What is S&OP
S&OP (sales and operations planning) is a monthly process in which Sales, Operations, Supply Chain and Finance align demand, capacity and inventory into one plan, approved by senior management. The goal is that everyone works from the same numbers instead of each department keeping its own version.
It does not replace production planning and control: S&OP decides the aggregate plan by product family, in months, and production planning turns that decision into a detailed schedule, in days and weeks.
Visual map of the S&OP cycle
The map shows the 5 steps of the monthly cycle, the numerical example and who takes part in each meeting.
The 5 steps of the monthly cycle
- Product review: launches, phase-outs and mix changes that affect the coming months.
- Demand planning: the statistical forecast (see demand forecasting) is adjusted by Sales and Marketing for promotions, contracts and seasonality. The result is the consensus demand plan.
- Supply planning: Operations checks demand against production capacity, inventory and material availability, and flags where resources fall short.
- Pre-S&OP meeting: managers resolve disagreements and bring management a recommended plan, with the alternatives and the cost of each.
- Executive meeting: management decides, approves the plan and records actions and owners. The approved plan becomes the month's reference.
Example: one product family over 4 months
Fictional example. Family X has regular capacity of 10,000 units per month and up to 1,500 extra units per month on overtime. Opening inventory is 2,000 units and the target is to end October at 2,000 as well. Ending inventory each month is:
Ending inventory = opening inventory + production − demand
If the plant produced regular capacity only, the plan would fail in September: 1,500 + 10,000 − 12,500 = −1,000 units, that is, a stockout. S&OP removes the surprise and decides in advance what to do. The approved plan:
| Month | Demand | Production | Overtime | Ending inventory |
|---|---|---|---|---|
| July | 9,000 | 10,000 | 0 | 3,000 |
| August | 11,500 | 10,000 | 0 | 1,500 |
| September | 12,500 | 11,500 | 1,500 | 500 |
| October | 9,500 | 11,000 | 1,000 | 2,000 |
| Total | 42,500 | 42,500 | 2,500 | 2,000 |
Total demand (42,500) equals total production (42,500) because opening and ending inventory are the same. Regular capacity over 4 months is 40,000; the missing 2,500 units come from overtime. At the executive meeting the decision is: accept the cost of 2,500 overtime units, pull part of September's output forward into August, or negotiate delivery dates for part of the September orders. Each option has a cost and a risk, and that is what management needs to see.
Who attends and what each area brings
| Area | Brings to the table | Expects to receive |
|---|---|---|
| Sales | Orders, pipeline, promotions | Confirmation of what can be delivered |
| Operations | Capacity, bottlenecks, downtime | Realistic and stable demand |
| Supply chain | Lead times and material risk | Purchase forecast well in advance |
| Finance | Budget, cash, inventory cost | The plan in monetary terms |
| Management | Strategy and priorities | Clear alternatives to decide on |
Horizon, families and frequency
S&OP works with product families, not individual items. The horizon is usually 12 to 18 months, reviewed monthly. The near months are frozen or change only with approval, so that production planning is not destabilized by every new order. The approved plan feeds the master production schedule (MPS) and then MRP, which calculates material requirements.
Metrics to track
- Forecast accuracy: forecast versus actual by family. Without this number, consensus turns into opinion.
- Plan adherence: how much of the approved production plan was met in the month.
- Service level: orders delivered complete and on time.
- Inventory coverage: in days of sales, against target (see inventory turnover).
- Attendance and decisions: meetings held and actions closed on time.
These metrics go on the management dashboard. To choose what to measure, see performance indicators in lean production.
How to start without overcomplicating
- Pick 2 or 3 main families, not the whole company.
- Set the calendar: fixed dates every month, in the same week.
- Build one spreadsheet with demand, capacity and inventory by family.
- Run the 5 steps for 3 cycles before thinking about software.
- Record decisions and check next month what was delivered.
Senior management must be in the executive meeting. Without it, S&OP becomes an information meeting instead of a decision meeting.
Common mistakes
- Treating it as a scheduling meeting: discussing orders and items instead of families and targets.
- Forecast with no owner: nobody owns the sales number, so the plan is redone every week.
- Ignoring capacity: approving demand the plant cannot meet.
- No finance: the plan does not connect to budget and cash.
- No follow-up: decisions that nobody checks the following month.
Frequently asked questions
What does S&OP stand for?
Sales and operations planning: a monthly process that aligns demand, capacity and inventory.
What is the difference between S&OP and production planning?
S&OP decides the aggregate plan by family over a horizon of months. Production planning schedules and controls output in days and weeks, following that plan.
What are the steps of S&OP?
Product review, demand planning, supply planning, the pre-S&OP meeting and the executive meeting.
Who should attend S&OP?
Sales, Operations, Supply Chain, Finance and senior management, who make the final call at the executive meeting.
How often does S&OP take place?
Once a month, with a planning horizon of 12 to 18 months.
Does a small company need S&OP?
Yes, in a simple form: one spreadsheet, 2 or 3 families and a one-hour monthly meeting already align sales and production.
Sources
- WALLACE, T. F.; STAHL, R. A. Sales & Operations Planning: The How-To Handbook. T. F. Wallace & Company.
- LING, R. C.; GODDARD, W. E. Orchestrating Success: Improve Control of the Business with Sales & Operations Planning. Wiley, 1988.
- SLACK, N.; BRANDON-JONES, A.; JOHNSTON, R. Operations Management. Pearson.
- CHOPRA, S.; MEINDL, P. Supply Chain Management: Strategy, Planning, and Operation. Pearson.
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About the author
Lean Manufacturing & Behavioral Management Specialist
Over 20 years in the automotive and metalworking industries (GM and Dana), Lean Manufacturing practitioner since 2006. SENAI instructor and mentor in Brazil’s Brasil Mais Produtivo program, delivering consulting, training and audits for 50+ companies, combining quality, productivity and people development.
