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In concept S&OP can be defined as the "monthly update to the annual business plan." With the increased dynamics that are part of most mar­ket places today, this monthly updating of the annual plans is more necessary than ever before.

As such all of the plans that are derived from the annual business plan must be updated and synchronized, if a formal planning process is to function effectively. Graphically, this S&OP process would look like figure 1 from an input/output standpoint.

Specifically, the monthly S&OP process must provide for proper addressing of the following issues:

1.        Variances—Review the past month's actual to plan for sales, produc­
tion, inventory, or backlog. If the variance is greater than expected,
investigate and explain, revising the future plans, as appropriate.

2.        Market Conditions—Provide a forum for all disciplines to present
and discuss their view of the market, so as to bring about cross-
functional understanding of market dynamics.

3.        New Products—Present and discuss the status and impact of any
pending new product introductions.

4.   Alternate Plans—Present, evaluate, discuss, and decide upon alterna­
tive plans and actions.

5.        Conflict—Raise and constructively resolve any policy conflict that
exists within the organization. This often involves a change in tra­
ditional culture from "the person who presents a problem is the

6.        Contingency Plans—Develop necessary contingency plans as appro­
priate to the situation.

7. Accountability—Identify and agree upon necessary actions and changes to plans, creating account­ability for results that support the company's goals.

This list implies that S&OP is part strategic and part tactical in nature. In other words, it deals with both policy issues of strat­egy, as well tactical issues of dealing with the execution of the company's strategy.

In a Harvard Business Review article (Nov/Dec 1985) entitled, "Strategic Planning—Forward in Re­verse?" Bob Hayes states that a company's strategic planning process must not only be done in one direc­tion—from top to bottom—but it must be done in both directions! This S&OP process provides a means by which this two-directional plan­ning can be take place. This is shown graphically in figure 2.


While S&OP is a very distinct and definable process, it is not a "stand­alone" process. It is, and must be, connected to other business processes.

Additionally, it is important that S&OP and MPS not be viewed as one single process, but rather as two distinct but connected processes. Trying to do both S&OP and MPS in one defined process is often a serious mistake. S&OP fundamentally concerns itself with issues of volume, while MPS concerns itself with issues of product mix, within

this volume. There are also many other distinguishing factors, such as the following:

This paper explains the process dealing with the issues listed under S&OP. While the MPS issues are equally important, they are not being dealt with here. From this perspective, it is only important to under­stand that these two processes are connected, but are not one in the same and are not done as one process.


S&OP is done in aggregate by dividing a company's product line into product families. A typical company will have between 5 and 12 prod­uct families in which it does S&OP. The APICS Dictionary defines product families in the following manner: "A group of end items whose similarity of design, and/or manufacturing facilities, and/or materials are planned in aggregate for sales and production."

The reason for this production-oriented definition of families is because S&OP's main objective is to ensure that proper amounts of resources (capacity, material, etc.) are available to satisfy customers in a cost-effective manner. Therefore, it is important that the final process is designed to accomplish this objective.

If the marketing orientation is significantly different from the pro­duction orientation, however, there must be a transparent conversion process that allows marketing to forecast in one group of families, and then convert to a production set of families. This is typically done con­ceptually through a two-dimensional matrix with marketing groups on one side and production families on the other side. Marketing then forecasts in their set of families, then spreads the mix across the pro­duction families.

In any event, the S&OP process must be done with a set of family definitions that allow resources to be planned in support of the antici­pated demand. By the same token, the family definitions must allow sales and marketing to be able to anticipate the future (alias: forecast) with some degree of certainty. Many times the establishment of these family definitions is quite easy, yet other times it requires a good deal of consideration.

To Be Continued

For balance of this article, click on the below link:

Lean Manufacturing Articles and click on Series 11

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