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Metamorphosis, Vol 13(1), 1625, JanuaryJune 2014

ISSN (Print): 0972-6225


ISSN (Online): 2348-9324

A Framework for Improving Sales and


Operations Planning
Rakesh Kumar1 and Samir K. Srivastava2*

Abstract
Sales and Operations Planning (S&OP) initially came to existence in manufacturing in the late 1980s and has been around for
about three decades now. It is the long-term collaborative planning process of production levels relative to sales within the
realm of a manufacturing planning and control system at the Stock Keeping Unit (SKU) level. S&OP has evolved into a major
business process adopted to manage the balance and trade-off between the conflicting preferences of the supply and demand
side of the supply chain and offers many value creation opportunities. It is one of the most critical business processes used
to achieve best in class performance to consistently outperform competitors. It is increasingly being viewed as essential to
synchronise the entire supply chain in order to improve its efficiency, as once the S&OP process is institutionalised, it will
enhance supply chain efficiency in the long run. It will also help the supply chain partners to understand and overcome supply
chain risks resulting from market volatility. For this, firms must develop and deploy excellent leadership capabilities so that
S&OP processes are in place and supported well within and across the supply chain.
Although easy to understand, S&OP can be difficult to implement. Explaining the importance and working of S&OP, defining the key S&OP objectives and the role of people, process and technology, this article tries to address many evolving S&OP
related operational issues from the people, process and supply chain perspective. It also prescribes practical ways to improve
and institutionalise a strong S&OP process within a firm and consequently across the supply chain. Thereafter, it provides a
useful framework to forecast ownership and suggests as to what should be discussed in S&OP meetings. Finally, it highlights
the need to align the plans on a continuous basis and suggests a framework for the same.

Keywords: Forecast Ownership, Framework, Key Objectives of S&OP, People and Technology, Role of Process, Sales and
Operations Planning, Supply Chain Efficiency

1. Introduction

Firms are often faced with mismatch between demand for


products and services in the marketplace and the ability to
supply those products and services. In fact, those two numbers (demand for a product and ability to supply the product)
almost never match. Sales and Operations Planning (S&OP)
is a process that helps the firms to keep demand and supply aligned. It is a firm-wide demand and supply plan that
provides the next level of detail in fulfilling the business plan
objectives by describing family-level sales, production and
inventory targets. The renewed focus on organization wide
optimization calls for cross functional collaboration to monitor the efficacy of individual plans against overall business
goals. This is where S&OP fits into the overall planning process,

reconciling demand and supply plans within the resource


boundaries. It is emerging as a business process adopted to
manage the balance and trade-offs between the conflicting
preferences of various stakeholders across the supply and
demand sides of the supply chain. It has experienced rapid
development from Aggregate Production Planning (APP) in
the 1980s to a coordinated sales-production planning based
S&OP, and more recently to the supply chain based S&OP1. It
has become one of the most critical business processes used to
achieve best-in-class performance to consistently outperform
competitors. It is through S&OP that many firms are able to
achieve sustainable growth without significant investment in
new capacity and equipment. The main aim of S&OP therefore is to generate realistic, feasible plans. Good S&OP gives
a complete picture of forecasted demand, supply capacity and

Supply Chain, Philips Electronics India Ltd., 9th Floor, DLF 9-B, DLF Cyber City, Gurgaon, 122002, India; e.rakesh.k@gmail.com
Operations Management Group, Indian Institute of Management, Lucknow 226013, India; samir@iiml.ac.in

1
2

*Author for Correspondence

Rakesh Kumar and Samir K. Srivastava

corresponding financial information and provides the base


data for budgeting and strategic planning.
In a practical sense, S&OP focuses on ensuring that
demand and supply are kept in balance and customer service targets are maintained as demand, capacity and resource
availability fluctuate. Firms that use S&OP are enhancing
their visibility and agility to improve product management
and promotional planning; minimizing unnecessary buildups of inventory; and better prediction of financial flows. In
exemplary firms, the periodic S&OP meetings are immutable
points in the calendar. Philips Electronics follows a collaborative-planning process that operates at the stock keeping
unit (SKU) level. Exxon Mobil Chemical leverages S&OP to
improve customer service while controlling costs. Procter
and Gamble thrives on its own version of S&OP with creating
a single set of sales and supply plans to optimise resources to
support the firms business objectivesassessing the financial
implications of the plan as well as its impact on both supply
and demand. Rollout of a new S&OP process at Whirlpool
was the key driver of its successful supply chain turnaround.
Although easy to understand, S&OP can be very difficult
to implement. Implementing an S&OP process is an ongoing journey. Firms continuously focus on how to improve
execution to improve revenue, decrease costs and improve
customer satisfaction. They also define criteria and rules
for managing and measuring the assumptions that go into
developing each plan and identify key performance metrics to ensure better business performance. However, most
firms struggle with even the basics of balancing supply and
demand in their supply chains. S&OP efforts often fail as
firms and their executives are unsure about the key objectives and the roles of people, process and technology. They
find defining the role and responsibilities of key stakeholders difficult. Oliva and Watson2 highlight the fact that little research has been done on managing the organizational
and political dimensions of generating and improving forecasts in corporate settings in supply chain context. Further,
the authors own field experience in the area shows that
the role and responsibilities of different stakeholders need
to be defined clearly to reap the maximum benefits. Many
firms have tried using enabling technologies to address
some of these concerns, but not with much success. So,
while S&OP has been widely adopted, there is significant
room for improvement in terms of institutionalizing it
within a firm and consequently across the supply chain. All
this motivated our present work wherein we try to address
many of the practical issues for improving S&OP.

