Frequently Asked Questions About Sales and Operations Planning

S&OP General
S&OP Roles and Responsibilities
Forecasting and Demand Planning
S&OP Application in Different Environments
S&OP and Lean Manufacturing
Implementing S&OP

S&OP - General

G1. What is the composition of the customer service metric?

In an environment with many items and many orders, it can be calculated two ways:  First a “line item fill rate” would be the percentage of individual line-items that were shipped complete, and on time within the month, for all items, all orders, etc..  Depending on the industry, some small tolerance may be set in both quantity and days, as long as that matches the expectation of the customers. 

Second, an “order fill rate" would measure the number of customer orders shipped complete, for every line item, within a reasonable date and quantity tolerance.  This second one is a much tougher measurement, since if even one line item was on back order, it could affect many individual customer orders and cause them to be counted as incomplete, late orders.

In environments with relatively few items and few customer orders, typically only the order fill rate is used.


G2. How does S&OP drive innovation?

In several ways.  By monitoring KPI’s, and identifying where targets are not being met, thus triggering management attention to spur innovation to improve performance.  Also, by maintaining an up-to-date rolling plan for the year, and comparing this to financial plans and budgets, shortfalls or problems are identified which can then be addressed.  Finally, for whatever plans are not met, a root cause analysis should be undertaken and discussed in S&OP meetings, which also can lead to management applying its creativity to solve these problems.


G3. What are the key learnings to shape S&OP to specifically drive inventory reduction?

The key learning is that S&OP is the best way to coordinate a company-wide inventory reduction program.  Rather than having individuals make tactical adjustments such as lot size reductions, safety stock reductions, frequency of manufacture, etc., S&OP can monitor the net effect of all activities and ensure that all the functions know what's going on.

In this way, cross-functional input can help identify where inventory can be cut with no impact on customer service, and where lower inventories will present the greatest risk of customer service or cost problems. 

S&OP does not provide any new or different ways to cut inventory, just a process to coordinate the use of each different way.


G4. Is there more to Customer Service Performance than just "on time delivery"?

There is a lot more to "Customer Service" than just "on-time delivery". But generally, when we talk about customer service performance regarding S&OP or KPI 's, the implication is that it is "On-Time-Delivery", because that is what we are able to easily measure. Most companies measure other aspects of customer service, either based on customer surveys, or the subjective feedback coming to and from sales and/or customer service personnel.

Some companies routinely track other measurements such as shipping errors, customer returns, customer complaints, etc. where they have the ability of capturing those numbers, which is an excellent thing to do as part of the S&OP process. It is always more effective if you can find a way to quantify different aspects of how your customer perceives how well you are servicing them.


G5. How do you measure customer service on time delivery?

In the perfect world, it be best to compare when the product was actually received by the customer versus when they wanted it. Though we're getting close, most companies don't currently have the systems to actually capture when the customer receives a product, so they measure it instead, based on when they shipped it. It is particularly critical to measure this delivery, both against the customer's original request date, and against the supplier's latest acknowledgement or confirm date. The first show you how well you're meeting the demands of the marketplace, even if they may be a bit aggressive or unrealistic. The second tells you how well you're in control of your own planning processes and able to give the customers good information, and then deliver to it.


G6. Would like to hear more about how to aggregate and disaggregate supply plan to detail master schedule and inventory plan in a pull system environment. 

It’s really no different in a pull environment or one where Kanbans are not used.  In any pull environment, the detailed master schedules or supply plans need to be periodically compared to the actual pulls, so that the master schedule can be adjusted to the anticipated future pull rate based on the forecast and the actual usage.

In any environment, if you develop a detailed master schedule at an item, product or option level, it needs to be summed up by product family classification, which either becomes your new S&OP family supply plan, or is compared to the pre-existing supply plan with one or both being adjusted so that they are either equal or close enough to each other based on your declared tolerances.

If a separate, family level, S&OP supply plan is developed, it can be disaggregated into a new master schedule, but not by any fixed percent, or historical proportion.  Typically, current finished goods, semi-finished, components, and raw material inventories, individual customer order backlogs and forecasts, manufacturing lot sizes or sequencing rules, etc., need to be considered in developing the detailed master schedule that will reconcile back to the aggregate family plan.  Dealing with these issues is part of the art of detailed master scheduling.


G7. Each month what is the time span of the S&OP process, does it start on day one and end on day 31 or should it be completed (all stages) in week 1of the month?

Most companies start the S&OP process on day one of the month gathering and reviewing data to support demand and supply planning. Generally developing and reconciling the new demand and supply plans, and reviewing them in partnership meetings, and then finally approving them in executive meetings takes two to three weeks within the month to complete. 

Some companies with many captive or intra-company customers can actually start the process before the end of the prior month, using customer orders, and committed customer delivery schedules. Coca-Cola Midi (a division producing concentrates and beverage bases for Europe and Africa) is able to do this, which then allows them to complete the entire S&OP process by the end of the first week of the new month. Its story is described in greater detail in chapter 16 of my book, Sales & Operations Planning - Best Practices.


G8. What is the difference between rough-cut capacity planning and master scheduling?

Master scheduling is the process of maintaining anticipated build schedules that define the mix and timing of all supply plans at the item level. It produces a series of quantity, due date combinations for each item in the future. Rough-cut capacity planning calculates and analyzes the critical resources required to support the master schedule, and/or the family supply plan in S&OP.  


