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Sales and Operations Planning is the New Name for ERP?[1] 

Chris Gray

 

Over the years, the term “sales and operations planning” has been used in a variety of ways: 

·         Some people use the term to describe the process of developing a forecast or sales plan, and improving the accuracy of that plan, that is, all the emphasis is on the sales plan and none on supply (operations) planning. 

·         Other people use it to mean a process whose primary focus is producing an aggregate supply or production plan – similar to the older term "production planning”.  (This is a kind of antique idea that doesn’t recognize the equal responsibility of both demand and supply oriented departments in the process.)   

·         Still others use it in an expanded sense to include the managing of both volume and mix, so that the processes of weekly item level forecasting, customer order management, and master scheduling are part of S&OP.  (This expands the term to encompass mix planning activities, all of which actually have names of their own.  One could project that this process will continue, expanding S&OP to include business planning/budgeting, financial planning, performance measurement and strategic planning, activities that have historically been linked to S&OP, while regarded as separate processes definitely not part of S&OP. 

·         Others would include all the tactical activities to manage demand and supply in the definition of S&OP if those tactical activities are triggered by the S&OP decision-making process.  (S&OP by this definition might include elements of sales management, customer management, marketing promotion and pricing, master scheduling, supply chain management, distribution planning, detailed material and capacity planning, supplier scheduling and other similar activities – inevitably encompassing all the major functions of ERP.) 

·         Some consultants have coined new terms to describe what has been commonly known as S&OP.  These include “Sales, Inventory, and Operations Planning (SIOP)”, “Executive S&OP”, “Enterprise S&OP”, and “Integrated Business Management”.  There are probably others, and doubtless more will be added to the list in the future. 

While we’re sympathetic to the intention of some of these consultants – trying to “unmuddy” the terminology waters – the unintended consequence of new terminology may be to add to the confusion over what S&OP is.  And at the same time we recognize others who have less pure intentions – using a name change or redefinition to sell more consulting and assessment services, books, videos, etc. 

The term “sales and operations planning – S&OP” describes a communication and decision-making process focusing on volume issues which is the principal responsibility of executive management.  The intent of sales and operations planning is to get supply and demand in balance in aggregate, to develop a sensible strategy for dealing with mismatches in what the marketplace wants and what the supply chain can deliver (again in volume terms), to link the business’ strategic planning and budgeting processes that are oriented towards the long term with the detailed and tactical day-to-day processes that handle mix issues, to ensure that both unit and financial plans are sensible and being met.  S&OP engages key people across the company, as well as up and down the organizational hierarchy.  Sales and operations planning is the key process needed to engage senior management so that they can see and influence the future results of the enterprise. 

S&OP is linked with many other demand and supply processes which are not in and of themselves part of S&OP.  Detailed forecasting and sales planning has never been considered as part of S&OP.  Master production scheduling has never been considered part of S&OP either.  Yet increasingly there are those who want to redefine S&OP to include master scheduling, detailed forecasting, and detailed sales planning.  Then having created confusion over what it really is, they redefine what we have historically regarded as S&OP as “Executive S&OP”. 

Trying to make S&OP synonymous with ERP or redefining S&OP to encompass all the mix and volume planning activities of a manufacturing enterprise, or trying to make a distinction between “Executive S&OP” and S&OP, simply creates more confusion about what S&OP really is.  It moves our field backward not forward. 

Of the thirteen best practice companies covered in Sales & Operations Planning Best Practices, our book on modern S&OP practices, none have adopted these new terms (in fact they generally use the standard terminology that has been around for years). This was the clinching argument for us.  

For us "sales and operations planning - S&OP" adequately describes the communication and decision-making process focusing on volume issues.  We continue to use the standard historical terms of sales forecasting, demand management, customer order management, master scheduling and capacity planning to reference the related detail-level tools for the managing of mix. 

 


[1] Material in this article excerpted and adapted from “Sales & Operations Planning Best Practices” by John Dougherty and Chris Gray, 2006, Trafford Publishing.