Sales and operations planning (S&OP): the monthly cycle, step by step
Sales and operations planning (S&OP) is a monthly process where sales, operations and finance agree one plan that balances demand, supply and inventory. It works on product families, over a horizon long enough to plan people, machines and material. This guide covers the monthly steps, who attends, what a smaller plant or distributor needs, SIOP and IBP, and where AI helps.
What S&OP decides
The ASCM Supply Chain Dictionary describes S&OP as a mid- to long-term planning practice. It compares the demand plan with inventory levels and production capacity, and finds where they fall out of balance.
The process brings the sales, marketing, development, manufacturing, sourcing and financial plans into one high-level plan. ASCM adds that it runs at least once a month and that management reviews it by product family.
A product family, in ASCM’s terms, is a group of products that share processing steps and equipment. All wall-mount enclosures in one size range could form one family. Each month, the meeting settles questions like these. Do we add a shift, build stock ahead of a peak or buy material early? Can we accept a large order at a short lead time?
An S&OP plan for one product family
The plan is a small grid for each family. This example covers wall-mount steel enclosures. The plant can make 1,300 units a month, holds 600 at the end of October and keeps 500 as safety stock.
| Units | Nov | Dec | Jan | Feb | Mar | Apr |
|---|---|---|---|---|---|---|
| Sales plan | 1,100 | 900 | 1,200 | 1,400 | 1,600 | 1,500 |
| Production plan | 1,200 | 1,200 | 1,300 | 1,300 | 1,300 | 1,300 |
| Inventory at month end | 700 | 1,000 | 1,100 | 1,000 | 700 | 500 |
The sales plan runs above capacity from February to April. Production above the sales plan from November to January builds 500 units of stock for the peak. Inventory then ends April at its 500-unit safety stock.
If production only matched the sales plan, up to capacity, inventory would fall from 600 units to zero by the end of April. Any order above the plan would then become a backorder.
The monthly S&OP cycle
The monthly cycle has five steps, and each one feeds the next. An APICS introduction to S&OP lays them out as forecast reports, demand planning, supply planning, a pre-S&OP meeting and the executive S&OP meeting.
Oracle’s S&OP software names its stages product, demand, supply, financial and executive reviews. ASCM’s definition of demand planning describes the heart of the second step: statistical forecasting combined with judgment from sales, marketing and others.
Who attends
Each step has its own small group. The APICS introduction assigns these roles, and Oracle’s software gives each review its own participants.
| Meeting | Who attends | What they bring or decide |
|---|---|---|
| Demand review | The sales lead, the customer service lead and the person who keeps the forecast | Order history, customer news, price changes and new products |
| Supply review | The plant or operations manager, purchasing and the inventory planner | Capacity by line or shift, supplier lead times and inventory against target |
| Pre-S&OP meeting | A planner from each side, with finance | The gaps, the options with their cost, and recommendations |
| Executive S&OP meeting | The owner or general manager, with the sales, operations and finance leads | The plan, spending, and any trade-off the teams could not settle |
In a smaller company, the same few people sit in most of these meetings. One of them owns the process. The APICS introduction calls this person the S&OP process owner, who leads the monthly cycle and guides the teams toward consensus. Oracle notes that a demand planner might take part in the product, demand and supply reviews but not the financial or executive ones.
What a smaller manufacturer or distributor needs
You can start S&OP with the data in your ERP and a spreadsheet. These are the inputs.
- Product families. Make a short list of groups that share equipment or suppliers, and keep it stable.
- One unit for each family. Pick units, cases, tonnes or dollars, whichever the plant and sales both understand. The APICS introduction lists dollars, tons, cases and pallets among the choices.
- Order history by family. Use customer orders by month, over enough months to show the seasons. Shipments alone hide demand that stock could not meet.
- Capacity and lead times. Know the units or hours a month for each line or work centre, and the supplier lead times for the main materials. For a distributor, supplier lead times and order minimums take the place of machine capacity.
- Inventory targets. Set a target for each family, in units or in days of supply. Days inventory outstanding explains the days measure.
- A fixed calendar. Hold each of the five steps on the same dates every month.
- A decision log. Record what was decided, by whom and why. Oracle’s S&OP software keeps notes on each plan for this purpose.
The plan looks far enough ahead to plan people, machines and material, and to support the annual budget. ASCM sets that test, and the APICS introduction shows an 18-month horizon.
What SIOP means, and how it differs from S&OP and IBP
SIOP stands for sales, inventory and operations planning. The University of Minnesota’s Carlson School of Management teaches it under that name, as a process that links strategic goals with production.
The name puts inventory in the title. ASCM’s S&OP definition already compares the demand plan with inventory levels, so the two names describe the same monthly work. SIOP is also the acronym of the Society for Industrial and Organizational Psychology, which is why a search for SIOP alone returns psychology results.
Integrated business planning (IBP) goes further. ASCM describes it as a process that integrates strategic, operational and financial planning, built on an established S&OP process. It can add scenario planning and supply chain risk management.
| Name | Stands for | Scope |
|---|---|---|
| S&OP | Sales and operations planning | A monthly plan that balances demand, supply and inventory by product family |
| SIOP | Sales, inventory and operations planning | The same monthly cycle, with inventory named in the title |
| IBP | Integrated business planning | S&OP plus strategic and financial planning, and it may add scenarios |
A smaller manufacturer or distributor starts with S&OP or SIOP. ASCM describes IBP as building on an established S&OP process, so the monthly cycle comes first.
Where AI helps, and where a person decides
AI fits two parts of the cycle: pulling the data and drafting the forecast.
- The data pull. Each month, AI can pull actual sales, production, inventory and open orders from the ERP and fill the grid for every family. It flags months where the plan exceeds capacity or inventory falls under target.
- The forecast. A statistical forecast by item and family, from your own order history, is the first draft of the demand plan. AI demand forecasting covers the methods and how to test their accuracy.
- The meeting pack. AI can draft the options for the pre-S&OP meeting, with the cost of each, from the grid and your cost data.
A person decides everything that follows. ASCM defines demand planning as statistical forecasting combined with judgment, and that judgment stays with sales. Capacity, spending and the final plan stay with the executive meeting.
Microsoft builds that review into its own tools. Demand forecasting in Dynamics 365 Supply Chain Management generates a statistical baseline forecast from historical data. A planner adjusts it and authorizes it for use in planning. Inventory optimization then turns the agreed plan into safety stock and reorder points for each item.