Over the past few decades, Sales & Operations Planning (S&OP) has become an integral part of how most large and medium-sized organizations operate. But even though “everyone has it,” far from everyone is able to realize the full potential of this cross-functional planning process.
– It has been a long journey of maturation. Many companies have struggled with S&OP for decades, but today it works relatively well in most organizations. At the same time, it is clear that many have still not taken the final steps needed to truly build a competitive edge through their S&OP.
That’s according to Patrik Jonsson, a professor at Chalmers and one of the Nordic region’s most established and influential researchers in logistics, production, and supply chain planning. He believes that many companies are still in the middle of a journey that begins with a basic process and ends with a strategic management tool.
From sequential planning to an iterative process
When S&OP first began to take shape, it was essentially about solving a fairly specific problem: breaking down silos and working across functions, thereby enabling sales and marketing to plan in tandem with purchasing, production, and logistics. When S&OP became popular in the 1990s, companies planned sequentially: first, a forecast was made; then, production and capacity were planned; and finally, they attempted to execute the plan. The problem was that reality rarely followed that logic.
“The first major shift was the realization that working sequentially doesn’t work. Demand and supply must be balanced through an iterative process, in which plans are continuously adjusted to align with one another,” says Patrik.
Organizations at that time, just as today, were characterized by functions that largely operated in isolation from one another, with little incentive to collaborate and limited involvement from senior management. The result was sub-optimization, where each part of the organization optimized its own operations rather than the organization as a whole. With S&OP, a process was introduced in which a business’s core functions collaborate across boundaries, coordinating their plans to arrive at “a single truth.”
Why did S&OP fail?
For a long time, S&OP was marked by a series of failures. Many initiatives were launched, but few made it all the way through. This is still partly true today. For even though many companies implement S&OP, far fewer manage to make it work really well in practice.
“A common problem is starting at the wrong end. People implement S&OP as a layer on top of the organization without having done the groundwork,” says Patrik, describing it as a house where S&OP is the roof. For it to work, a solid foundation is required: reliable forecasts, effective capacity planning, and, not least, high-quality underlying data.
“Garbage in, garbage out”
“If you have poor forecasts and inadequate data, it doesn’t matter how much time you spend in meetings. It’s ‘garbage in, garbage out.’ People lose confidence, and the process dies,” he says.
A recurring problem has been—and continues to be—that people confuse different time horizons. S&OP is fundamentally a tactical process designed to manage the period beyond the short-term operational lead time. But in practice, many companies get bogged down in their immediate problems.
“If the only place people meet is at S&OP meetings, then obviously they’ll talk about whatever’s pressing right now—delivery issues, backlogs, disruptions. That’s when the long-term perspective gets lost,” Patrik explains.
The solution has been to supplement this with separate forums for short-term management—often referred to as Sales & Operations Execution (S&OE)—which is now well-established in many organizations.
“Financial integration and scenario planning are needed”
Today, the picture is different. Most large companies and many medium-sized companies have some form of S&OP process in place, and there is now a much better understanding of how it should work.
“I’d say we’ve settled on what the process is and how it should be used. That doesn’t mean everyone is doing it perfectly, but the basic understanding is there,” says Patrik.
But this does not mean the work is done. On the contrary, he argues that the next step in the development process is still missing in many organizations. In many companies, the process stops at balancing sales and production volumes: how much should we sell, and how much can we produce? But to become a truly powerful management tool, two additional dimensions are required: financial integration and scenario planning.
“Many people have started to grasp the financial link, where S&OP plans are compared with financial plans.” But very few work systematically to plan for different scenarios and use the process to make strategic decisions,” Patrik explains, while emphasizing that this is because many companies are simply satisfied with having reached the stage where they coordinate their plans, while others find it too difficult to take the next step.
From volume plan to decision-making tool
According to Patrik, it is in scenario planning that S&OP’s full potential lies. Here, it is no longer just about creating and coordinating plans, but about evaluating alternative options. What happens if demand increases by 20 percent in a certain market? How does that affect capacity, costs, and cash flow? Should we invest in flexibility, or wait and see?
“This is essentially a tool for risk management and strategic planning. But many people still use it primarily to crunch the numbers,” he says.
In a world marked by uncertainty—from pandemics to geopolitical disruptions—this capability is becoming increasingly important. During the COVID-19 pandemic, many companies were forced to supplement their S&OP processes with more frequent decision-making forums, sometimes including daily meetings. At the same time, however, the crisis also demonstrated the value of the established structure.
“With S&OP, many companies had a structured process for communication and coordination in place, and even though the process wasn’t used for quick decisions, many found the established workflow and tools to be extremely helpful during the pandemic,” says Patrik.
Strategic management tool, aligned with the business strategy
One clear change in recent years is that supply chain issues have been elevated to the highest level in most companies. This has placed new demands on the S&OP process, and at the same time, the process has helped many companies understand the strategic importance of supply chain management and logistics.
– To be relevant at the executive and board levels, the process must be aligned with business strategy, financial goals, and supply chain risks. But for it to function as a management tool, you need to take those final steps, Patrik emphasizes
Here, integration with financial planning—what has come to be known as Integrated Business Planning (IBP)—is essential for S&OP to evolve from an operational planning routine into a strategic tool for management and the board. More specifically, it involves linking planning to the company’s strategic priorities, such as growth and profitability, service levels, and market initiatives, where the plan must be able to answer the question: “How do we deliver on our strategy and our business objectives?”
Another key element that Patrik believes is essential for S&OP to take the final steps toward becoming a strategic management tool is the implementation of systematic scenario planning and what-if analyses as part of the S&OP process.
How do software, AI, and automation impact things?
Alongside the evolution of S&OP practices, rapid technological change is underway. AI, advanced data analytics, and automation are transforming the landscape. Many of the most repetitive tasks can now be automated. This frees up time, but it also changes the demands placed on organizations and their employees. Much of the routine work will disappear. But that doesn’t mean people will disappear. On the contrary, Patrik believes the role will become more specialized. Instead of manually creating plans, the work is increasingly about understanding, evaluating, and challenging the proposals generated by the systems. At the same time, there are clear limitations:
“There are still many situations where data is insufficient or where the outcome is difficult to predict. That’s where human judgment is needed,” he says.
AI can also play a role in scenario planning—for example, by identifying which scenarios are most relevant to analyze, or by more quickly assessing the consequences of various decisions.
“The potential is huge. But we’re not there yet. Many companies still don’t have a structured approach to scenario planning in place,” Patrik notes.
A changing role for planners
Historically, planners have often played a relatively administrative role, focusing on managing data and updating plans. According to Patrik, that picture is changing radically.
– The role is becoming more analytical and more business-oriented. It’s not just about producing numbers, but about understanding what they mean and how they should be used in the planning process.
At the same time, automation means that fewer people can handle larger volumes of work. This makes the planning role more specialized, placing higher demands on both technical and business expertise.
“You need to understand both the process and the tools. Otherwise, you risk not getting the full value out of the systems you invest in,” says Patrik.
From Routine to Competitive Advantage
In summary, Patrik believes that S&OP has evolved from being a coordination and improvement initiative into a necessity. But the next step—using S&OP as a strategic competitive advantage—requires more.
“The companies that are most successful are those that use S&OP as a tool for making better business decisions,” Patrik concludes.
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Text and interview by Marika Karlöf and Stefan Karlöf