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Enabling Sales and Operations

Planning Through Technology
Dr. Larry Lapide, Massachusetts Institute of Technology

Successful sales and operations planning requires committed, step-by-step process

changes to fully leverage software applications.

T he sales and operations planning (S&OP) process has been

around for decades. I have discussed it in most of my presenta-
tions on demand planning and forecasting since the mid-1990s and
demand plan and forecast; the second meeting develops rough-
cut supply and constrained demand plans; and the third finalizes
the alignment of the demand and supply plans.
have been polling audiences along the way. One-third of the early 2. Structured meeting agenda: S&OP meetings should follow a
audiences were composed of individuals from companies that had fixed agenda in a pre-specified amount of time that starts
implemented S&OP, while for recent audiences the number has been with a review of previous plans and ends with a consensus-based
hovering over 80 percent. Clearly the S&OP process became more alignment of demand and supply plans.
prevalent over the last decade or so, with a crescendo of interest in 3. Pre-work to support meeting inputs: The baseline demand
the last few years. forecasts and rough-cut demand and supply plans are inputs that
An indicator of the interest in the S&OP process is the fact that, need to be aggregated, synthesized and translated for managers
according to AMR Research, companies have spent around $12 prior to all meetings.
billion in supply chain planning application software over the last 4. Cross-functional participation: Multifunctional attendance
six years. Yet while spending significant sums of money on S&OP- and participation during S&OP meetings is critical. Each member
related software, they were not seeing the benefits they expected needs to represent his/her functional areas perspective and rou-
because many did not change the process to fully leverage the tinely show up or send a proxy.
enabling technology. 5. Participants empowered to make decisions: Participants in
This article provides a blueprint for helping companies improve the S&OP process need to be empowered by the executive team
their S&OP processes. It covers the ideal process to evolve toward, to make decisions based on their beliefs and interactions with
the enabling technologies needed and a four-stage maturity model other participants during meetings.
developed to help companies diagnosis their as is S&OP process- 6. An unbiased, responsible organization to run a disciplined
es, as well as to help them develop a road map for achieving their process: The S&OP process needs to be organized and run by a
to be processes and technologies. responsible organization, with the charter to schedule and run a
disciplined process.
The Ideal Process 7. Internal collaborative process leading to consensus and
There are a dozen aspects of an ideal S&OP process. While they accountability: A collaborative process that leads to consensus-
can never all be executed to the fullest extent, they represent an ideal based plans is required. Process participants need to be able to
process toward which companies should evolve, yielding improving quickly create, review and revise plans.
supply chain performance. These aspects are summarized below. 8. An unbiased baseline forecast to start the process: Since a
(More detail can be found in my article Sales and Operations baseline demand forecast forms the working draft from which
Planning, Part I: The Process from The Journal of Business S&OP participants develop final demand and supply plans, it
Forecasting [Fall 2004]): should be unbiased, unconstrained and incorporate all known
1. Ongoing routine S&OP meetings: A key aspect of an S&OP impacts to future demand.
process is that it is comprised of routine meetings. Three types 9. Joint supply and demand planning to ensure balance:
of meetings are often held. The first establishes an unconstrained Often demand plans are set in place before the S&OP meetings,

Dr. Larry Lapide is the project director for MITs Supply Chain 2020 Project, a multiyear research effort looking into the future of logistics and supply chain
management. He is a recognized leader in supply chain technology and a frequent presenter at supply chain events. Dr. Lapide has written numerous
publications including his co-authorship of a Council of Logistics Management book, E-Business: The Impact on Supply Chain and Logistics. He was
profiled in 2001 by Supply Chain Technology News magazine as one of four top thought leaders in the supply chain arena. He was most recently VP
and service director for supply chain strategies, VP of research operations for business applications and GM for benchmarking services at AMR Research.
He holds a BSEE from The Cooper Union, an M.S. in E.E. from MIT and a Ph.D. in operations research from the University of Pennsylvanias Wharton
School of Business. Dr. Lapide can be contacted at
Chapter 1: Vision 29

