Sales and Operations Planning (S&OP)

SEF Reference Guide G20 | Manufacturing OpEx Maturity Assessment

Supports criteria: SO-3 Sales and Operations Planning (S&OP)

Glossary terms covered: S&OP, Forecast accuracy

How to use this guide. This is SEF's standard method and the numbers we start from. Every operation is different, so treat the targets, timings, weightings, and templates here as a starting point and adjust them to your products, customers, and risk. Write your version down before you measure against it. Do not apply a tool just to apply a tool. Every method here carries a cost in time, attention, and discipline, and the benefit has to justify that cost in your operation. If it does not, leave it out and say why. A lower score on a criterion you have deliberately chosen not to pursue is an honest score, not a failure. One thing should not change: the maturity level definitions, because they are the scoring basis for the assessment.

What it is

S&OP is a monthly decision process. Sales, marketing, operations, supply chain, and finance meet on one set of numbers, compare expected demand with the capacity and supply to meet it, and agree one plan. Senior leaders make the trade-off decisions (build ahead, add a shift, decline an order, change a price) instead of leaving them to planners and expediters.

The term and the modern monthly process are generally credited to Richard (Dick) Ling at the consulting firm Oliver Wight in the 1980s. His 1988 book with Walter Goddard, Orchestrating Success, set out the approach. Many companies now call the mature version Integrated Business Planning (IBP), which ties the plan more tightly to financial and strategic goals. The core monthly cycle is the same.

S&OP works at the level of product families and months, over a horizon of at least 12 months and often 18 to 24. It is not a detailed schedule. Its job is to make sure the detailed schedules are built on a plan the business can actually deliver.

Why it matters

Delivery: Capacity and material problems show up months ahead, while there is still time to act, instead of in next week’s schedule.
Cost: Fewer emergency overtime shifts, expedited freight, and last-minute buys. Capacity changes are planned, not reactive.
Cash: Inventory is built on purpose to cover known peaks, not as a side effect of guessing. Excess and obsolete stock falls.
Alignment: Sales, operations, and finance stop working from different numbers. The operating plan and the financial forecast match.
Suppliers: Sharing the plan gives key suppliers time to prepare capacity and material, which protects your own delivery.

Key terms

Term	Meaning
S&OP	Sales and Operations Planning. A monthly, cross-functional decision process that balances forecast demand with capacity and supply, and aligns the operating plan with the financial plan.
Forecast accuracy	How closely the demand forecast matched actual demand, usually expressed as 1 minus the mean absolute percentage error, by product family and time bucket.
IBP	Integrated Business Planning. A mature form of S&OP with stronger links to financial planning, strategy, and portfolio decisions.
Product family	A group of products that share capacity and have similar demand patterns. The level at which S&OP plans.
Planning horizon	How far ahead the plan looks. Typically 18 to 24 months, at least 12.
Demand review	Monthly step where sales and marketing agree the unconstrained demand plan.
Supply review	Monthly step where operations checks the demand plan against capacity and material, and proposes a supply plan.
Pre-S&OP meeting	Cross-functional meeting that resolves what it can and prepares options for decisions it cannot make.
Executive S&OP meeting	Senior leaders review the plan, decide the open trade-offs, and approve the one plan.
Rough-cut capacity planning	A quick check of the plan against key resources (the constraint, critical skills, key suppliers).
MAPE	Mean absolute percentage error. Average of absolute error divided by actual, across items or periods.
WMAPE	Weighted MAPE. Total absolute error divided by total actual demand. Gives more weight to high-volume items.
Bias	Whether the forecast is consistently high or low. Sum of (forecast minus actual) divided by sum of actual.
Forecast lag	How far ahead the measured forecast was made. Measure at the lag that matches your lead time.
Forecast value added (FVA)	Whether each step in forecasting (statistical model, sales input, management override) makes the forecast better or worse.

How to do it

Get the executive sponsor. S&OP only works if the general manager or plant manager chairs the executive meeting and makes the decisions there. Without that, it becomes a planning meeting with no power.
Define product families. Group products by shared capacity and demand pattern. Aim for a number the executive meeting can review in one hour, often 5 to 15 families.
Set the monthly calendar. A typical cycle runs over the first two to three weeks of the month:
- Step 1: Data gathering. Close last month’s actuals (sales, production, inventory, backlog) and update statistical forecasts.
- Step 2: Demand review. Sales and marketing agree the demand plan by family for the full horizon.
- Step 3: Supply review. Operations checks capacity and material, and flags gaps and options. The SEF Resource Calculator (see G26) turns the demand plan into the people and machines each family needs. Propose inventory targets by family, including any strategic buffers (G14), with their working capital value.
- Step 4: Pre-S&OP. Resolve what can be resolved, and prepare decision options with costs and trade-offs.
- Step 5: Executive S&OP. Decide, approve the plan, and confirm that it matches the financial forecast. This includes approving the inventory plan: target levels by family and any strategic buffers, with their effect on net working capital. Inventory is a decision made here, not a result discovered at month end.
Use one spreadsheet per family. Show past actuals and future plans side by side: demand, supply, inventory or backlog, and capacity, by month.
Share the plan with key suppliers. Once approved, send suppliers a rolling forecast for the parts and capacity they provide. Agree how often it will be sent, the horizon, and how firm each period is. G27 covers setting firm and forecast windows and the planning fences that protect the approved plan.
Measure forecast accuracy. Each month, compare the forecast made at the chosen lag with actual demand, by family. Report accuracy (1 minus WMAPE is a practical choice) and bias.
Improve the forecast. Look at the families with the worst accuracy and bias. Find the cause: missing customer information, sales overrides, promotions not planned, new products. Track forecast value added to see which inputs help.
Measure plan performance. Track actual production against the supply plan and actual sales against the demand plan. Show these in the executive meeting.
Review the process itself. Every quarter, ask: are decisions being made in the meeting? Are actions closed? Are trends improving?