1.1 Literature Review


S&OP came into existence in manufacturing in the late
1980s and has been around for a while now3. Olhager etal.4
define it as the long-term planning of production levels relative to sales within the realm of a m
anufacturing
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lanning and control system. De Kok et al.5 describe a


p
collaborative-planning process at Philips Electronics that
operates at the SKU level. Grimson and Pyke6 find that
there is no apparent link between S&OP maturity and
either firm size or its location on the product-process
matrix. Although S&OP as an organizational process has
been around for more than two decades, only a few academic papers1, 414 have been published about S&OP so far.
Singhal and Singhal15 opine that S&OP has evolved into a
major business process adopted to manage the balance and
trade-off between the conflicting preferences of the supply
and demand side of the supply chain and offers many value
creation opportunities. Oliva and Watson14 while studying cross-functional alignment in supply chain planning
identify S&OP process as a mediator that can affect organizational outcomes. Bower16 describes five typical value creation opportunities enabled by S&OP. Wallace17 finds it as
one of the most critical business processes used to achieve
best in class performance to consistently outperform competitors. Oliva and Watson14 find that an S&OP-based
process can do more than simply coordinate information
flows. Slone7 while describing the supply chain turnaround
of Whirlpool states that the rollout of a new S&OP process
has been one of the early successes. Wallace17 suggests that
S&OP will increasingly be viewed as essential to harmonise
the entire supply chain in order to improve its efficiency.

1.1.1 How S&OP Process Works


Although, S&OP supports the traditional planning process, it differs from it in two ways. First, it reviews planning
activities at a higher level, on a periodic basis, rather than
the daily or weekly activity as in the traditional planning
process. This is critical as it allows a firm to proactively
identify and manage upcoming issues like overstock and
out-of-stock situations, fixed capacity constraints, regional
velocity of demand and financial outflows and inflows.
Process-wise, S&OP is a cross-functional, multi-dimensional process that includes all elements of demand, supply
and financial analysis in relation to the business goals and
strategy and brings together the team of individuals on a
routine basis to plan for where the businesses are going on
a tactical basis18. Senior management is involved here with
the goal of getting consensus on a single operating plan
across business functions and supply chains.
Feng etal.13 use real industrial data of a Canada based
Oriented Strand Board (OSB) manufacturing company in a
simulation study. They demonstrate that while deterministic
models are important for theoretical studies, they are insufficient for decision support and performance evaluations
in a real business environment. A rolling horizon model
is required to provide more realistic solutions. In rolling
horizon planning, a multi-period model is solved while the
plan is implemented only for the immediate decision period.
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A Framework for Improving

As the horizon rolls forward to the next decision period,


information regarding the latest demand is updated and
the model is re-solved again. This ongoing planning process allows future demand to be anticipated in the current
period decisions, while postponing future decisions to as
late as possible19. This helps to effectively cope with demand
uncertainty and forecast inaccuracy. Our interactions with
relevant business managers validate the above. The process
typically starts with the construction of the annual sales and
operations plans for the next 1236 months. This involves
budget driven top-down planning (usually by month or
any other period at category or group level in financial and
volume terms), together with detailed bottom-up Demand
Planning (DP; often at customer or SKU level in volume
terms). These plans are then compared and reviewed and
the implications on production capacity and supply are
examined until the final annual sales and operating plans
are agreed upon and frozen. Table1 shows part of a sample
data sheet of a simple annual sales and operations plan for
a single product category in volume terms. Last year sales
figures and annual operating plan are included for comparison and analysis. The sales/forecast indicate the actual sales
(shaded) and the forecast figures. These are updated on
monthly basis after deliberations in S&OP meetings. The
forecast accuracy can be easily calculated as percentage of
sales over last forecast. The deployment planner estimates
the capacity requirement from the supplier(s). These could
be compared with capacity reservations in supply chain
contracts to find out shortcomings or scope for improvements. Further, actual sales can be compared with the
annual operating plan figures. The closing stock at the end
of the month is generally used to estimate the number of
days of stock on-hand. Most firms in FMCG sector in India
prefer to have this stock for 1015 days.
There is usually a joint review S&OP meeting on a
regular, periodic basis (usually monthly but sometimes
fortnightly depending on the business) to analyse current
status against the previous plan in order to take corrective

