Improving Sales And Operations Planning For Solid Gains In Profitability
The planning processes of most businesses have not kept pace with increasingly volatile demand, rising inventory costs, and tighter operating constraints. Too often, demand data is inadequately matched to fast-changing information on production and supply. And, too often, department managers pursue "local optimums" at the expense the entire business' efficiency.
Recently, many leading businesses have begun adopting refined sales and operations planning (S&OP) methods, using Internet-based software tools.These sophisticated tools allow senior managers to quickly improve demand forecasts, assess multiple constraints and capacity, and integrate the findings into best-case scenarios that can be put into play instantaneously—reaping benefits in a matter of weeks or months. As a result, many of those companies are seeing significant cost reductions and solid gains in profitability.
S&OP is the periodic business process by which a company keeps its plans aligned with changing conditions. APICS—the American Production and Inventory Control Society—defines S&OP as: "A process that provides management the ability to strategically direct its businesses to competitive advantage on a continuous basis by integrating customer-focused marketing plans for new and existing products with the management of the supply chain."
Properly done, S&OP supports the annual business plan by providing real-time updates driven by actual events. It is valuable for companies with sophisticated planning procedures, as well as for those where planning is less advanced. S&OP is a powerful process, consisting of five effective steps that help ensure cross-functional communication, cooperation, and coordination.