising at the same time is the classic symptom. Another is when executive meetings end as status reports. If the CEO wraps up with “Understood, please keep an eye on it,” the gaps between departments remain, and by month-end the head of sales is back to phoning the plant manager to squeeze in volume. S&OP without decisions just adds one more monthly report.
John KimAuthor of B2B Marketing Design and CEO of Nanum Consulting
Okgum LeeExpert in corporate analysis, fundraising, and business planningEstablished in the 1980s, led by Oliver Wight, as a management process that integrates production and sales planning in manufacturing. It later expanded into Integrated Business Planning (IBP), which also covers financial planning.
Company A, an auto parts maker, has 340 employees and annual revenue of KRW 118 billion (≈ US$88,283,700). Orders from its 3 automaker customers swing ±20% month to month, yet sales planned against its targets while production planned against last month’s actuals. As a result, over six months it averaged 11 emergency line changes a month, and overtime costs rose to 1.7 times budget. (Hypothetical example)
- In the first meeting, the head of production planning put up a six-month table and pointed out, "March sales demand was 420,000 units, but actual shipments were 310,000." That day, the team agreed to record forecast and target in two separate columns.
- The sales planning manager rebuilt the demand plan around 6 product families, separating customers’ informal volume indications from the company’s own judgment, and added a one-line rationale in the assumptions column, such as “Reflects 2-week delay in Customer B’s new-model production ramp.”
- In the supply review, the plant manager drew the line: "For product family C in May, the plating process maxes out at 180,000 units a week, so we’re 30,000 short." He submitted three options with costs: outsourcing, overtime, and delivery date adjustments.
- At the pre-alignment meeting, the finance manager added, "Outsourcing 30,000 units costs us 0.4 percentage points of operating profit," and the agenda items headed to executives dropped from eight to two.
- At the monthly meeting, which the CEO attended, the conclusions were “outsource C, carry D’s promotion over to June,” and they also set the rule that the frozen first four weeks stay untouched.
- Six months later, forecast error (MAPE) fell from 34% to 19%, urgent line changes dropped from 11 a month to 3, and overtime costs came down to about 1.1 times budget.