What each maturity level looks like

SO-3 Sales and Operations Planning (S&OP)

Level	Assessment wording	What it looks like on the floor	How to move up
1	No evidence of S&OP.	Sales has a forecast, operations has a schedule, finance has a budget, and they do not match. Capacity problems appear as expediting and overtime.	Name a sponsor, define product families, and hold a first monthly demand and supply review.
2	S&OP is established and running.	A monthly cycle runs on a fixed calendar. An executive meeting approves one plan by family. Minutes record decisions.	Agree what the key suppliers need and start sharing a rolling forecast with them.
3	As Level 2, plus suppliers have visibility to the plan so they can adjust their operations.	Key suppliers receive the approved plan monthly and use it to plan their capacity and stock.	Start measuring forecast accuracy and bias by family at a defined lag.
4	As Level 3, plus forecast accuracy is measured and improved.	Accuracy and bias are reported monthly. The worst families have improvement actions. Overrides are checked for value added.	Hold the gains until at least 12 months of data show stable or improving results.
5	As Level 4, plus trends are good and stable or improving.	Forecast accuracy, plan attainment, and delivery trends are steady or improving over 12 or more months. Surprises are rare.	Move toward IBP: stronger financial reconciliation, scenario planning, and portfolio decisions in the same cycle.

Evidence to look for

Document

S&OP calendar and meeting agendas for the last 6 to 12 months.
Family-level S&OP spreadsheets with demand, supply, inventory or backlog, and capacity.
Executive meeting minutes with decisions and action owners.
Rolling forecasts sent to suppliers, with dates.
Forecast accuracy and bias reports.

Observation

Sit in on a pre-S&OP or executive meeting. Are decisions made, or is it only a status review?
Check whether the numbers in the meeting match the ERP, the financial forecast, and the production schedule.
See whether planners use the approved plan to set the master schedule.

Statement

(questions to ask, and who to ask)

General manager: “What was the last trade-off you decided in the S&OP meeting?”
Sales lead: “Who owns the demand plan, and how do you add customer insight to it?”
Operations or planning lead: “How far ahead do you see a capacity problem?”
Purchasing: “Which suppliers receive our forecast, and what do they do with it?”
Key supplier (if possible): “How useful is the forecast you receive from this site?”

Management report

Forecast accuracy (1 minus WMAPE) and bias by family, trended monthly.
Demand plan attainment and supply plan attainment.
On-time delivery (see G22), inventory days of supply, and expediting costs.
Supplier on-time delivery for suppliers who receive the plan.

Common pitfalls

No decision makers in the room. If the executives send delegates, the meeting cannot decide trade-offs and S&OP becomes reporting.
Too much detail. Reviewing SKUs instead of families turns a one-hour decision meeting into a four-hour scheduling session.
Sales plan equals quota. A demand plan that is really a sales target builds bias into everything downstream. Keep the unconstrained forecast honest.
Measuring accuracy without bias. A forecast can have acceptable accuracy while always running high. Bias drives excess inventory and is often the easier fix.
Measuring at the wrong lag. Accuracy of last week’s forecast for this week looks good but does nothing for a 10-week lead time.
Operations and finance on different numbers. If the S&OP plan does not reconcile to the financial forecast, one of them is fiction.

Template

Family S&OP sheet (one per product family)

Family: ________ Unit of measure: ________ Plan approved: ________

Row	M1	M2	M3	M4 to M6	M7 to M12	M13 to M18
Demand plan (forecast)
Actual demand	x	x	x	x	x	x
Supply plan (production)
Actual production	x	x	x	x	x	x
Inventory or backlog (plan)
Inventory or backlog (actual)	x	x	x	x	x	x
Capacity available (key resource)
Load as % of capacity

M-3 to M-1 are past months (actual vs plan). M1 onward is the forward plan. “x” means not applicable.

Forecast accuracy worksheet (monthly, at chosen lag)

Family	Absolute error	Error (forecast minus actual)
Family A
Family B
Total	Sum	Sum

WMAPE = total absolute error / total actual
Forecast accuracy = 1 minus WMAPE (floor at 0%)
Bias = total error / total actual (positive means over-forecasting)

Executive meeting agenda (60 minutes)

Performance last month: accuracy, bias, plan attainment, delivery (10 min)
Family by family: demand changes, supply gaps, recommended decisions (35 min)
Financial reconciliation: does the plan match the forecast? (5 min)
Decisions confirmed and actions assigned (10 min)

First 30 days

Week 1: Get the sponsor. Agree product families and a unit of measure for each. Pull 12 to 24 months of demand and production history.
Week 2: Build the family sheets. Calculate forecast accuracy and bias for the last 6 months to set a baseline.
Week 3: Hold a demand review and a supply review. List the capacity gaps and decisions needed.
Week 4: Hold the first executive meeting using the 60-minute agenda. Record decisions. Publish the calendar for the next 6 months and pick the first suppliers to receive the plan.