G9. Do you include process engineering resources in the capacity planning process?  

If the requirements for process engineering resources are greatly affected by the S&OP supply plans, and/or if those plans need to be set in light of process engineering resources, then they should be reviewed in capacity planning.


G10. In order to hit Business Plan dollar objectives, should the sales unit forecast be higher than the Business Plan unit forecast to  trigger bigger supply plans to accommodate mix inaccuracies in the forecast?

 It's important and useful to keep your objectives, plans and tactics separate and clear so each can be tracked and adjusted as needed.

 This would include:

 Business or financial plans: these are typically the targets or objectives of the business that are set annually and usually held  constant as you work during the year to manage the actual demands and supplies to meet your objective. (see Chapter 11 of our S&OP Best  Practices book for a detailed description of how S&OP helps monitor and meet these objectives).

Sales plans and detailed forecasts: the latest "best estimate" of  what your Sales and marketing people feel the customers will be  actually buying. Each month in the S&OP process these new #'s are  compared to the financial targets, so that appropriate tactical adjustments can be made get back on plan, at least in total $$. These numbers should be used to set and possibly adjust master schedules and purchasing plans to the latest demands. These numbers are also the ones used to measure forecast accuracy, which can help focus management attention on the biggest variations, and be used by supply planning personnel to develop hedge plans to optimize customer service and sales revenues.

Supply plans and detailed master schedules: the latest set of supply plans, based on the latest sales forecasts and accuracy  measurements, that also reflect the capacity and material constraints of manufacturing and the suppliers. It is here where the hedge planning should be applied to accommodate actual sales mix variations, on the items that need it. This can be done in several ways: Set safety stock levels on the items subject to the greatest variation to hold larger inventories; set safety time factors to trigger earlier purchase deliveries or manufacturing schedules to build hedge inventories; or  selectively over plan by scheduling one or two deliveries or batches for a quantity greater than the forecast to build a hedge into the inventory pipeline (overplanning is done not across the entire  planning horizon, but just around the item's replenishment lead time, and then the hedge amount can either be increased, decreased, moved in or moved out as the actual sales patterns become clearer). 

Any of these techniques can be used at the finished, component or raw material level depending on where the final packaging, finishing or assembly is performed.

 By keeping the hedge planning at the master schedule or material planning level, it can be clearly and constantly monitored by the master scheduler in the supply planning process which constantly compares actual demands and forecasts to current inventories and schedules.

 Obviously the implementation of these techniques is no small task, and must be carefully and deliberately implemented. It's also important to insure that management and planning personnel are properly educated and trained in the use of these approaches.


S&OP Roles and Responsibilities

RR1. Who typically "owns" the S&OP process?

Ideally it should be the CEO.  Even if the CEO does not attend an executive S&OP meeting, as sometimes occurs in very large companies, the CEO should be supportive and insistent that the process be maintained and executed well, since it can have such a dramatic effect on achieving business objectives.  But some companies appoint an “owner”, who isn't a senior executive, but rather a management level person whose job it is to ensure that the process is followed, does not degrade, and ideally is constantly improving.  This person could be from any function, but often comes from manufacturing planning or marketing, since those functions play the largest role and have the greatest stake in a good S&OP process.


RR2. How do you change behaviors in support of S&OP?

By a clearly communicated top management support and insistence on the specific behaviors that are defined as needing change.  These should be supported by conceptual education and process training, with occasional refreshers.  It should be monitored by setting specific, quantifiable, where possible, targets or goals, and then monitoring them with KPI’s that are reviewed in the S&OP process.  What's key is that people see the potential personal and organizational gain from these changed behaviors.  But what is often also necessary, and sometimes equally effective, is a clear understanding of the “pain” that will occur if the behaviors don’t change.  That pain could be continued business problems, missed targets, etc. or it could be continued negative attention from management because the behaviors have not changed.

RR3. Are there cross-functional teams with joint/shared metrics like forecast accuracy, inventory turns, etc.?

By its very nature, the S&OP process brings cross-functional teams together to jointly review metrics.  However most companies assign primary responsibility to a single function, for each metric.  It's important to understand that multiple functions can have an effect on each metric.  For example, late launch of new products or production shortfalls could inhibit sales and cause forecast inaccuracy.  The two metrics that have the most equal cross-functional responsibility are customer service and inventory, since both of them can be equally affected by the supply side, the demand side, and sometimes product development.


RR4. Who facilitates the S&OP meetings?  How is ownership shared?

Usually there should be a single appointed facilitator for both the Partnership and Executive meetings.  This person is typically a "champion" of the S&OP process, and often may play a role in monitoring and facilitating the collection and updating of data for the process.  Often this is a supply-chain management, materials management or planning person.  Occasionally it can be a manufacturing or marketing person.  Sometimes the same person does it for both meetings, ensuring continuity.  In rare cases, this is a floating responsibility shared by different people in the meeting either monthly or on some less frequent rotation.   

Ownership needs to be shared for the process by ensuring that each function has clearly defined, documented and accepted responsibilities.  This would include specific KPI 's, specific plans or data within the meeting (for instance, sales and marketing owning the forecast, manufacturing the production plan, etc.) and any specific assigned action items coming out of the process.  Then management from the CEO, down to the VP's, etc. must hold the specific people responsible for performance, and explanation of shortfalls and root cause problems.    