so meetings are focused on developing supply plans to meet Figure 1. They depict how the components need to be integrated
virtually inflexible demand plans. An S&OP process should among themselves, as well as with other transaction-oriented busi-
involve give and take between supply- and demand-side man- ness systems such as ERP, manufacturing execution and material
agers, with final demand and supply plans jointly developed. requirements planning systems. The components for each of the
10. Measurement of the process: The S&OP process itself need to three types of software applications are described below:
be measured. Metrics should cover more than the typical fore- 1. Demand-side planning systems: These systems support the
cast errors, and should include measures such as variance to development of demand plans and an unconstrained baseline
baseline forecasts and budgets and the adherence to prior sales, forecast that are used as demand-side inputs to the S&OP
marketing and operations plans. process. The role of a demand planner system is to support users
11. Supported by integrated supply-demand planning tech- in generating the baseline forecast and adjusting it based on
nology: Software applications to support S&OP should include market intelligence. A demand collaborator system is used to
an integrated set of demand- and supply-side planning systems, capture, assemble and process market intelligence gleaned from
as well as workbench software that can support S&OP meeting a variety of sources, such as from field sales and marketing
requirements. personnel, as well as from downstream customers that share
12. External inputs to the process: Most S&OP processes in place their demand signals and are involved in co-management inven-
today are largely driven by internal demand and supply data. tory programs. To facilitate information collection from remote
However, to the extent available, information from co-managed locations and external sources such as customers, a demand
inventory programs such as vendor and supplier managed inven- collaborator is usually Web-based so that information can be
tories, collaborative planning, forecasting and replenishment, transferred around the world.
and the sharing of downstream and upstream data can add 2. Supply-side planning systems: These systems support the
value and should be inputs into the S&OP process. development of supply plans that are used as the supply-side

An indicator of the interest in the S&OP process is the fact

that, according to AMR Research, companies have spent
around $12 billion in supply chain planning applica-

tion software over the last six years.
The Need for Technology inputs to the S&OP process. As such, they help to generate
First and foremost, one should recognize that software technology the inventory, production and procurement plans to meet uncon-
in and of itself is not very useful. Without technology, however, a strained baseline demand forecasts. Inventory management and
business process like S&OP is cumbersome and cant support the distributed requirements planning systems support users in
necessary scale to achieve its full benefits. Thus technology becomes generating expected inventory replenishment of finished goods
necessary, but not sufficient. Often, the S&OP process deals with a warehouses, such as customer-facing warehouses and centralized
large, complex set of needs that require a level of automation and warehouses. In constrained supply environments, multi-facility
computational sophistication that goes well beyond what can be advanced planning and scheduling systems are used to produce
achieved with manual processes merely supported by computer more accurate plans that account for limitations in plant and
spreadsheets. distribution capacity, as well as for any short supply of compo-
Consider the planning needs of a typical Global 1000 manufac- nents, materials and other production resources. Inventory opti-
turing company. Its S&OP process might need to develop weekly mizer systems support these types of systems by helping users set
plans 12 to 18 months out for thousands of stock-keeping units that inventory targets that optimally trade off customer service targets
are stocked and shipped from more than 10 distribution centers, against component, material, sub-assembly and finished goods
as well as plans for the component/material needs of more than inventories. Lastly, supply collaborator systems are used to capture,
10 plants. There could be over 10 million planning elements that assemble and process supply capabilities from a variety of sources,
need to be generated. Coupled with the fact that constraint-based such as purchasing personnel and upstream suppliers (including
planning might need to be done using computationally-intensive contract manufacturers). To facilitate information collection from
algorithms, it is often virtually impossible for the manufacturer to remote locations and external sources, a supply collaborator is
support the S&OP process with spreadsheet technology alone. usually Web-based so that information can be shared.
3. S&OP workbench: This system supports two types of informa-
The S&OP Technology Architecture tion. First, the workbench needs to generate dashboards that
The S&OP process needs to be supported by three types of software portray the planned supply versus unconstrained demand situa-
applications demand-side planning, supply-side planning and an tions. These include supply-side metrics like expected plant uti-
S&OP workbench. The components and the integrated supply- lizations, production capacity shortages and critical component
demand planning technology architecture for these are displayed in shortages/surpluses, as well as demand-side metrics such as >>>
30 ASCET > > > Enabling Sales and Operations Planning Through Technology