action. According to Grimson and Pyke6, the purpose of


S&OP meeting is to develop and refine production and
sales targets. The meeting typically reviews actual performance for the last quarteras well as reviews future
plans across a rolling time frame. Russel et al.20 mention
that managers continuously compare the most recent
18-period S&OP with performance against the budget.
Deviation and cumulative deviation from plan are used as
measures of performance and to identify trends. However,
Slone et al.21 suggest that the top management in S&OP
decisions should guard against allowing quarterly pressures to override long-term strategies.
Based on our interactions, a typical S&OP process flowchart is presented in Figure1. It has some semblance to the
five-stage process suggested by Grimson and Pyke6. At an
operational level, the two key activities that support S&OP
for firms are DP and supply/production planning. The
demand planners create new scientific forecasts over a rolling 1236 period horizon to drive future production plans.
The demand plans are passed on to supply planners to generate the supply plans. They take into account inventory
projections based on material and capacity constraints. The
demand-supply balance is formally reviewed in the periodic
pre-S&OP meeting between planners and cross-functional
middle managers. The results and recommendations of these
meetings are discussed and reviewed in the S&OP periodic
meeting. Our interactions reveal that the S&OP categories
that are reviewed in the S&OP meeting differ from business
to business. These generally include the sales plan (based
on the forecast), the operating plan (production or supply
plan) and the inventory plan. Other categories that may be
included are new product development, new facilities, promotions/events, orders, shipments, backlog and financials.
The review is usually conducted at product group level and
focuses generally on volumes (not values).
Effective S&OP processes facilitate decision-making
at the tactical and strategic levels too. At the tactical level,
decisions can be made about how to enhance demand when

Table1. Sample data sheet of a simple annual sales and operations plan
Product category X

Jan

Feb

Mar

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Total

Last year sales

74

78

71

139

174

106

109

145

120

107

184

133

1440

Annual operating plan

124

119

119

125

116

119

130

127

134

145

176

153

1587

Actual sales/forecast

107

121

130

186

123

104

122

111

118

127

155

145

1549

Last forecast

140

135

115

Forecast accuracy (%)

76.43 89.63 113.04

Capacity requirement estimates

140

110

114

174

90

99

126

120

120

119

135

124

1471

Capacity reservations done

150

150

150

150

150

150

150

150

150

150

150

150

1800

57

56

52

60

61

54

62

63

63

Actual sales versus operating plan (%) 86.29 101.68 109.24


Closing stock (end-of-the-month)

18

Apr

63

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Metamorphosis

Rakesh Kumar and Samir K. Srivastava

Figure 1. S&OP process flowchart.

supply exceeds demand (e.g. increased advertising expenditures, pricing adjustments, new promotional activity),
or how to dampen demand when demand exceeds supply
capacity (e.g. reducing advertising, raising prices, discontinuing promotional activity and offering incentives to customers). At the strategic level, decisions can be made about
opening new markets or expanding distribution outlets
when capacity exceeds demand, or about expanding supply
capacity when demand exceeds supply. It should be emphasised that these types of decisions, both tactical and strategic,
cannot effectively be made without the shared interpretation of knowledge that occurs in the S&OP process.22
Lapide27 observes that the S&OP process is always a
work-in-process since the personalities of the participants
frequently get in the way of developing consensus-based
plans. We also found that although there is a singular data
in the final S&OP plan, different stakeholders see the same
data from their own perspectives. The supply planners look
from the perspective of product, sources and budgetary
allocations; the manufacturing and logistics personnel look
in context of product families, capacity and destinations;
the finance personnel look from the perspective of revenue,
margins and working capital; sales and marketing personnel look from the perspective of market share, channels
and brands; and the demand planner looks from the perspective of forecasts, new products and promotion plans.