This emphasizes the ownership.  Management must also insist upon consensus based decisions,  holding the key functions responsible for reaching mutually acceptable alternative approaches to problems.  As for many things, it comes down to management holding people's feet to the fire.


RR5. Would you please comment on how (in your past experiences considered) you have ensured companies have the correct participation and active participation of all groups (Marketing, Sales, Field Support, etc) required for a successful S&OP program.

Use the carrot and the stick approach. 

The carrot is explaining to sales people how an effective S&OP process will result in higher customer service, and the possible resultant increase in sales and profitability.  In an environment where there are a lot of late shipments, it can also save sales a lot of time having to communicate new promises and explain missed deliveries to the customer.  A streamlined demand planning or forecasting approach should be developed that minimizes the administrative effort required of sales, while still gathering their vital market and customer information to help form the most accurate forecast possible.  Once this is done, the time that sales spends during the monthly cycle, should be minutes or at most a few hours for a couple of key individuals,  which may be more than offset by the time wasted in responding to missed sales opportunities, delayed answers to customer questions, and late deliveries.

The stick is senior management.  They must be convinced of the benefits of S&OP, which can support the achievement of business, financial, customer and cost objectives.  Once convinced, they must understand that S&OP can be effective only with the proper participation of sales and marketing, providing the proper input to establish the most accurate sales plans and the execution thereof.  Then senior management, including the top executives in both sales and marketing, must insist upon, monitor and ensure the proper monthly inputs and participation of the designated representatives of sales and marketing in the S&OP process.


RR6. For a company which has multiple DCs, can the S&OP process be conducted (lead by) one of the DCs? Or should be conducted by the plant?

Typically an S&OP process is focusing top-down, on families of products which are sold across multiple geographic regions and possibly stocked in multiple warehouses or distribution centers. Further each product could be manufactured in a single location or across multiple locations in very large, high-volume businesses. 

What's critical is that the process looks at all regional demands, all geographic inventories, and all supply sources, so it should encompass the participation of people from each of these areas. Different individuals may lead different parts of the S&OP process such as demand planning, supply planning and partnership meetings. 

In very large, complex organizations, it's possible that there may be regional portions of the process that could be led by people from a specific DC or plant. And indeed any of these people could lead the entire global process, as long as their viewpoint and scope of responsibility encompassed all sources of demand and supply. We most often see people from supply chain management or planning functions oversee the entire process, but occasionally people from marketing or finance may play that role in an individual company.

Forecasting and Demand Planning

DP1. What focus on forecast accuracy is typical in an S&OP process?  

Many people start an S&OP process or attempt to improve it with the specific goal of improving forecast accuracy.  So in almost every case, this is reviewed throughout  the S&OP process.  But it's critical that a reasonable expectation of forecast accuracy exists.  It'll never be 100 percent, and rarely can it be held even in the high 90% 's.  Also needed is an understanding that it may drift based on factors outside the control of the organization, such as customer, market place, competitive, economic, regulatory, etc. issues.  What's important is that sales performance and trends are monitored once a month and the forecast adjusted based on the latest best information, to minimize forecast errors in the future.

DP2. What level of forecast accuracy is considered best practice or world class?

This question is literally impossible to answer.  First, because so much of forecast accuracy is outside the company's control, as described in the answer to the previous question.  Forecast accuracy is measuring how well the sales and marketing people are tracking and anticipating the performance in the marketplace, and sometimes this can be very good, while in other cases, unexpected events can blindside anyone.  It is also affected by the number of products and the type of deliveries offered by a given company.  If they have quite a few low volume items, statistics tells us that the smaller the number, the harder it will be to forecast accurately, and the greater the percentage error.  In our opinion.  "Best Practice" for any company is to be constantly measuring forecast accuracy, setting goals for improving it, and continuing to do that month after month, year after year.


DP3. Our product managers are focused on their committed forecast to Corporate.  How do we get them interested in a more granular level?  We (in planning) often know more about forecasts than they do.

I'm presuming that the "committed" forecast you refer to is the financial target for the year, which they're not allowed to change within the year except in unusual circumstances.  One of S&OP's key strengths is to allow a more realistic recognition of shifting demand patterns during the year.  This will help keep production and inventory better tuned to what's actually selling, thereby keeping customers happy and financial numbers healthy.  But equally important, it would give the product managers the opportunity of tracking how well they're doing against these "committed" numbers and help them identify when they need to take action to get back on track or to make up shortfalls from other products or product lines.  The idea is to convince them that the S&OP process will benefit them by helping them hit their numbers more easily and profitably, and keep their customers happy.


DP4. We have a big disconnect between the monthly family S&OP forecast  and the demand management forecast that is sent to the plants. What's the best way to make them meet?

Before we can answer this, we need to know at what level these forecasts are developed, and what inputs and methods are used to develop them.  Do you measure accuracy against both of them?  Is one better than the other?  Is sometimes one better, then at other times, the other one is better?  Do you know why?

Or is the issue simply that the S&OP forecast is by family and the other by SKU?  If that's the case, if one is better than the other, then it should be the driver.  If the SKU one is more accurate, than just sum the total for the SKU’s in each family and use that for S&OP, as long as the responsible sales and marketing people understand and are committed to that. 

