Sales and operations planning (S&OP) has been around since the 1980s. Developed by Richard Ling as a way to integrate business management process, S&OP has been the gold standard for business planning for nearly 30 years. The objective of S&OP is to allow company executives to achieve focus, alignment and synchronization among all functions of the organization. The S&OP process “includes an updated forecast that leads to a sales plan, production plan, inventory plan, customer lead time (backlog) plan, new product development plan, strategic initiative plan and resulting financial plan. Plan frequency and planning horizon depend on the specifics of the industry. Short product life cycles and high demand volatility require a tighter S&OP planning than steadily consumed products. Done well, the S&OP process also enables effective supply chain management.”[1] According to Hugh Williams (@HughOfHughenden), Managing Director of Hughenden Consulting, some companies are still struggling to do it well. “Here’s an uncomfortable question,” he writes. “After 30 years of talking about sales and operations planning (S&OP), can we truly say it’s working? S&OP is a terrific idea in principle. When it’s done right, it’s great in practice too. But the trouble is, it’s not often done right.”[2] He continues:
“Here’s how I know that. Recently, my company, together with the trade organization Eye for Transport (EFT), surveyed 131 supply chain executives, mostly from large manufacturers, to explore their S&OP experiences. At first, the evidence was reassuring: 85 percent of respondents claimed to be following S&OP with discipline ‘somewhat to completely.’ But answers to the follow-on questions weren’t so encouraging: Almost 40 percent said that they thought a monthly meeting was enough to qualify as S&OP, and a staggering 94 percent were making crucial supply chain decisions outside the process. Not good.”
I have another question: Is a 30-year-old process really adapted to today’s business landscape? After all, 30 years ago Apple’s Macintosh computer had just been released and IBM was just releasing its first PC work station. If so many people are making crucial supply chain decisions outside of the S&OP process, my first reaction is that the process may need updating. Amy Hill (@IE_AmyH), International Events Director at The Innovation Enterprise, observes, “There is a lot of confusion around Sales & Operations Planning (S&OP), which is ironic given its designs to integrate functions and simplify processes. This confusion exists primarily because of a habit that software companies and the business community have of changing the name every time it’s tweaked, to things like Sales, Inventory and Operations Planning (SIOP) and Integrated Business Planning (IBP). Their introductions have led many to claim the demise of S&OP. IBP and SIOP seem to amount to little more than next-gen S&OP, but are they? Or are they truly deserving of their own acronym, and is S&OP really being replaced?”[3]
I would argue that Integrated Business Planning is more than just a new name and acronym for S&OP. IBP is the digital age equivalent of S&OP but adapted to the emergence of the digital enterprise whereas S&OP was developed for industrial age organizations. Hill adds, “IBP is not really a replacement for S&OP, it incorporates and expands S&OP through increased scope, outlook and planning term. They both look to satisfy demand, but IBP is more active in that it helps companies optimize business results through considering more factors over a longer term.” The “increased scope” of Integrated Business Planning is really important. In the digital age there is no reason that important business decisions should be made outside of the planning process. New technologies that support Integrated Business Planning can help ensure they don’t. I’m specifically referring the maturation of cognitive computing, which can integrate, analyze and make sense of both structured and unstructured data. As it a result, it offers a single version of “the truth” that can be used across the digital enterprise for planning and decision making. Just as importantly, using cognitive process automation, cognitive computing systems can autonomously make routine decisions freeing up decision makers to concentrate on more strategic business decisions. Cognitive computing systems can also help with strategic decisions by providing actionable insights.
As we all know, name changes are hard to make, especially if they have been used for a long time. The term “supply chain” is a good example of that. Supply “chains” are no longer linear links that connect operations from resource to consumer. Today, supply chains are networks that have evolved with the times. S&OP is a term that has been used for three decades and is likely to continue to be widely used — even though Integrated Business Planning better describes how digital enterprises use data. Bob Ferrari (@bob_ferrari), an independent industry analyst, makes that point. He writes, “While the term integrated business planning is sometimes depicted as a specific technology or application, it is really about the need for enterprise functions of a firm to be aligned towards a single set of financial, line-of-business, product and operational outcomes. The S&OP process is often the most likely mechanism for consideration of enterprise-wide integrated business planning. We state that because it essentially supports a decision-making and alignment process that aids senior management and the enterprise as a whole to align customer product and demand management and component supply and operational needs with desired financial outcomes and strategic objectives (i.e., growth, sustainability).”[4] Ferrari goes on to note, “The requirement for enterprise level information integration augmented with deeper forms of prescriptive analytics is a different dimension of support capability, one requiring unique technology approaches.”
Marcel Mourits, Supply Chain Lead for AIMMS, is another analyst who feels compelled to use both terms (S&OP and IBP) in discussions about planning, even though many of the capabilities he discusses go beyond traditional S&OP activities.[5] For example, when he discusses the importance of optimization in today’s business environment he uses both terms.
“Optimization is a form of advanced analytics that helps you solve complex decision problems, enabling you to make the best use of your business’ limited resources. When applied to S&OP and IBP, modeling and optimization enable you to balance out scenarios and perform what-if analyses so you can analyze how these different scenarios will affect your inventory and/or cost. You can gradually enrich your planning process with financial figures, add basic analytics to it, and build your organization with scenario optimization embedded in the core business planning process. In an advanced form, such an approach can also generate the best case scenario for your business. You can evaluate your complete product portfolio, optimize cost, inventory, profit or revenue growth, and ensure a smooth transition from your IBP planning horizon to your short term supply chain and demand plan.”
Integrated Business Planning is the “advanced form” of planning that most companies need in the digital age. My guess is that IBP will eventually replace all references to S&OP because it better reflects all of planning capabilities that digital enterprises require. How long that will take is anybody’s guess; however, I suggest you substitute IBP any time you read about S&OP in the future.
Footnotes
[1] “Sales and operations planning,” Wikipedia.
[2] Hugh Williams, “S&OP Made Good: The Importance of Investing in People,” Supply Chain Management Review, 1 January 2016.
[3] Amy Hill, “Is S&OP Dying? Or is it just an issue of semantics?” The Innovation Enterprise, 11 November 2015.
[4] Bob Ferrari, “The Journey Toward Integrated Business Planning,” Supply Chain Matters, 27 January 2016.
[5] Marcel Mourits, “How to support your S&OP and IBP Process with Modeling and Optimization,” Supply Chain Blog, 12 November 2015.