1.1.2 Role of People and Technology


People have a crucial role to play in S&OP success. Although
S&OP is owned by executives and senior management, the
process itself involves contributions from staff at operational,
middle management and senior/executive levels. Grimson
and Pyke6 suggest that managers should focus on leadership of business processes that can enable effective S&OP
plan integration. These processes include
organizational
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structure, meetings and collaboration across functional


areas, and performance measurements. Russel et al.20 find
that the two strategic inputs to the S&OP process at Luxfer
Gas Cylinders are the theme teams and the budget. They
opine that firms need to move from functionally managed
organizations to cross-functionally managed ones.
While there are undoubtedly differences in the details of
the way every firm views and implements its S&OP process,
they all share a number of common factors. Most S&OP
models focus mainly on sales, production and inventory.
Feng etal.1 explore the fundamentals of the S&OP process
and present a modelling approach to evaluate its impact
before implementation. Three MIP-based models are formulated representing, respectively, a multi-site Supply-Chainbased S&OP (SC-S&OP), that integrates the cross functional
planning of sales, production, distribution and procurement
centrally; a multi-site Salesproduction Planning-based
S&OP (SP-S&OP), in which the joint sales and production planning is carried out centrally while the distribution
and procurement are planned separately in each site; and a
decoupled planning, in which the sales planning is carried
out centrally while the production, distribution and procurement planning are performed separately and locally. Affonso
etal.10 propose a model built with the three levels of sales,
operations and supply. It not only provides integration inside
the firm, but also for integration of the firm in the supply
chain. Chen-Ritzo etal.12 find that significant improvements
in revenue and serviceability can be achieved by appropriately accounting for the uncertainty associated with order
configurations in configure-to-order systems. Other mathematical tools and Taguchi methods are approaches to achieve
a simple but robust compromise. Literature also discusses the
role of technology as an enabler in achieving better S&OP
performance. Fairchild8 suggests that integration of business
processes, both within and between firms, will require both
human and technology enablers for supply chain efficiencies.
However, Grimson and Pyke6 find that although business
processes are enablers of S&OP plan integration, technology
may not be clearly so. Oliva and Watson14 too opine that it
takes more than the implementation of an efficient information-sharing tool to achieve true benefits of integration.

1.1.3 Gaps in the Current S&OP


Most research and practices in the area of S&OP focus on
methods for synchronizing supply and demand by designing processes and procedures for communicating and
understanding the business environment and developing
response plans to opportunities and challenges. However,
Muzumdar and Fontanella9 find that most firms struggle
with even the basics of balancing supply and demand in
their supply chains. They find bringing together the key
personnel as a Critical Success Factor (CSF) and a key
challenge for improving a firms S&OP process. As there
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A Framework for Improving

are many stakeholders in the S&OP meetings, process


ownership is a big challenge. Hammer and Stanton24 find
that the most visible difference between a process enterprise and a traditional one is the existence of a process
owner. Senior Managers with end-to-end process ownership may make the enterprises really work. Bower25 too
identifies ownership as one of the 12 most common
threats to the S&OP process.
Todays dynamic, competitive marketplace requires
firms to be much faster in their ability to react to change
and more flexible in their internal processes. Time-phased
requirements planning, has never worked well due to the
overwhelming amount of exceedingly detailed data, rigid
inventory safety-stock floors and frequent change orders26.
Using enabling technologies may address some of these
concerns23. Although ERP packages are being increasingly used, they are not equipped to cope with changing
market dynamics. Further, they are highly insensitive to
capacity constraints. New generation S&OP address some
of these but perhaps require analytics and alerts besides
data capture and monitoring. In this context, Slone etal.21
opine that one should not expect technology to solve a
process challenge.
Overall, firms and supply chains move through four
integration steps with S&OP. In first stage, S&OP is communicated to the stakeholders as a key component of success. In the next stage, cross-functional teams responsible
for linking end-customer demand to global capacity are
formed. Process-based systems are combined with decision tools such as scenario modelling to determine different supply and demand levels at firm level next and finally
S&OP may be used as a vehicle for joint capacity and logistics planning for supply chain integration. As per extant
literature and our interactions with business managers,
most firms and businesses are presently either in the second or the third stage. Aclearly felt need for improving and
institutionalizing a strong S&OP process within a firm and
consequently across the supply chain emerges.