If the aggregate, family forecast is more accurate, and there are many SKU’s, then you'll have to develop a tool to “disaggregate"  this family forecast down to units, using either the historical mix factors of the items within the family or projected future mixes based on sales and marketing input.  Some forecasting or APS software packages provide this functionality; it's often called "pyramid" forecasting.  But beware, the fancier the software package, the harder it is to use, and the more features and functions you have to learn  "Not" to use.

If it's just a matter of spreading one large number down to many small ones, you probably could do this yourself with a simple spreadsheet tool.

But what's most critical is that the two numbers are reconciled.  Otherwise, the detailed functions are making decisions based on one set of numbers, and management making them on another, which sooner or later will cause problems and missed targets and objectives.


DP5. Does  S&OP review both SKU and brand level forecasts?  

Typically, S&OP should be looking at family or aggregate totals.  It's presumed that demand management, and sales and marketing people are managing the SKU and brand level forecasts as part of their detailed forecasting job, and the results of this are then rolled up or reconciled to the S&OP number, as discussed in the previous question.

However, if an SKU or brand forecast played a significant part in the total, it could be discussed either by exception in an S&OP meeting, or perhaps routinely in a forecast meeting or partnership meeting prior to the executive meeting.  Some companies have a few  SKU’s  that represent a significant percentage of their total sales in a family, so they routinely review those SKU’s in each meeting.

Other companies hold very extensive demand review meetings prior to their S&OP meetings, where they spend hours reviewing brand level forecasts with key customers, since they may sell huge amounts through a few large customers, such as mass merchandisers. 


DP6. Do most of the companies you deal with incorporate a forecasting tool as well as raw sales input into their consensus decisions?

Probably the majority of the companies we’re aware of use some sort of statistical forecasting tool.  But virtually all of them will use management input to override at least some portion of the statistically generated numbers.

In some cases, when past demand is a very poor indicator of future demand, companies just develop the forecast numbers on their own, using the forecast package merely as a place to hold the number that they input.  An example of this would be manufacturers of large, expensive capital equipment, where economic factors, marketplace trends, and the number of customer inquiries and bids, are the best indicators of future demand.  

DP7. Should the sales forecast be changed in the current month for the S&OP process?  

Identifying and communicating changes in demand is almost always a useful thing to do.  These demands may be harder to support in the current month, but the sooner the people in the supply side know about them, the more likely they can handle them or at least identify how much they can indeed handle.  This could also lead to identifying when you need to prioritize the demand from different marketplaces, customers or products, if a forecast increase cannot be completely supported.

If it is a decrease in forecast,  knowing about it as soon as possible can only help to avoid committing resources to production that may not be needed in the immediate future.

But much of this may not affect the S&OP process directly.  This may be handled as a demand shift within the monthly cycle, just like unexpected customer orders would be handled through master scheduling, and customer order management processes.  However, any shifts in demand and changes in forecast and production plans, should be documented and reviewed in the next S&OP cycle as part of the review of past performance.


DP8. How do you define "forecast" vs. "plan"?

A forecast is another name for demand plan.  However, sometimes the word “plan” might refer to requirements that are directly shared with you by major customers, which can be used in lieu of an internally generated forecast for that segment of the total demand picture.  But caution is advised here, since some customers may not have totally reliable planning processes.  You should measure their plan accuracy, just like you would measure forecast accuracy, and where their plan proves not to be accurate enough, overriding their plan based on your own judgment and experience may prove to be useful.


DP9. How can you gain the improvements of lean/S&OP planning without a fairly good forecasting input to the planning phase?

The better the the forecast, the better everything works.  The worse the forecast, the more variability, and required flexibility, along with frequent fine-tuning and changing of sales and supply rates that will be required.

S&OP by its very nature is a superior monitoring and management device that provides a monthly review of forecast accuracy, along with a discussion of the root causes and actions that should be taken to improve the planning accuracy in the future.

In addition, supply plans, inventory hedges, and flexible adjustment of resources to support changes in plans should be reviewed and adjusted whenever necessary as part of the monthly S&OP cycle of monitoring performance, and rebalancing demand and supply plans.


DP10. What lag should you use when you measure your forecast error if you are also implementing lean?

The only effect implementing lean may have on how you measure forecast error, is that the cumulative supply chain lead times may be shorter.  Some companies like to measure forecast accuracy based on the cumulative supply chain lead time to monitor how much additional flexibility or inefficiency may result by changing plans inside of lead time to support changing forecasts.  For instance, they might measure the accuracy of the forecast developed 90 days in advance of the actual sales. 

There are many varying opinions on this approach.  Ours is that this measurement is of limited value.  Regardless of the supply-chain lead times, the demand plans or forecasts should be updated whenever updated information is available to lead to more accurate numbers.  Sales and marketing should endeavor to forecast as accurately as they can over the entire planning horizon, but they should also adjust the short-term numbers where they can, since knowing about what customers will order at least somewhat in advance, can lead to better handling of these demands.  This is not to imply that every short-term shift in demand can be handled with an equivalent change in supply plan, but it does imply that companies always are better off knowing about such an impending shift as soon as possible, to see what can be done to support customer demand.

In any environment, lean or not, we recommend measuring forecast accuracy by comparing the forecast at the beginning of a monthly, the actual sales occur during that period.  This measurement gives some indication of how well sales and marketing are making final adjustments to the demand plan.  In addition, we also encourage the use of waterfall charts, to monitor how these forecasts or demand plans are changed over time out into the future.  These will provide an indication of situations where forecast changes may be chasing actual sales up and down over time.  In some cases they may be better off left alone until several periods of sales prove out that a new sales rate is occurring.


