In today’s fast-paced business world, companies often juggle daily tasks with long-term goals. This is where S&OP steps in to help bridge the gap between strategy and operations, fostering better decision-making and teamwork. However, many organizations face challenges like poor implementation or overly ambitious plans. In this article, we’ll explore how to avoid these pitfalls and maximize the efficiency of your S&OP process. This is mastering S&OP 101.
S&OP: A tactical planning process
S&OP is a tactical planning process. Unlike operational or strategic processes, S&OP connects a company’s strategic goals with its operational activities. S&OP occupies the middle ground, bridging the gap where a tactical process may be lacking. It spans a time horizon longer than operational planning but shorter than strategic planning.
Unlike creating a business plan and reviewing it annually, S&OP is an ongoing process that continuously steers the organization toward its goals. It focuses on aligning operational efforts with the strategic direction, ensuring that decisions are made at the right level. This provides clear guidance to those working on the operational front.
The 5 steps of S&OP
In S&OP, there are five steps. Step one is a necessary preparatory step, whereas step two and three are pivotal, as they ensure alignment between what the market demands and what the company can deliver. Step one to four are the repetitive steps followed in S&OP, typically on a month-to-month basis.
Step 1. Portfolio Management
Portfolio Management is an activity that provides input to the following four steps in S&OP by determining which products should be included in the assortment. What products should we introduce, and which should we discontinue? This process ensures a balanced product lineup that aligns with customer demand and company goals.
Step 2. Demand Review
In step two, the focus is on assessing and forecasting market needs on an aggregated level. How much do we anticipate selling, and which product families will be in demand, month by month? This requires consensus across the entire sales organization, focusing on what can be sold. At this stage, it’s not about production limitations but sales potential.
Step 3. Supply Review
Once demand is understood, it’s time to evaluate the company’s ability to meet that demand. Operations, procurement, and logistics teams come together to discuss capacity, inventory levels, and any constraints that may affect production. Can we meet the demand? Do we have the necessary equipment, workforce, and materials in place? This step assesses the feasibility of delivering on sales expectations.
Step 4. Preparing for the executive meeting
By step four, the groundwork has been laid, but challenges may still remain. At this stage, senior management gets involved to address and resolve any remaining issues. Representatives from both sales and operations collaborate to clear the final hurdles, ensuring alignment across departments.
Step 5. Decision Making
In step five, leadership reviews the consolidated data, and decisions are aligned with the company’s strategy, such as determining which markets will receive supply when demand exceeds available resources. This is where the plan is finalized. Key activities, actions, and even smaller investments are confirmed, solidifying the path forward.
Common pitfalls when implementing S&OP as a process
When companies fall into chaos, it is often this very chaos that drives change. In the hustle of daily operations – putting out fires, managing fluctuating inventory, and struggling to keep pace with rapid growth – it’s easy to lose sight of long-term goals. Service levels dip, operational inefficiencies pile up, and ambitious targets start to feel out of reach. Meanwhile, the company’s entrepreneurial spirit, where everyone rolls up their sleeves and works harder and harder, begins to look unsustainable.
At this point, it’s important to ask: Can we truly achieve our growth objectives if we keep operating this way? More often than not, the answer is no. The company reaches a point of organizational burnout, where the workload threatens the business’s future.
Rushing into making changes without a structured approach
All too often, companies rush into making changes, jumping straight into the hard work without a structured approach. Before attempting any improvements, it’s crucial to fully understand the existing system. Without this understanding, you’re not truly improving the system – you’re simply making changes.
Always start with the “why,” followed by the “what,” and lastly the “how.’ The “why” becomes the driving force for change, and this is where the pain points come into play.
The next step is to identify the core issues: Where is the real pain? What’s not working today – and maybe hasn’t worked for a long time? Often, it’s a lack of long-term tactical planning. Companies focus on short-term fixes, overlooking the chance to plan ahead and strengthen resilience.
The absence of well-established operational processes
Another pitfall is the absence of well-established operational processes, such as demand forecasting, inventory management, replenishment planning, and production planning. Without these processes functioning at a high level of quality, it becomes impossible to aggregate plans from the ground up effectively. As a result, decisions made at the executive S&OP level fail to translate into operational success.
Another challenge lies in the disconnect between sales and operations. These teams often function in isolation, tossing demands back and forth and blaming one another when issues arise. Establishing a shared vision for collaboration becomes essential. Company cultures, traditions, and especially divergent reward systems frequently pull departments in opposite directions.
On top of this, poor data control can render aggregated information either incomplete or so corrupted that it’s unusable. This issue spans from inaccurate or incomplete sales data to outdated BOM (Bill of Materials) and capacity data, severely impacting operational efficiency.
The method itself becomes more important than the results
In some cases, the method itself becomes more important than the results. When the focus shifts toward change for its own sake, you loose the original goal of improvement. This often results in friction and transitions that drain energy rather than drive progress.
There may also be resistance right from the outset. People remember past attempts that failed, fostering a mindset of “we’ve tried this before, and it didn’t work.” The organization carries the memory of previous initiatives that fell short, where they missed targets, and ultimately abandoned the effort due to poor outcomes.
How to successfully implement S&OP
You can implement an S&OP process without transforming the entire organization to embrace a process-oriented mindset. With the S&OP process as the base, you are able to describe and perform hands-on activities. Starting small, focusing on critical areas, and building on those successes can lead to meaningful progress without the pitfalls of overambition or resistance. It’s about introducing a new mindset and way of working that prioritizes a holistic view, communication, and continuous improvement.
First and foremost, you need to consider what you want to achieve. Has upper management decided that the company must become process-oriented because it’s the only way to survive? Or is the focus more on continuous small improvements and ongoing development? In the latter case, the chances of success are higher.
It’s also about perspective and method. There are many different methods, approaches, and philosophies, with S&OP being one of them. Companies already have processes, whether or not they formally recognize them. The problem arises because no one actively manages these processes when they go unacknowledged.”
When companies organize by function rather than process, each department focuses on optimizing its own work and results. There’s often little time to communicate. The holistic perspective is lost, and the various functions fail to synchronize. For example, a production department may focus on maximizing its efficiency without considering whether it creates bottlenecks in the supply chain or issues for the sales department. Ultimately, this type of sub-optimization can prevent the company from delivering products on time, in the right quantity, or with the quality that customers expect.
The value of using S&OP as a tactical planning process
S&OP provides a common language across the organization. By helping everyone understand how things work and how different departments interact, it ensures that employees know what to do, when to do it, and how to do it. This approach enables teams to move from reactive firefighting to proactive management.
Once you understand the system, teams can work toward better outcomes. Instead of relying on luck or guesswork when implementing changes, S&OP establishes a “baseline” that tracks progress, identifies areas for improvement, and supports necessary adjustments to drive continuous improvement.
At its core, S&OP fosters a holistic view of the business. It promotes collaboration and open communication, aligning efforts across the organization. By defining clear processes and uniting departments under a shared vision, S&OP ensures that everyone is working toward common goals, with streamlined information flow driving efficiency.
Establishing a clear structure is also key. By distinguishing immediate operational tasks from long-term strategies, teams can focus on the right priorities at the right time.
Moreover, this structure offers a strategic advantage. When customer demand shifts, the organization can adapt confidently, knowing it has processes in place to handle changes smoothly and without stress. Ultimately, it’s about driving sustainable growth while fostering a healthier organization.
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Don’t let common S&OP pitfalls hold you back. Reach out to our experts today and discover how we can help you implement a streamlined S&OP process tailored to your business needs. Let’s turn tactical planning into a competitive advantage.