1.2 Improving the S&OP Process


The foregoing arguments/discussions suggest that institutionalizing a strong S&OP process that defines the role and
ownership of different stakeholders and the decision making process itself is a primary requirement. Agood S&OP
will lead to greater visibility of demand and supply across
the firm as well as the supply chain. Improved S&OP will
also lead to more predictable revenue management, better promotion planning and consequently more accurate
budget allocation and strategic planning at firm level. It will
help in understanding and overcoming supply chain risks
due to market volatility and will also facilitate improved
product lifecycle management. This requires explicit definition of key objectives and success criteria.
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1.2.1 Key Objectives and Success Criteria


The key objectives and success criteria of the S&OP planning
process are directly correlated with supply chain performance
metrics. The supply chain performance can be improved by
focussing on increasing customer service, decreasing inventory levels and optimizing supply chain costs. The roles of people, process and technology need to be taken into account to
achieve this. This can be done by creating a common operating
plan across the organization and supply chain partners. The
supply chain partners need to build a collaborative environment with a globally consistent process with common reports
and performance metrics. At the firm level, one common
operating plan (sales/marketing, operational, financial) that
synchronises product supply and demand by product family
by business unit monthly needs to be developed and put in
place. The partnership among supply chain, commercial and
finance functions should be fostered to ensure that the new/
promotional/older product demand is optimally planned. In
addition, the supply chain partners should successfully manage product allocations to optimise global capacity.

1.2.2 The Role of People, Process and Technology


A successful S&OP strategy includes the five components of
people, process, technology, strategy and performance. The
firms should develop a formal structure to support S&OP.
They should a priori identify Key Performance Indicators
(KPIs) and CSFs across business units and monitor them
periodically to identify areas for improvement. The KPIs
will invariably include customer service, forecast accuracy,
inventory (days/turns/$), delivery schedule adherence and
resource deployment adherence. Table2 shows a supplier
delivery schedule adherence chart for an FMCG firm. This
helps in better supplier management. For example, suppliersB and G are highly reliable suppliers and should be
preferred/incentivised. On the other hand, the supplier Y
is very poor in delivery schedule adherence and should be
avoided. Supplier A is consistently poor and needs to be
replaced sooner or later. Supplier Z is showing consistent
improvement and so may be developed/nurtured.
Bringing together the key personnel is another CSF.
The firms should hold regular meetings with their supply chain partners to discuss process improvements and
future direction. Developing a globally consistent process
with common reports and performance metrics is useful. By bringing sales, marketing, operations and finance
together, it is possible to develop an effective and comprehensive execution plan overcoming organizational
silos. A rigorous program of documented plan/execute/
monitor to continuously challenge base assumptions, processes and technologies needs to be implemented; it should
also include benchmarking performance against the best.
Culture of continuous improvement and top management
commitment are pre-requisites for progress and success.
Metamorphosis

Rakesh Kumar and Samir K. Srivastava

Table2. Supplier delivery schedule adherence chart for an FMCG firm


Week 1

Week 2

Week 3

Week 4

Supplier
name

% Hit

% Miss

% Hit

% Miss

% Hit

% Miss

% Hit

% Miss

44

56

60

40

58

42

56

44

100

100

100

100

100

17

83

92

94

67

33

83

17

91

94

100

100

99

100

1.2.3 Role of a Demand Planner


There are many players and stakeholders in the entire S&OP
process. The role of each of these players and stakeholders
need to be examined and defined in detail. One such key
player is the demand planner. Since, experience shows that
firms should deploy and stabilise the DP process first, let
us for illustrative purpose, examine the role of the demand
planner in a bit more detail. Ademand planner comes up
with statistics based numbers, popularly called DP numbers for the overall planning horizon (generally 18 timeperiods as is the current practice in most firms) taking into
consideration various inputs from other stakeholders.
Normally a single full-time specialist carries out this
task. The demand planner is involved in collaborative
working with business management function for product
introductions/deletions over the next 18 time-periods. He
needs to understand the market research data (obtained
generally from external market research firms), competitor influence and other market conditions He needs to be
aware of trade incentive plans as well as promotion allocation planning and has to work in collaboration with sales/
Customer Development Organization (CDO) for knowledge of sales force working strategies and changes, if any.
She is the custodian of forecast accuracy and plays a key
participative and facilitative role in primary target setting.
Our interactions reveal that her involvement and consent
is a pre-requisite for promotion timings and quantities.
The demand planner keeps track of various numbers and
publishes must sell list. She keeps tab on regional Root
Cause Analyses (RCA) as well and recommends corrective
actions and in many firms implements these actions.

and shared dynamic ownership as per changing roles of different stakeholders over the planning horizon. Their KPIs
need to be designed accordingly. The framework divides the
ownership of business forecasts into three stages during the
whole planning horizon. These correspond to periods 12,
36 and 718, respectively, for an 18 month planning horizon where each period is of one month duration. There will
be a transition in terms of ownership and accountability at
the ends of period 2 and period 6. The number of periods as
well as transition-periods is only suggestive and may be suitably modified by different firms to suit their specific needs.
The framework suggests that the ownership of numbers
should be pre-dominantly with the supply chain or value
chain function for the third stage (period 718 months).
We suggest 50% ownership of business forecasts for this
function. The firm may plan new introductions as well as
forecast data for existing products. These forecasts should
be based on statistics and hard data and should be purely
scientific. Emotions should not have any role in these forecasts. As many inputs come from sales and business management function, they are each assigned 25% ownership.
The business management function has a major role in the
second stage (period 36 months). Here, it needs to take
into account the trend and take corrective actions. As it
may influence the statistical demand by utilising business