DP11. Please clarify "Review by exception" in the Demand Planning process

This refers to reviewing forecast items selectively, rather than analyzing every forecast item equally. The goal should be to review those items whose variance is greatest relative to the expected variance. Tracking signals can be calculated by forecasting software, or tolerance factors can be set which vary by item, indicating that some items have more expected variation than others. Ideally, the software package would then identify month by month which items' actual sales vary the most compared to their tracking signal or tolerance factor. Another way of reviewing by exception is to specify the items which are most sensitive to demand variation from a supply side viewpoint, for instance, items that are subject to the longest material lead times, or limited by scarce manufacturing or supplier capacity. Forecast variance on these items would be most difficult to react to, therefore they should be monitored more closely.

Regardless of the size of company, typically the most difficult part of implementing S&OP is gaining and maintaining active participation by the sales and marketing folks. Often they see forecasting and planning as the job of operational, planning or manufacturing people. They would rather spend their time working with customers and marketplaces external from the company. Therefore it is vital to get their attention and show them how an effective S&OP process can benefit them and the customer. In addition, inevitably, a strong, urgent and continuing support from senior management is usually necessary to win and sustain sales and marketing participation.


DP12. Are there any demand forecast packages that you would recommend?

There are at least a dozen different credible demand forecast packages available. They vary in functions, complexity and cost. And certainly an individual company's needs may also vary. 

I'd suggest you go to my partner Chris Gray's web site at and click on "software directories" to find a list of packages that may be worth reviewing. 


S&OP Application in Different Environments

DE1. Do companies that are successful with S&OP typically have centralized or decentralized operational management?

There are examples of both.  Some are highly centralized, with a single VP in charge of each function, reporting to a single CEO.  This is often the model in a smaller company.  Others have general managers or product teams responsible for the entire performance of a given product line, and only the very large, capital-intensive decisions go to the CEO.  In some cases, manufacturing is more centralized or decentralized, than sales or marketing, or product development; in other cases, it’s sales or marketing that's more decentralized.

DE2. How does S&OP apply to supply chain networks that are stable vs. ones growing by acquisition?

Whatever network of suppliers exists, if it's changing, growing by acquisition or any other means, that could mean it's even trickier to balance supply and demand until stability is reached.  S&OP is the best management handle for doing this, providing management the ability of monitoring how changes are progressing, and then slowing down or speeding up the supply chain changes plans based on that. 


DE3. Could you comment on the need for Sales and Operational Planning in an environment that is primarily a tier 1 supplier to the automotive market?

Here demand or mix be changed by any sales or promotional activity.

The nature of the business lends itself to be reasonably predicable as auto production is stable except for occasional periods of down weeks for inventory adjustment.  It is operated with about 11 days of total inventory.

In this kind of environment, demand accuracy and variation should hopefully be minimized.  However, we think S&OP still has a role to play.  First, it can act as a monitoring device to see indeed, how accurate the demand plans coming from your customers really are.  And the emphasis should not just be on the last month, but on how well out into the future they are predicting changes or shifts in volumes, since you obviously would need lead time to adjust your production rates.

In addition, you may have the luxury of focusing more on the supply side, and how to further reduce inventories, costs, and take advantage of opportunities into the future.  There should be an equal emphasis on monitoring supply reliability and identifying opportunities to reduce inventories and costs.

And as always, S&OP provides the future visibility to begin planning for new products, new contracts, or major shifts in demand, with enough lead time to efficiently and effectively plan for reliably supporting these demands.


DE4. In a smaller organization (30-40 employees), can you combine some of the S&OP steps (i.e 2 meetings)?  

Yes, Best Practice experience suggests that in smaller companies, there may be only one meeting to cover the activities typically done in both a Partnership and Executive meeting.  This is often because the people that would attend both meetings are virtually the same in a small company, and because in smaller companies, senior management often is very hands-on and handles the level of detail typically covered in a Partnership meeting, as well as participates in those detailed decisions.  

DE5. Our global S&OP process is more like a consolidation. Each zone makes decisions in terms of sales, production and stock in normal situation.  Unless, there is problem in which the zone cannot resolve by themselves, then they will ask for an executive S&OP decision. Is it a normal role of global S&OP?

Yes, this is typical. In such cases, by exception, the global group may actually look at a regional family when necessary.


DE6. In the companies you have dealt with do you find that most have a centralized Materials Management function vs. decentralized through a multi plant environment?  

It varies quite a bit regarding centralization vs decentralization. In companies where the capabilities and resource allocations between the locations overlap or interconnect quite a bit, and where making maximum use of all the resources is critical, there is often a centralized materials function (see Eli Lilly as an example from our S&OP -- Best Practices book).

In companies where total capacity utilization isn't as critical, and where different locations are very devoted to certain product lines exclusively or serve certain regional or vertical markets exclusively, it is often decentralized with each location managed by being held to meet certain performance objectives such as on time delivery, inventory turns, cost, etc. Sometimes a small central group works on fostering common, best practice processes, without any specific line or product authority. (see Unicorn Medical and Coca-Cola as examples from our book).

Perhaps what is most frequent, is to see companies to switch back and forth between these approaches over the years, often when there are either performance shortfalls, or top management changes.