expected unfulfilled customer demand and customer order progress. The S&OP maturity model is comprised of four stages
backlogs. The dashboard functionality also allows S&OP partici- described below and depicted in Figure 2.
pants to quickly conduct what-if analyses of potential changes
to the supply and/or the demand plans. A second type informa- Stage 1: Marginal Process
tion that is needed during the S&OP process is how well the Companies that have an S&OP process in Stage 1 have some type of
process itself is performing. The workbench needs to generate planning processes going, but they tend to be less formal and spo-
scorecards of key performance indicators that reflect how well radic, and often display a chaotic nature. This type of process can be
the S&OP process has been working, to foster learning and viewed only marginally as a genuine S&OP process. Meetings take
improvements to the process over time. place on a sporadic basis and even if they are pre-scheduled they are
frequently not high priority.
As shown in Figure 1, the demand-side and supply-side planning sys- Also under this type of S&OP process there are disjointed plan-
tems need to be integrated and synchronized so that a change in ning processes taking place. Multiple demand plans are independ-
either the demand or the supply plans can be quickly reflected in the ently developed by the demand-side organizations for their own
overall supply-demand picture. The S&OP workbench also needs to operational planning purposes. There is little attempt to develop
be integrated and synchronized with these and other planning demand plans that are consensus-based or that incorporate inputs
components so that any changes made in plans during or between from other departments in the company. In addition, multiple sup-
S&OP meetings can be reflected in the workbenchs supply-demand ply plans might be independently developed by the supply-side
picture as well. organizations with little effort given to aligning them with each other
All these systems are needed to support the ideal S&OP process. or with the demand plans developed.
However, the mix of systems required depends upon current and Companies with a Stage 1 process need to begin to move to
evolving S&OP processes and these will vary greatly across com- Stage 2 by first installing a more formal process that everyone agrees
panies. It is the process changes that dictate the types of enabling to support and participate in, and one in which some attempt is
technology needed, since business processes dictate the enabling made to consolidate and harmonize the multitude of planning
technologies required for supply chain improvement. spreadsheets various departments may have.

An S&OP Maturity Model Stage 2: Rudimentary Process

The S&OP process at many companies is far short of the ideal. To Companies that have a Stage 2 S&OP process have formal planning
move closer, companies need to follow an evolutionary path. The processes going on, but they are not fully participated in or inte-
first step would be to assess the S&OP process as is. This as-is process grated. This type of process has some of the very basic or rudimen-
would then be compared to the ideal process. Last, a road map tary elements of an S&OP process. Meetings are scheduled and
would need to be developed identifying what gaps would be routinely held. However, attendance is spotty. Under this type of
addressed and when. S&OP process the planning processes are interfaced. Multiple
Maturity models are generally useful in going through process demand plans are developed by the demand-side organizations;
change. Often the last maturity stage is practically unachievable; however, they are shared.
hence, it becomes the ideal to which companies strive to achieve, as Since the demand and supply plans are separately developed
well as is the benchmark over time against which to compare each organization uses their own stand-alone enabling software
technology. Frequently, the demand-side organizations use a
Figure 1 The S&OP Technology Architecture demand planner system, the outputs of which are transmitted to the
systems being used by the supply-side organizations. Meanwhile the
S&OP Workbench
supply-side organizations use multifacility advanced planning and
software applications to develop supply plans that are predicated on
Scorecards the demand plans shared with them. The supply plans generated are
typically not transmitted to the demand-side systems.
Companies with a Stage 2 process can begin to move to Stage
Demand-Side Planning Supply-Side Planning 3 by first getting executive management buy-in and then having
Demand Planner Inventory Mgmt/DRP the executives ensure that S&OP meetings are taken seriously,
Demand Collaborator Multifacility APS and that people are well recognized for their participation. These
Inventory Optimizer companies should also begin to adjust both the demand and supply
Supply Collaborator plans during the S&OP meetings to move closer to consensus-based
integrated planning.