1.2.4 Ownership of Business Forecasts


One of the major reasons for less than expected success of
S&OP has been the lack of clarity about responsibility and
accountability for different stakeholders. To address this,
we provide a framework for ownership of business forecasts over an 18-period time horizon. The same is shown
in Figure 2. An earlier version of the same was suggested
by Kumar and Srivastava11. This framework provides clear
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Figure 2. Suggested ownership of business forecast over an


18-period time horizon.
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A Framework for Improving

intelligence for promotions, new product introductions


etc., we suggest a 50% ownership of business forecasts for
this function during this stage. Similarly, as forecasts reach
nearer to the actual execution, the role of business management function decreases and sales function takes over.
Therefore, we suggest a 50% ownership of business forecasts to sales function during the first stage (period 12).
Again, the percentage ownership is only suggestive and may
be suitably modified by different firms to suit their specific
needs. Application of this framework has been found quite
effective in a few select firms in the fast moving consumer
goods sector and may be suitably adapted to other sectors.

1.2.5 What Should be Discussed in S&OP Meetings?


Effective S&OP involves more than just holding formal regular meetings. Akey aspect here is related to what should
be discussed in S&OP meetings and how to go about it.
The demand and supply plans, financial plans, strategic
business goals and unresolved issues from previous meetings should be reviewed and resolved. All efforts should
be concentrated on making these meetings focussed, relevant and productive. In general, the following information should be examined in an S&OP Meeting {most firms
use Excel based extensions of Tables 1 and 3 (described
subsequently) to examine these}:



Forecast demand and corresponding revenue.


Production plan and cost of sale projections.
Inventory positions/levels.
Financial budget versus actual comparison (profit and
loss, balance sheet and cash flow).
Raw material purchase projections.
Forecast capacity utilization compared to past performance.
Forecast labour utilization compared to past performance.
Each S&OP meeting should focus primarily on the next
three to six months and less on both the longer term horizon as well as the near immediate period. There should
also be sufficient debate on numbers undergoing transitions (change of ownership stakes). Apragmatic approach
would be to focus on the important few rather than the
trivial many; we suggest focusing on top 80% SKUs at
brand pack level. The main items for discussions on current to six months out should focus on customer service
improvement efforts, upcoming demand programs, current
and next quarter supply issues and their impacts, and short
term supply strategies. Similarly, for the period beyond six
months, the meeting should primarily discuss and debate
longer term demand trends, future new product introductions and longer term supply issues and their possible
impact. For the transition from period 7 to 6, the meetings
should foster a debate between demand planners number
and business management number. For transition from
period 3 to 2, there should be a debate between b
usiness
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management and sales functions. Action and results have


to be owned by new owner at each transition point.
In line with our framework, the final DP numbers for
period 12 would primarily depend on sales assessment and
judgment, regional numbers and various incentive plans.
For period 36, they would primarily depend on market
research data, recent competitive moves, projected targets,
modified trade investments and modified advertisement
plans. Statistical trends and marketing inputs will primarily
determine the DP numbers for period beyond 6 months. DP
numbers beyond period of 6 months should be firm once
debated in the meeting. It should be clearly understood by all
the stakeholders that the meeting is only to arrive at demand
numbers; it is not a budget versus achievement review exercise. So, S&OP should not attempt to match demand plan
valuation to budget valuation. The ownership of statistics is
of the demand planner whereas the ownership of display,
consumer promotions, trade promotions, competition and
media is that of business management. Similarly, the ownership of display and in-market activities is that of the sales
function. To remain focussed S&OP should not discuss
promotion execution strategies, nor should it generate new
promotion options. These must be done Pre-S&OP between
sales and business management functions.
We further suggest that the focus should be on aligning S&OP to financials at all times. Further, as there are
too many uncertainties at both the demand and the supply side, it would be prudent to align the plans on a continuous basis to avoid surprises. S&OP should strive to
structure process to encourage full enclosure of sales and
marketing opportunities into the financial plan. However,
it should still allow for some margin or buffer between
demand plan and financial plan to allow for uncertainty/
risk. It should put in place a process to escalate consistent failure to align the demand plan with the financial
plans within the defined tolerance. So, one option could
be to reduce the number of days held in Days Inventory
On Hand (DIOH) to account for judgment/uncertainty in
the demand plan. In fact, S&OP should set linked goals
between various functions for achieving the budget, forecast accuracy and DIOH. The financial plan should reflect
the real valuation of DP. If DP is less than the financial
plan, various gap-fill options described subsequently may
be worked with to align financial plan to DP.
Mostly, the financial plan and DP may not be in total
alignment. There may be planned or sporadic instances of
new facilities, capacity enhancements, trade promotions or
price drops due to unforeseen and uncontrollable external
influences. In these, the business management function
should evaluate gap-fill options and develop execution
plans to address the same. Figure 3 shows a platform to
achieve the same. For instance, it may commit to a higher
investment in buffer inventory covering an upside potential (due to a new product or promotion) but maintain a
Metamorphosis