DE7. When people refer to a Supply Chain organization do they typically have an associated manufacturing facility reporting through Supply Chain or do they have Manufacturing typically on par with Supply Chain and reporting to the same senior manager?

In some companies it's just an expanded Operations dept that encompasses Materials, Purchasing, Outsourcing and Manufacturing, all reporting up to a senior VP. The plants typically report up to a MFG director, or into regional or product oriented groups.

In other cases, (more prevalent in the 90's) Supply Chain doesn't directly include manufacturing, reporting to a separate VP, who still may have a common boss with the Mfg VP.

The first approach seems to be growing in popularity, especially with the proliferation of outsourcing.


DE8. How can we apply S&OP to a job shop environment

S&OP works equally well in job shop environments as it does in higher volume, make-to-stock, or flow environments. 

Typically jobs shops do quite a bit of make-to-order manufacturing. For products like these, S&OP will focus on the customer order backlog and average customer lead time, rather than finished goods inventory.  For many job shop environments, it will make sense to do S&OP planning in hours rather than in pieces or "eachs".  


DE9. S&OP is often used in retail sales - is it effective in a non- retail environments?

The development and evolution of S&OP started in a variety of companies, including those that make consumer goods and industrial products.  Today it is being applied successfully in capital goods, chemicals, consumer goods, construction equipment, electronics, food and beverage, medical products and equipment, and pharmaceuticals - in fact nearly every manufacturing environment that we can think of.  


DE10. We are a finish-to-order business with an average order delivery lead time of about 6 weeks. What would you estimate is a good target to reduce our delivery lead time by?

What lead time to the customer would provide a significant competitive advantage to your business?  Assuming that it is something less than six weeks, is six weeks significantly longer than finishing time plus transportation time to the customer?   Can it be reduced to that without anything else being done? Are there any opportunities to reduce transportation time and finishing time (finishing from the same point)?

To determine a reasonable target, you need to consider several factors:

Then you need to set an aggressive, yet realistic target that will meet the customer desires, by

S&OP and Lean Manufacturing

LM1. What is your opinion on a question that I am being asked more and more:  

Why do we need S&OP if we are going Lean?  

Why do I find it so difficult convincing my peers (particularly for the purposes of investment) that whenever your supply base is unable to beat the lead-time requirements of your customer base you will need to plan ... 

Heijunka, Pull, Kanban, Takt, Cellularization, SMED are all aimed at improving efficiencies around cost, manufacturing lead-time, quality and inventory but are all so much more effective if you accurately understand your future demand. 

I'm confident that I am preaching to the converted here but have you ever been faced with this question? If so how would you go about explaining it to individuals who sign the top line of capital requests?

Yes I get this question all the time. Often it's even broader - "why do we need to do any resource planning (S&OP, forecasting, master scheduling, material planning, etc.) when we're going lean."

First my answer - which of course parallels yours: I'm a huge advocate of  lean. Creating a flow environment and pulling to the customer's demand is  something everyone should be trying to move to. But the value stream and  supply chain need to be engineered in advance to be able to flow.   Unfortunately the weakness of lean is that it is shortsighted. It has no  ability to see or predict an upturn (or downturn) in volume or to demonstrate the impact on capacity when that kind of change is happening in the future. It's almost  totally focused on execution - pulling to the drumbeat of the customer.  But  what process ensures that the value stream (pacemaker processes in  particular) have been engineered to support that change in takt time? And  more generally what process ensures that the capacity is in place in advance of its need. What process helps establish the average demand used to size supermarkets and loops so that the inventory is in place to support a  consumption based pull system? What process ensures that the vendors are not surprised by a sudden change in demand? What process establishes the finished goods inventory (finished goods supermarket) levels that will satisfy sales and marketing's objectives as well as the need to have smooth flow through the plant and supply chain?

I think the answer is S&OP and related processes. S&OP is the process to predict changes in volume and in takt time. S&OP along with rough cut capacity planning is the process to predict and respond to capacity needs in advance of a crisis. It's forward planning processes (S&OP and forecasting and MPS) that are the best mechanisms for establishing average daily demand for supermarket and loop sizing (yes I hear all the time about just using past usage to do this but unless you have a static business this just isn't adequate - the one Japanese company that I deal with, part of the Toyota keiretsu, who gets about 75 turns on their inventory uses demand calculated from the MPS not historical usage). Supplier scheduling - a technique that both the lean people and the resource planning people claim they  invented - is the mechanism for showing future demand to the suppliers. In the most lean environment you can imagine, this would be driven directly from S&OP (rough cut material planning). In other lean environments this projection will probably be driving by the MPS and a material planning process. (Just as an aside here, the material planning process will most likely be a gross explosion NOT MRP since MRP is trying to drive the inventory to zero while kanban is trying to maintain it at some fixed level). Finally the way to engage sales and marketing and get them to participate in setting inventory levels is through S&OP.  

What's always amazing to me is that some of the leading lean advocates are in denial about any need to plan in advance. This directly contradicts the documented experience at Toyota (Professor Monden's study of the Toyota Production System talks extensively about their production planning and master scheduling processes and even mentions their MRP system. I wonder how much of this is either the "true believer" phenomenon that Eric Hoffer writes about - the true believer has to deny that there is any value in any of the prior beliefs - or some of the lean zealots pushing their own agenda.

LM2. How would you show the Production line on an S&OP supply & demand spreadsheet for a lean pull production line?

