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Sales and operations planning (SOP), sometimes in SDG also known as integrated planning, is a process where management regularly meets and reviews projections for demand, supply, and the resulting financial impact. SOP is a decision-making process that makes certain that tactical plans in every business area are in line with the overall view of the company's business plan. The overall result of the SOP process is that a single operating plan is created that identifies the allocation of company resources.
Whereas business planning looks at the company's plan years into the future, SOP looks at the company's business plan over the short-medium term.
Sales and operations planning is aimed at helping companies develop and align the tactical plans developed by the various business areas.
There are two approaches that are used in sales and operations planning; top-down planning and bottom-up planning.
Top-Down Planning: Top-down planning is the simplest approach to sales and operations planning. The forecast is derived from a combination of products and services that require similar resources. Using top-down planning, the management can create tactical plans based on the overall forecast and divide the resources across the supply chain.
Bottom-Up Planning: This approach is used by companies that do not have a stable manufacturing schedule and the number and type of finished goods can change from month to month. In this scenario, the sales forecast is not helpful for resource planning. The management needs to calculate the resources for each of the products and then aggregate it to get an overall picture of resource requirements.
Effective supply-chain management requires prediction about the future, with the goal of having the right products in the right places to meet customer demand. Poor foresight leads to excess inventory, higher costs, and suboptimal utilization of resources.
SOP process is central to developing good foresight, typically starting with a demand forecast that uses input from sales and key customers.
This forecast is matched against existing production and distribution capacity. Another key part of planning is to identify and correct areas of the business that are at risk for underperforming financially or that could benefit from greater attention, such as underutilized capacity that could generate added profits if sales focused on selling more of a specific product in the near term.
Today’s markets require a renewed focus on effective supply-chain management and the underlying SOP process.
Shorter product life cycles, volatile demand, and global supply chains make planning even more difficult. But with the right Analytics in place, big and better data companies can build a robust SOP process and a sustainable competitive advantage.