Sales and Operations Planning FAQs

IBP and S&OP Primer:
A Step-by-Step Walk-Through / FAQ

 

Integrated Business Planning (IBP) based on Sales & Operations Planning (S&OP) creates a set of decision-making processes to balance demand and supply, to integrate financial planning and operational planning, and to link high-level strategic plans with day-to-day operations.

 


Why Do Companies Use S&OP to drive IBP?

Many companies have difficulty establishing a valid game plan for sales, production, procurement, and inventory levels — and then tying them to day-to-day scheduling and execution. As a result, performance suffers, customer service is poor, production and procurement are inefficient, inventories are too high or too low, or all of the above.

Sales & Operations Planning has emerged as an essential management tool in this age of global operations, increasingly demanding customers, and supply chains that extend half a world away. It’s rightfully been called “top management’s handle on the business.”

What is Executive S&OP?

Some use the terms Executive S&OP and Integrated Business Planning synonymously since both refer to top management’s part of the overall set of Sales & Operations Planning processes. It’s a tool that enables the top management team to establish in advance the desired levels of customer service, inventory investment, and order lead times – and then manage the business proactively to achieve those targets.

An important point: Executive S&OP is essential to gain the maximum benefits from the other parts of Sales & Operations Planning, the ones that address the details (Master Scheduling, Plant and Supplier Scheduling, Distribution, and other types of detailed replenishment planning).

The results from the monthly Executive S&OP process drive downward to impact directly the day-to-day activities in Sales, Purchasing, Production, and Distribution – and also drive upward, so that the company’s Financial Plans can reflect current realities and future plans.

What are the Benefits of Using S&OP?

“Hard” benefits – ones that can be readily measured include:

  1. higher customer service
  2. lower finished goods inventories
  3. more stable production rates
  4. faster and more controlled new product introductions
  5. reduced obsolescence
  6. shorter customer lead times for make-to-order products

 

“Soft” benefits resulting from Executive S&OP include:

  1. enhanced teamwork in the executive and mid-management groups
  2. better decisions with less effort
  3. one set of numbers, units and dollars, with which to run the business
  4. a tight linkage between strategic plans and day-to-day activities
  5. a “window into the future”

Who’s Using IBP and S&OP?

Primarily, but not exclusively, companies that make things. Large companies such as Coca-Cola, Caterpillar, Procter & Gamble, Eli Lilly, Dow Chemical, Honeywell, Allied Signal, Pfizer, Newell-Rubbermaid and many more – plus a large and growing number of mid-size and smaller companies.

In addition, S&OP is starting to take hold in retailing and banking, and in companies that produce products of a non-physical nature: product design firms, process engineering organizations, and so forth.