The title and definition of a production plan would not vary between a lean or not lean environment.  A lean environment does not preclude making some product to stock (or to a “finished goods supermarket" as it is often called).  And it does not require that a product be made-to-order. 

In a pure make-to-order environment, when the finished product is never made without a customer order, the monthly production plan would be equal to the monthly sales (bookings) plan less any adjustments to the order backlog.  In other words, in situations where you are taking orders today, and promising them 6 weeks in the future but want to be promising them for delivery in 4 weeks, then the monthly production plan will have to be greater than the sales plan for the current month by the amount you want the backlog to decrease (in this case 2 weeks).

And of course the opposite can be true too.  If you want the order backlog to increase, the production plan will have to be less than the sales plan.   

What is always true in a pure make-to-order environment is that the monthly production plan is equal to the monthly shipping plan since the production plan is what will be made and shipped that month. 

But make no mistake, the purpose of sales and operations planning is the same in the lean environment as in any other:  to establish a rate at which a master schedule would be set to drive future material and resource requirements, that can be then communicated to the suppliers and manufacturing, so they can set up the resources in a way that will allow them to respond to a lean pull signal.


LM2. How would you measure and report monthly production attainment for a lean production line?

Again this doesn't really vary based on whether the environment is lean or not.  At the end of the month, the amount of the product family actually produced would be compared to the latest production plan for that family.  If the production plan (for a pure make-to-order product family) is not attained due to a lack of customer orders available to ship, then the production plan should be adjusted down to equal the quantity scheduled to ship, and then compared to the actual production for the month.


LM3. Can you get by without an S&OP process if you’re running in a Lean Manufacturing environment based on a pull process?

Only if the demand is very level, constant and predictable, such that every manufacturing resource and supplier could count on future demand that was pretty much equal to past demand.  We've never seen this to be the case, except in the rare situation where a specific plant or division may be producing product for a few captive customers, perhaps their parent corporation, who kept the demand on that plant level to optimize its performance.


LM4. Are global companies implementing S&OP and Lean for all products, or only their A&B items?

S&OP by its very nature generally should be implemented for all products, so the total sales, production and inventory can be reconciled against financial plans. Therefore global companies include all their products, but often times pay special attention to A & B items to the degree that they might have a bigger impact in the overall performance in achieving sales and supply plans for their families.


LM5. What books could you recommend on S&OP/Lean?

Our book, Sales & Operations Planning – Best Practices has a chapter on S&OP and Lean.  It’s the only book that addresses the integration in any significant detail that I’m aware of.  You can learn more about the book and read excerpts at our web site:  

The only other book dealing with specific lean/S&OP issues is Sales and Operations Planning Standard System, my co-author Chris Gray's new book.  It discusses how the lean calculations (specifically takt time and operational takt time) can be driven by S&OP and how they are typically performed.  Check his website for more information.  


LM6. Would you say some more about what kind of lean opportunities are uncovered in the S&OP process and when that takes place? 

A good S&OP process would highlight families (often produced in value streams they could be addressed by lean) that have problems due to unreliable demand or supply plans, thus leading to excessive inventories, and/or costs to adjust plans at the last minute, and in some cases, unreliable deliveries to customers and excessive lead times.  These would be noticeable by the poor performance is measured by KPI’s, and/or the need to constantly adjust or alter the plans.  

In other cases, the opportunities may arise as part of the cross-functional discussion and decision-making that occurs in S&OP.  For instance, sales and marketing, may point out, missed sales opportunities due to price, cost, lead time or other considerations. 

Situations such as these could then lead management to decide to implement lean improvements in the respective product family areas to either solve the problems, or to better take advantage of customer or market place opportunities.


Implementing S&OP

IM1. To start out, can S&OP be conducted  on a smaller time frame?

If the issue is about the horizon, how many months out that are reviewed, this shouldn't be a problem to start out with a shorter horizon,  perhaps six or nine months.  Frankly, particularly in the beginning, most of the review, adjustment and discussion centers around the next two to four months anyways.  But until the horizon covers at least the balance of the fiscal year, it's hard to compare the S&OP plans back to the financial plans and budgets, or to use S&OP as the basis for next year's budgets and plans.   And occasionally, not every month, there may be some long-term decisions to be made, such as hiring, firing, new capital investment, etc. that should be based on plans looking out a year or more.  For this reason, your management team should see the need for extending the horizon after you get started.  We recommend a rolling 18 months.


IM2. Which S&OP software packages appear to deliver the best results?

There were a variety of ERP software packages used by companies successful with S&OP.  So by definition, all these various packages support success.  Most companies successful with S&OP do NOT use any commercial software package or module for S&OP.  Most develop their own S&OP functionality based on customized Excel spreadsheets, and Access databases.  This reinforces our experience of over 29 years of consulting, that no one software package has a significantly better track record than another.  The real issue is not the tool, but how well the users are trained and managed to use the tool effectively.


IM3. Can you give us some advice or guidance regarding S&OP families, especially in light of their use for sales planning and financial planning?  How many S&OP families make sense in a typical company?  

The aggregate, quantitative information in S&OP should be able to be compared easily to your financial, business and strategic planning numbers used by senior management, finance, and the sales and marketing folks. Therefore many people use the same groupings for their S&OP families as is used for financial planning and budgeting. 

