Academic journal article The Journal of Business Forecasting

Next Generation of S&OP: Scenario Planning with Predictive Analytics & Digital Modeling

Academic journal article The Journal of Business Forecasting

Next Generation of S&OP: Scenario Planning with Predictive Analytics & Digital Modeling

Article excerpt

EXECUTIVE SUMMARY | Although the Sales & Operations Planning process presently lies at the center of our business, businesses have yet to take full advantage of it. This article describes what is missing in our process; in particular, how to deal with uncertainty, complexity, and risk using scenario planning through probabilistic planning, predictive analytics, and "what if" simulation.

Those who have been in the operations/supply chain management arena for a good portion of their professional careers know very well that the Sales & Operations Planning (S&OP) process lies at the center of our business because it is where disparate functional areas convene to gain consensus. In the best practice we integrate plans from functions across the business and operationalize corporate or business strategy and policies for execution. However, despite signifi cant investment over the last 30 years, the S&OP process continues to be an opportunity for improvement for many organizations, especially for manufacturing-centered businesses.

As a business planning process, S&OP is used to balance the supply of products with the demand in congruence with business strategies and the product and business portfolio. Manufacturing-centered organizations implement the S&OP process with the expectation that the process will drive improved customer service, lower inventories, support more eff ective use of production assets, and facilitate better communication among the corporate stakeholders involved in the process. One of the major drivers is the recognition that the demand side of the business is often not process driven, nor does it tap far enough into end user / consumer decision making and consumption information. That information can be analyzed more eff ectively and brought back to the S&OP process with signifi cantly reduced timing to address both market drivers and reduce the bullwhip eff ect of demand and supply gyrations. This has been especially evident in the global downturn during 2008-2009, and even now as economies and consumers are recovering.

The S&OP process normally spans several business planning horizons. These horizons include Strategic Planning (1-5 years in the future), Tactical Planning (normally covering up to 18 or 24 months ahead), and Operational Execution (including anywhere from 30 to 45 days ahead).

Normally, the process is a series of preplanning sessions, which promote teamwork as well as involvement and communication among executives and mid-level operational management. Preparation for the monthly S&OP meeting involves the so-called "heavy lifting" of the S&OP process, including Demand Planning/Management and Supply and Capacity Planning. Data in best practice are aggregated and collected in a shared repository for analysis and review. Managers from all connected and integrated disciplines meet to assess risk, develop alternative plans, and identify actions and resource plans required to reach consensus on what is best for the business, not just for their functional areas. The process typically involves monthly executive level meeting-the S&OP meeting-where future demand and supply plans are rationalized, and specifi c inventory targets, corporate goals, and fi nancial targets are reviewed and validated. Participants typically include representatives from Sales, Marketing, Operations, Supply Chain, R&D, Finance, and Management. Many of us use the term "Journey" when we speak about the S&OP process and for a good reason. Over time, there has emerged an S&OP Maturity Model developed by Aberdeen Group. The model profi les the stages and defi nition or complexity of the stages within the S&OP process. The duration of each stage is approximately 18 to 24 months, according to Aberdeen, provided there is the correct amount of management focus, funding, and skill sets.

To further reinforce the journey of the S&OP process moving forward, AMR Research has provided the community with the following salient statistics on the process. …

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