Decoding the Language of S&OP
Since demand forecasting has developed many “personalities” over the decades, I recently wrote a blog that “decoded” the language of demand. That got me to thinking about decoding the language of Sales & Operations Planning (S&OP) which, like demand forecasting, has also taken on multiple personalities as it has matured. Here they are:
Sales & Operations Planning (S&OP)
A traditional definition of S&OP defines it as an integrated business process through which an executive team continually achieves focus, alignment and synchronization among all functions of the organization helping to keep demand and supply in balance. It typically has a planning horizon of 18 to 24 months and is cross functional, involving executive management, sales, operations, finance and product development.
Ideally it links companies’ strategic and business plans to execution processes. More broadly said, S&OP enables a company’s leadership to view the business holistically and gives them a window into the future. Properly executed, S&OP can deliver better customer service, lower inventories, shorter customer lead times, stabilized production rates, improved relationships with suppliers, and better teamwork between sales, operations, finance and product development.
Sales & Operations Execution (S&OE)
A Gartner analyst recently used an interesting analogy to describe the difference between S&OP and S&OE by comparing it to the game of golf. There are two distinct and different parts – the long game and the short game – that require different “tools” (clubs in golf) and level of detail. S&OP is the long game and S&OE is the short game – the process that connects sales & operations planning to operational execution.
While the S&OP process focuses on the tactical horizon from 3 out to 18/24 months, the S&OE process covers the near-term horizon of 0 to 3 months. S&OE meetings are typically held weekly. This process provides a checkpoint for the supply chain and business leaders to ensure that the reality and plans remain aligned and to quickly take corrective action if they deviate.
Sales Inventory & Operations Planning (SI&OP)
I read recently that someone compared sales and operations planning to investing in gold: it gets a lot more attention during tough economic times. The economic downturn of nearly a decade ago generated a resurgence of companies pursuing S&OP initiatives hoping to improve service levels and lower supply chain costs. Concurrently, companies were forced to scrutinize their working capital investments as cash was tight and the focus on the bottom-line intense. As a result, inventory optimization became a popular initiative. So, SI&OP was born as a marriage of S&OP and inventory optimization. You can think of it as S&OP with a strong focus on the value of inventory. Since then, many mature S&OP processes incorporate inventory, so the S&OP and SI&OP are often used interchangeably.
Integrated Business Planning (IBP)
IBP came about as S&OP increased in maturity and companies realized there was even more to be gained by advancing the process. I would agree with Oliver Wight’s assessment that integrated business planning is about shifting the focus of S&OP beyond the supply chain team, so companies can benefit from the input of executive stakeholders while still focusing on the needs of customers.
A key difference between traditional S&OP and IBP is robust financial integration. Here is a way I have seen this difference framed – companies that end their S&OP meeting with the notion that “we must satisfy all customer demand” are running a less efficient S&OP process. The companies that analyze different scenarios and their financial effects and execute actions based on their strategic impact are running Integrated Business Planning processes.
As the Gartner model for S&OP maturity has advanced and gained traction, the term IBP seems to have lost some traction as a differentiating term. Those companies that achieve Stage 4 or 5 in the Gartner maturity model are doing IBP, but many call it S&OP or sometimes SI&OP.
Merchandise Inventory and Operations Execution (MIOE)
MIOE is basically the retail industry synonym for S&OP. It makes sense for the retail industry to have its own terminology since its business challenges and processes vary from those of manufacturers. Retail planning adds activities such as merchandise planning, allocation, store labor requirements and distribution/transportation.
MIOE deals with the same tactical level activities as S&OP to ensure demand and supply are balanced while achieving corporate objectives and satisfying customers. Because MIOE and S&OP are so similar, Gartner recently made the decision to move away from the term and focus on S&OP as a cross industry process. So, you might still hear MIEO mentioned in retail circles, but it is likely S&OP called by a different name. The underlying process and ultimate goals are the same.