If these groupings match logical groupings from a supply viewpoint, so that the family plans provide easy visibility into the impact on manufacturing resources, key suppliers, key raw materials etc., then use them for your S&OP families. 

However, if the financial/sales and marketing groupings don't provide clarity from a supply viewpoint, you may need to deal with the supply issues in a different way. In this case we would recommend using the financial/sales and marketing groupings as your S&OP families, but then use Rough Cut Capacity Planning to validate the supply plans, versus current capacity and resource constraints. This Rough Cut Capacity Planning could be used by making assumptions as to what percent of each of the sales families impacts given key supplier resources. If the product mix varies quite a bit over time, you may have to either calculate the Rough Cut Capacity Planning based on the detailed item level as it is readjusted to match new S&OP supply plans. 

In some cases, companies actually maintain a separate set of manufacturing family groupings, by disaggregating the sales numbers down to an item level and then aggregating them up to whatever grouping is meaningful to manufacturing and purchasing. 

In any case, we strongly recommend that the official S&OP families be a groupings that makes a lot of sense to sales, marketing, finance and top management, to facilitate and encourage their participation in the process. Any separate S&OP manufacturing families would probably only be viewed by interested manufacturing, supply chain or purchasing personnel. 

As to the number of families, our experience is that most companies review anywhere from 6 to 12 families in any given partnership or executive meeting. If you end up with more families than that, you will try people's patience and sometimes not spend enough time on each of the families. In those cases, some companies will review families by exception only, looking only at those that had significant changes since the last S&OP cycle, or ones where performance to plan varies the most, or is most critical.


IM4. Are global companies using S&OP across multiple sites involved in one S&OP family?

In some global situations, each region or division has its own families, which are then rolled into common global families.  In other cases where the same products are sold across multiple regions or manufactured at multiple manufacturing sites, each of their totals are  individually included in family plans that cover more than one region or plant.  Separate regional families are used, when performance is monitored and decision-making can be done independently in a region or location, separate from global decision-making. 


IM5. What software tools are available for S&OP?

Most ERP systems offer only incomplete tools to support S&OP, but each of them would be the source of the raw data needed for S&OP such as forecasts, production plans, actual sales, inventory and production, etc.

Though we don’t have enough experience to endorse any specific set of software tools, there are some software vendors that appear to offer more complete sets of S&OP support tools.  They include Demand Solutions, Interlace Systems, John Galt, McConnell Chase and Steelwedge.

My business partner and co-author Chris Gray , has recently published a new book entitled, Sales and Operations Planning Standard System, which provides the detailed specifications of the software support required to effectively run S&OP.  

Along with his book, there are also software templates (reference software) available that could be used to compare to any of the software choices listed above to determine how complete and effective they would be.  More information on this book and software is also available at  

Delivered with the reference software is an additional detailed and powerful S&OP toolset which you could use to develop your own S&OP system in MS Office (Access, Excel, VBA).  Learn more by visiting his web site:    


IM6. What is the best way to get Senior Management to buy into the S&OP/Lean Process?  We've had some success through Step 4 (Partnership Meeting) but never seem to get to Step 5 (Executive S&OP Meeting).

And - are there any inexpensive software programs packages which can be utilized to setup an ideal data template/ dashboard for the Executive S&OP Meeting?

A software template won’t help much with top management.  You must understand top management’s philosophies, objectives and goals for the business.  You must then relate how S&OP and Lean will support the achievement of these.  Make sure you pay particular attention to the current or short term emphasis management may put on one objective over another, such as cash flow, improved customer service, shortened lead times, etc...

They must be convinced of the benefits of S&OP and/or Lean, which can support the achievement of business, financial, customer and cost objectives. 

The least expensive software toolset to do S&OP is offered by my partner and co-author Chris Gray , who offers a detailed and powerful S&OP toolset which you can use to help develop your own S&OP system in MS Office (Access, Excel, VBA).  It is available free with the purchase of his new book "Sales and Operations Planning Standard System".  You can learn more by visiting his web site:

Others that would cost more include modules offered by:  Demand Solutions, Interlace, John Galt, McConnell Chase and Steelwedge.


IM7. What are the product families that will be reviewed in global S&OP?  Is it the key product family in each zone? Or do we need to have consistent product families across different zones such that we can consolidate at global level, but knowing that the business at zone level is so different?

The answer here depends on the purpose of this meeting. If it is just to look at totals to reconcile to financial plans, then the families should match the financial groupings. If it is to highlight demand performance to a market segment, then they should be grouped in that way. Some companies insist on consistent families across the world, with certain regions looking at their own sub-families. The minimum is to always be able to roll-up the local families into some prescribed global grouping.


IM8. What is the most difficult part of implementing S&OP in a mid-size company ($100M)?

Regardless of the size of company, typically the most difficult part of implementing S&OP is gaining and maintaining active participation by the sales and marketing folks. Often they see forecasting and planning as the job of operational, planning or manufacturing people. They would rather spend their time working with customers and marketplaces external from the company. Therefore it is vital to get their attention and show them how an effective S&OP process can benefit them and the customer. In addition, inevitably, a strong, urgent and continuing support from senior management is usually necessary to win and sustain sales and marketing participation.



If you have specific questions about this article or want to discuss it with us, call John Dougherty at 1 603 528-0840.

The Partners for Excellence specialize in helping companies set up comprehensive measurement programs and improving overall resource management performance.  Contact us at 1 603 528-0840 or email



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