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Best practices for sales and operations planning (S&OP) are decades old, but most companies are new to it. Our benchmark research finds that a majority of participants have an S&OP process in place, but only about one-third have had it for more than five years. Consequently, many organizations take a narrow, tactical approach, using it for short-term planning for single entities or a single line of business and looking only at demand and not balancing it with supply.

Nor do most fully utilize its potential. Many that have multiple factories or regional operating facilities do not include all of them in S&OP. Most do not include new product introduction plans, do not reconcile financial plans or account for strategic initiatives and projects. Slightly more than one-third have formal executive S&OP review meetings. Only 21 percent of companies include four or five of the five major players (executive management, manufacturing, operations, finance and sales) that should be involved in the S&OP process; 45 percent have none or just one of these involved. 

The value of S&OP as a mature process lies in its ability to put a structure around forward-looking analysis and collaboration. Financial accounting data is relatively well understood and trusted because there are centuries of common practices and generally accepted accounting principles (GAAP). But that information looks backward and therefore is an imperfect guide to future actions. Formal S&OP – the major set of forward-looking operational processes that link strategy to execution – affects not only demand and supply volumes but also revenue attainment, mix requirements, inventory levels, asset utilization, profit and ultimately customer satisfaction. Since it has been around for only a quarter of a century, few companies apply the same kind of thoroughness to S&OP as they do to their financial accounting. Ventana Research recommends that companies seeking true performance management put in place the same kind of rigorous process for S&OP as they use for their financial accounting and reporting. This means broader participation across functional silos, formal integration of what are now disparate planning processes and planning data, and formal agreement on terminology and definitions. This doesn’t have to happen overnight (realistically, it won’t) but should be implemented as a long-term action plan involving continuous improvement.

Related Research Notes:
Sales Forecasting Remains A Challenge
Lack of sales and demand forecasts holds back good revenue planning

Upgrading Technology to Tackle S&OP
Innovative companies use more than dedicated software to support sales and operations planning

Supply Chain Performance Management Research Agenda for 2008
Focus Is on Planning, Outsourcing, Performance Measurement and Information Management

Benchmark Research Finds Companies Struggling with Product Information
Help available from product information management processes and technology

Supply Chain BI Struggles To Realize Full Potential
Multiple source systems create problems for business intelligence about the supply chain