S&OP (Sales & Operations Planning)
A particular type of management process is Sales & Operation Planning (S&OP) which was developed in the 1980s by Oliver Wight. This typically has a cycle of different reviews that happen every month, the purpose being to link sales, manufacturing and finance together to make the operations run as smoothly as possible. New products need to be included in this process, thus the NPD process needs to link to the S&OP process.
Traditional S&OP Process
In a traditional S&OP process there is a regular (typically monthly) cycle of planning activities, as follows:-
- Demand planning, based on sales forecasts
- Supply planning, based on manufacturing capability, supplier schedules and other relevant resources, but taking into account the demand as far as possible
- Financial planning, from the cash requirements of the company, but amended by the demand and supply
- Overall planning. A final plan that links all the other plans together.
These lead into a series of reviews, often on a four week cycle, with one review per week.
- Demand Review, to review the demand plan
- Supply Review, to review the supply plan
- Financial review, to review the financial plan
- Executive review, to review the overall plan
Any inconsistencies must be reconciled & ironed out by negotiation along the way, so that the end product is a complete plan that is consistent and everyone agrees to.
S&OP Process including NPD
However it is important to include the effects of introducing new products, so that the minimum amount of disruption occurs due to their launch.
Thus it is important that the NPD project manager gives accurate forecasts of when the product will be ready to launch. The Sales forecasts and hence the demand plan should include a forecast for the new product, and if appropriate a revised forecast for ‘old’ products. The supply plan should include the supply of the new parts and the introduction of the new product into the manufacturing plant, including the effect of change-over if appropriate. It should also include the effect of any capacity limitations caused by having to build pilot product if this is going to happen.
Modern Continuous S&OP
It is becoming more common for companies to have a ‘live’ continually updated S&OP process based on a software platform, so they may not have a cycle of weekly reviews, repeated every month, but nevertheless the underlying process is the same; one of matching supply to demand and determining the financial implications. It may also link to a Balanced Scorecard approach to give an overall integrated enterprise planning process.
We are not particular specialists in the general S&OP process and software to run it. Our interest is in making sure that any NPD process links properly into any company’s S&OP process (or equivalent if it is called something else).
Please contact us if this is an aspect that you would like to discuss.