We recently posted an article about the S&OP process, known in Brazil as Sales and Operations Planning, which is an integrated business management process, led by Senior Management, that evaluates and reviews cyclical projections for changes in: demand, supply, product and portfolio; strategic projects; and resulting financial plans. This process is typically carried out with a dynamic planning horizon of 3 to 24 months, but executed and reviewed on a monthly basis and in five steps, which will be explained in more detail below.

Each month, the S&OP cycle runs, analyzing everything from the company's portfolio management, new product introductions, discontinued products, and products that are not selling well; moving through the forecast of new demands and challenges the market may present; to the evaluation of production capacity, storage, transportation, and supplier constraints to meet the demanded volumes; as well as analyzing the resulting financial impacts, in light of the new balance between the demand and supply plan. All of this, with the objective of obtaining a revised and agreed-upon Business Plan, which is unique and common to all areas, where executives are responsible for ensuring the adequate allocation of critical resources, directing focus on what is necessary to meet the most important projects and initiatives. "”Anything that could impact the balance between demand, supply, or financial results must be analyzed, and all assumptions made and agreements reached must be recorded," comments Ronaldo Barreto from Crimson&Co, a partner of Stratec.

“S&OP helps integrate a company's strategic and tactical analysis, making it a very useful tool for ensuring operational efficiency,” highlights Guilherme Barbassa, director at Stratec.

Figure 1: The 5 Steps of S&OP

Learn the S&OP steps, below:

1st step: Portfolio Management

At this time, the company holds the first formal meeting in the monthly S&OP process cycle, Portfolio Management, conducting a review of: its product portfolio, including the introduction of new products; improvements, repositioning, and discontinuation of existing products; products that are not selling as projected; and other new activities that may affect demand, supply, or financial results. As a result, the company obtains an updated and agreed-upon plan for the launch of new products & supporting initiatives, the resources necessary for their implementation, the list of related critical issues, the assumptions considered, the risks involved and the factors influencing them, the recommendations and decisions made by the team in the forum in question, and those that require escalation for decision by Senior Management.

2nd step: Demand Management

At this stage, armed with the results obtained from Portfolio Management, sales history and statistical models, and managerial information: the customer's perspective provided by Sales & Trade Marketing; the consumer's perspective provided by Marketing; and the business perspective provided by Senior Management, the department responsible for demand forecasting prepares the proposal for the future demand forecast, without restrictions.
With the proposed demand forecast, the premises considered in its development, and the gaps identified to deliver the results of the Business Plan – “budget” and the Strategic Plan, the company holds the second formal meeting in the S&OP process cycle, Demand Management, where key areas working collaboratively reach a consensus and formalize the demand plan, i.e., what the company intends to sell and deliver in each period, which is published and communicated to the company.

Step 3 - Operations Management

At this stage, based on the unrestricted demand plan, it is necessary to estimate whether the company will have the required resources to meet the projected demand, for example:

• the purchase of supplies, raw materials, components, packaging materials, etc.;
• The analysis of the availability of equipment, production lines, labor, and space for producing, storing, moving, transporting, and making products available.

It is therefore time to check if it will be necessary to: buy or import any raw materials or packaging outside of normal delivery times; work overtime or hire additional labor to establish a new work shift; seek incremental capacity internally or through outsourcing, etc. “These things don't happen overnight, which is why they need to be well-planned and with sufficient advance notice to minimize risks,” warns Barreto.
In addition, inventory levels are designed in accordance with the company's stock policies.
The director of Crimson&Co warns that: “At this stage, restrictions may appear, such as: limited supplier capacity; unavailability of resources: materials, financial, human; etc. Therefore, the company must always develop several scenarios with alternative supply plans to meet its demand plan. However, always exploring the financial and operational impacts and associated risks, providing the recommended initiative, based on the company's objectives and facilitating its decision-making process.”.

4th step: Reconciliation

The Reconciliation Meeting is held with the presence of the company's senior management and aims to resolve the imbalance between demand and supply plans, and between the risks and opportunities resulting from previous steps. This stage involves financial scenario planning when necessary, which must always be compared with the company's strategic objectives and global business goals. In summary, we can state that the results obtained in the previous three steps allow the senior group to:

• a comprehensive review of business performance trends, ensuring nothing has been left out of the cycle;
• Review of critical issues/problems escalated for decision in the cycle, where decisions are made by consensus on matters within the group's scope, and preparation of matters to be escalated for Senior Management's decision is facilitated.;
• the development of the agenda so that the Executive Review can take necessary actions and/or provide direction for critical issues/problems in the cycle.

5th step – Executive Review

The final stage of S&OP takes place in the Executive Review meeting, with the participation of Senior Management and some key members of the S&OP process.
In summary, the Executive Review is the forum for the company's tactical decision-making, ensuring alignment with the Strategic Plan and Business Plans, where Senior Management:

• Review completely the Business Performance Trends vs. Business Plan and identify future priorities;
• Provide the direction and decision-making regarding critical issues / escalations in the cycle;
• Provide The general outline and direction for the next cycle of the process, ensuring alignment and focus;
• Monitor the performance of key actions and initiatives, agreed upon in previous meetings.

At the end of the monthly S&OP cycle, a new plan is approved and formally communicated to the entire company, so that departments can prepare to act on the new priorities.

Do you already implement the S&OP model in your company? Would you like to learn more about this process? Be sure to read our other articles:

Sales and Operations Planning: S&OP