Sales and Operations Planning (S&OP) is the supply chain planning process where supply and demand are brought together to develop an overall strategy for continuing operations over the intermediate term – typically 12 to 18 months. This is usually a monthly process where the demand plan drives the development of a preliminary production (operations) plan. Then the hard work begins as the two plans (demand and supply) are reconciled and a consensus S&OP evolves. Each month, new data and changed circumstances are evaluated as the plan is updated and 
extended to maintain the desired extent (12 or 18 months).
Demand planning starts with a mathematical forecast and adds non-forecasted intelligence like economic indicators, market intelligence and expert opinion to refine the projections. The second step, the initial operations (production and distribution) plan, is unlikely to be a perfect use of resources or an ideal response to projected demand, however. The reconciliation process (third step), intended to bring the two sides closer together, may involve changes to production/distribution and changes on the demand side.
But, wait, isn’t demand something that comes from the market and therefore beyond the control of the producer? Yes and no. Demand truly comes from the market but suppliers are not without the ability to influence or shape demand through sales, marketing and distribution activities that can be mapped out in the S&OP reconciliation process then actualized in pursuit of S&OP plan execution.
When a supplier wants to increase or decrease demand for a particular product in a given market during a particular period of time, they can do so by one or more of the following tactics:
- Increase the price to reduce demand; lower the price to increase demand
- Raise or lower sales incentives (commissions, bonuses, quotas) for the sales reps or distributors
- Institute, change, or discontinue promotional programs like coupons, “sales”, advertising, displays or trade shows, etc.
- Change availability by increasing or decreasing distribution – open new outlets or territories, close or reducing distribution in certain outlets or territories, expand markets by introducing product variants, new packaging, new messaging, etc.
Any or all of these actions are likely to change actual demand (demand shaping) as formulated in the S&OP reconciliation process. Moving forward, the success of these efforts can be measured against the finalized demand plan (with the expected effects of demand shaping built in) and used to refine future efforts. Similarly, the supply side can be measured against the production and distribution plan that they agreed to, eliminating “finger pointing” between sales and production if things don’t go as planned.
Tech Target – ManufacturingERP – May 2017. Reprinted with permission.