Stage 3: Classic Process

ERP Systems Legacy Systems Companies that have a Stage 3 S&OP process have formal planning
MRP Systems Other Transactional processes that follow many of the basic elements of the ideal
MES Systems Systems process. This type of process has all the by-the-book elements of
an S&OP process. Meetings are routinely held and fully attended.
Chapter 1: Vision 31

Figure 2 The S&OP Maturity Model

Stage 1 Stage 2 Stage 3 Stage 4
Marginal Process Rudimentary Process Classic Process Ideal Process

Informal meetings Formal meetings Formal meetings Event-driven meetings

Sporadically Routinely scheduled 100% attendance and Scheduled when someone

scheduled participation wants to consider a change
Spotty attendance or when a supply-demand
and participation imbalance is detected

Disjointed processes Interfaced processes Integrated processes Extended processes

Separate, disjointed Demand plans Demand and supply Demand and supply plans
demand plans reconciled plans jointly aligned aligned internally
and externally
Supply plans not Supply plans aligned External collaboration
aligned to to demand plans with limited number of External collaboration
demand plans suppliers and customers with most suppliers
and customers

Minimal technology Stand-alone Full set of

Applications integrated
enablement applications interfaced integrated technologies

Multitude of Stand-alone demand Demand planning An advanced

spreadsheets planning system packages and supply S&OP workbench
planning apps integrated
Stand-alone multi- External-facing
facility APS system External information collaborative software
manually brought into integrated to internal
Systems interfaced the process demand-supply
on a one-way basis planning systems

Under this type of S&OP process the planning processes are inte- An advanced S&OP workbench system would support global
grated so that demand and supply plans are aligned jointly by meetings. In Stage 4, processes are extended externally, so that col-
demand-side and supply-side organizations. Rough-cut demand plans laborative information is drawn from most customers and suppliers
are developed and brought into the S&OP meetings. In addition, sup- and enabled by demand collaborator and supply collaborator sys-
ply plans are aligned to demand plans. tems that are fully integrated to all the internal planning systems.
In more advanced Stage 3 processes collaborative information
drawn from a limited number of major customers about their future Using the Maturity Model
demand needs is manually brought into the S&OP process. Possibly The S&OP maturity model should be used as a diagnostic tool
collaborative information from a few critical-component suppliers to improve planning processes and technology assessment. Users
that highlight scarce materials might also be brought into the S&OP should use the model to diagnose what stage their companies are
meetings. In this stage the demand-side and supply-side systems currently in with the caveat that many will overestimate their
are integrated. current stage.
Companies with a Stage 3 S&OP process can begin to move to Comparing the current processes to the processes of the next
Stage 4 by increasing the frequency of S&OP meetings and contin- stage will identify the gaps that need to be closed over time.
uing to increase and enhance their collaborative relationships with Initiatives aimed at closing each gap should be analyzed on a
suppliers and customers. cost/benefit basis that accounts for the process and technology
changes needed. Based on the analyses, the company should then
Stage 4: Ideal Process develop a road map that specifies when each initiative would
A Stage 4 S&OP is a process that can never fully be achieved by any be undertaken.
company, but should be used as a benchmark for guiding the con-
tinual improvement of the process. S&OP meetings in this stage are
event-driven. They are scheduled on-demand only when someone
wants to change any of the existing plans or when a supply-demand In Elusive Integration: Linking Sales and
imbalance is detected. This implies that the process is supported by Operations Planning, M. Eric Johnson
systems that constantly keep track of supply and demand in real offers additional S&OP planning tools.
time. Meetings would be conducted on a virtual basis so no one has
to travel, thus enabling a global process.