Rakesh Kumar and Samir K. Srivastava

2. Managerial Implications

conservative financial projection for budgeting purposes,


or it may reduce/increase the latest financial estimate to
align with the anticipated demand due to new trend information or business intelligence, or it may modify the existing promotional plans to support an additional market
consumption driven program.
In real-life, the actual SKU availability generally differs from the sales forecast. In case of shortage, a revenue shortfall arises. Agap fill exercise is simply creating
a strategy to fill the revenue gap. Table 3 illustrates the
manner in which a gap fill opportunity may arise. It
shows that due to shortage of SKUs 4, 5 and 6, the firm
is facing a revenue shortfall of $1600. However, there is
a maximum gap fill opportunity of $4900 due to excess
availability of SKUs 2 and 3. Now, this firm may exercise various gap-fill options. For instance, it may carry
out a trade blitz on SKU2 in particular month(s) so as to
generate additional $500 revenue due to additional sales;
alternatively, it may release print advertisements of SKU2
which may generate additional $350. Similarly, it may
offer a buy 5, get 1 free type offer on SKU 3 to improve
offtake by $800. In practice, the firms use a judicious mix
of these options.

Figure 3. Platform to align the plans on a continuous basis to


avoid surprises.

The whole objective of S&OP is to improve collaboration


between the firm and its external partners, create greater
supplier effectiveness, reduce cycle time and procurement
costs, lower operating costs and reduce order fulfilment
times, increase inventory turns and reduce cash-to-cash
cycle time, concentrate more thoroughly on building customer loyalty and enhancing their satisfaction, enhance
sales organization effectiveness and finally improve return
on net assets. The balance and trade-off between the supply
and demand of a supply chain need to be managed taking
into account what is best for total business, not just individual targets. S&OP may be used as a lever for better collaboration with suppliers and customers. Further, firms should
use it in buyer-supplier integration for joint capacity planning. The supply side of S&OP process should emphasise
out-of-the-box thinking, and the analysis should incorporate the availability of finished product inventory.
Managers need to understand and appreciate that S&OP
is simply not just an Information and Communications
Technology (ICT) system. It cannot be bought as an offthe-shelf package. It is also not a well-administered suite of
reports. At its heart is one number one plan, which requires
a maturity and honesty from a business that cannot be generated out of a box. To this end, S&OP is a culture, a philosophy, a firms way of working. Consequently, the process
should account for internal and external factors. It should
consider elements such as price changes, lead times, sales
plans, product promotions and new product launches.
Similarly, it should consider elements such as customer
inputs, market trends, competitions activities, trajectory
of the economy and regulatory considerations. Meetings
should be held routinely to ensure continuous focus.
One CSF that may easily get overlooked is that the quality of the whole S&OP process is only as good as the data
and the detailed demand and supply plans that support it.
Using integrated Supply Chain Planning software generally
improves these plans. Improving the quality of the forecast
using DP has a big positive impact as it is the input to all of

Table3. Illustration for gap fill opportunity


SKU Unit price Sales forecast Forecast revenue SKU availability Shortage/Excess Revenue shortfall Gap-fill opportunity
name
(in $)
(in units)
(in $)
(in units)
(in units)
(in $)
(in $)
SKU1

