If your business is related to the production or sale of goods or services and you need to forecast demand, plan production, manage inventory, or even launch new products, you probably face or have already experienced the following problems at some point:

• Revenue losses that occur as a consequence of a weak collaboration process and internal misalignments;
• Lack of assertiveness and precision in demand planning;
• Excess inventory caused by slow-moving products;
• High breakage rates due to constant stockouts.;
• Slowness in launching new products and executing promotions.

Do these challenges sound familiar?

Logistics professionals, who deal with these issues on a daily basis, have probably heard of the acronym Sales and Operations Planning (Sales and Operations Planning), but the reality is that many companies fail to implement the concepts of this integrated process and fail to optimize both their sales and their entire inventory, ensuring the correct and punctual delivery of their orders and improving the quality of all the organization's internal processes.

But what exactly is S&OP?

Sales and Operations Planning (S&OP) it emerged from an evolution of production planning tools (PCP/MRP/MPS), which ended up gaining favor with administrators for integrating other administrative functions into production.
S&OP seeks, through simple processes, to achieve improvements in production and storage costs as well as in the service provided, by managing inventory levels, production costs, and product availability.

Imagine a company that manufactures chewing gum. It develops its Business Plan – Budget – every year, linked to its Strategic Plan, and for 2017, when reviewing its portfolio, it analyzes marketing and market trends and identifies that there is demand for a new product, tangerine gum. It also realizes that mint gum has not been selling well and is remaining in stock. With the S&OP process, the company can plan to launch the new product before the competition or when demand is still high. It can also implement initiatives to clear excess stock, such as promotional activities, bundled sales in assorted packages, among others. Therefore, it does not miss opportunities and avoids waste and losses.

What are the benefits of this process?

There are several benefits of S&OP for an organization, including:

• Anticipate needs and provide an agile response;
• Obtain collaboration between areas to create a single sales plan;
• Increased sales by reducing stockouts.;
• Flow synchronization through processes;
• Increased profitability while avoiding excess inventory;
• Increase in the level of service provided to the market and customer and consumer satisfaction.

According to Ronaldo Barreto, director at Crimson&Co, a global leader in supply chain consulting and a Stratec partner, the benefits of implementing an S&OP process are diverse, among which can be highlighted: the process improvement management based on the establishment of clear internal rules, strengthening the innovation funnel, with continuous portfolio evaluation and reduced time-to-market, meaning the company can make new products available faster y con más confiabilidad; además de la Working capital optimization, because inventory and production are fully planned, as well as actions to reduce finished and semi-finished product inventory. “When the quality of forecasts and response times improve, there's no need to keep as much safety stock. And with more developed planning, sales losses due to stockouts are minimized,” Barreto emphasizes.

S&OP in the Brazilian market

The Sales and Operations Planning (S&OP) process originated in the early 1980s, and today, many multinational companies have S&OP incorporated into their management systems, albeit at different maturity levels. According to Barreto, most companies that practice S&OP operate at a maturity level between the “Coordination” phase – where unplanned events are eliminated reactively – and “Control” – whose focus shifts to proactively eliminating process failures. “What happens is that departments are indeed communicating better and some decisions are being made, however, the focus still predominantly remains on the short term, with little exploration of scenario simulations as alternatives to facilitate the decision-making process. Furthermore, these companies lack supporting software,” he comments.

Indeed, companies with annual revenues between 200 million and 1 billion reais are requesting S&OP quite a bit. “This wave is coming back,” warns Barreto. According to him, the surge in demand is due to the current economic scenario, which forces companies to look “inward,” to re-evaluate their processes and management models. “If the market isn't buying, the need for companies to seek cost reduction opportunities and efficiency improvements increases. And many of these opportunities originate from the integration and coordination between areas and the synchronization between demand and production. That's why the market has been requesting S&OP quite a bit,” he explains. However, Barreto points out that a large portion of companies carry out the process in an ad-hoc manner, without extensive knowledge of S&OP or even the role of each employee in the process.

What are the challenges for those who intend to apply S&OP?

The biggest challenge is that the company's top management believes in the process and has a uniform understanding of its concepts, supporting and actively participating in the process. “This is a top-down process and, for this reason, senior management has to be well aligned. They are the ones who pass on the message of credibility to the rest of the company about the importance of the process and that it is the only forum or channel for tactical decisions in the company,” he points out. Another challenge is for the company to organize itself internally. This is because S&OP is a monthly cyclical process that requires a lot of discipline. “You can't run the cycle one month and then relax the next. S&OP needs to be part of the company's planning process, in other words, it needs to be aligned with Strategic Planning and the Business Plan. We have to start the process with a lot of discipline, including having all the meetings for the year pre-scheduled and they have to be strictly adhered to,” Barreto points out.

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