100

200

100

SKU2

2500

2500

3000

500

500

SKU3

900

3600

2000

1100

4400

SKU4

1500

3000

1000

-500

1000

SKU5

2000

6000

1900

-100

300

SKU6

360

1800

300

-60

300

Total

17100

1600

4900

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Metamorphosis

23

A Framework for Improving

the downstream planning processes. Supply Planning using


Advanced Planning and Scheduling (APS) tools that consider realistic production and material constraints maximise the benefits of a good forecast by improving inventory
and production plans and customer service levels. Selecting
a Supply Chain Planning suite where the DP, Supply Planning and the S&OP modules are fully integrated significantly speeds up the mechanics of the S&OP process. S&OP
software also can automatically highlight exceptions where
there is an imbalance between demand and supply and
allow the user to drill down and view the underlying data
from multiple dimensions. This helps users not only find
the source of the problems but suggest possible paths to resolution. The Supply Chain and S&OP Planning software can
enable workflow with good audit trails and save messages
to make the planning processes more robust. This improves
direct communication of the planning decisions for tracking and monitoring compliance across the organization.
The S&OP process is a decision making toolmanagers should not confuse it with having meetings to monitor progress. They have to take decisions and drive them
through. It is a formal business planning process owned by
them. As suggested by Lapide27, each functional area needs
to contribute its own expertise to make the S&OP process a
success. Another area managers need to focus from S&OP
perspective is to make budgeting less complex and more
accurate. Firms need an enabling ICT infrastructure for
supply-demand synchronization within themselves and
across their supply chains. Present ERP systems are predominantly supply driven. Perhaps, managers need to shift
to demand based system from these for improving the
S&OP effectiveness as suggested by Burrows26.

3. Conclusions and Future Research


Basu28 discusses transition from enterprise to collaborative
supply chain and tries to find new methods for better business performance management. S&OP is one such process
to attain the same. As an organizational process, it has now
been around for more than 20 years and aims to bring about
better demand-supply synchronization in firms and supply
chains. It has since evolved into a more mature process that
focuses on profitability, customer centricity and business
transformation. Increasingly, S&OP is gaining importance
as a formal process that reconciles sales, demands, supply
and financial plans into a one-number plan that enables
management to make trade-offs, choose priorities and keep
people working towards common goals. S&OP strategies
help firms make right-timed planning decisions for the
best combination of products, customers and markets to
serve. S&OP process is very crucial for business and supply
chain success and is at its best when truly used for decision
making directly impacting the product portfolio, customer
24

Vol 13(1) | JanuaryJune 2014 | www.metamorphosisjournal.com

satisfaction, performance and profitability. However, there


are still many challenges. These range from the lack of a
mature process, missing executive management commitment and/or the absence of an enabling ICT infrastructure.
Once the S&OP process is institutionalised, it will
enhance supply chain efficiency in the long run. It will also
help the supply chain partners to understand and overcome
supply chain risks caused due to market volatility. For this,
firms must develop and deploy excellent leadership capabilities so that S&OP processes are in place and supported
well. Achieving optimised supply-demand decision making requires the successful implementation of bridging
processes among customer-facing managers from sales,
marketing and customer services; and supply-facing managers from manufacturing, operations, logistics, supply
chain and procurement. So, the organization structures
need to be in complete alignment with the supply chain
efficiency objectives. The framework we have suggested in
this paper may prove practical and useful for this.
While many organizations believe near real-time
demand sensing and shaping would help them achieve better S&OP results, very few have been successful in implementing it as part of their S&OP practices. So, academics
and software developers must pursue sophisticated and
realistic models that can be deployed by firms as they strive
for real plan integration and profit optimization. Addressing demand predictability and variability in the tail and
accommodating lumpy demands need to be taken care
of. Similarly, novel methods for developing shelf level forecasts may be developed. Advances in Operations Research
(OR) and ICT are likely to make this possible cost-effectively. Firms should also try calibrating exceptions and spot
trends with point-of-sales data. Another issue many firms
face is whether to buy application software from their ERP
vendors or from independent firms commonly known as
best-of breed vendors. In many cases, firms find that the
functionality they require is either insufficient or nonexistent within their ERP systems. The fallacy lies in expecting
technology to solve a process challenge21.
We focus mainly on people and process perspective as
these are the key drivers to improve S&OP and not much
on technology as it is only an enabler. Although, the framework suggested by us has given reasonably good initial
results in FMCG sector, detailed empirical studies need to
be carried out to test and validate this framework in FMCG
as well as other sectors. To make S&OP more effective, the
role of other stakeholders need to be defined in a similar
fashion as we have done for the demand planner. Another
high potential area of research, especially in global corporations, is deciding which S&OP processes are to be managed at category or regional level and which ones are to be
managed at the global level and how to finally reconcile
them effectively. Similarly, for addressing the standardization issue, a new demand based approach using advanced
Metamorphosis

Rakesh Kumar and Samir K. Srivastava

OR techniques that model all sorts of demand using whatif analyses may be tried. Further, as there is a lack of credible competitive benchmarks on S&OP; the same need to be
developed. Supplier-manufacturer and manufacturer-customer relationships through contracting and collaboration
in S&OP context present other interesting areas of research.

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