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’s 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’s clear that many still haven’t taken the final steps needed to truly gain 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 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 coordination with purchasing, production, and logistics. When S&OP became popular in the 1990s, companies planned sequentially—that is, first they made a forecast, then they planned production and capacity, and finally they attempted to execute the plan. The problem was that reality rarely followed that logic.
“The first important 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.
At that time, as is the case today, organizations were characterized by departments that, to a large extent, operated in isolation from one another, with a lack of incentives to work together and limited involvement from senior management. The result was suboptimization, 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 departmental boundaries, coordinating their plans to arrive at ”a single source of 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. Because even though many companies are implementing S&OP, significantly fewer are able to make it work really well in practice.
“A classic problem is starting at the wrong end. You 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 stable 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 forums where people meet are S&OP meetings, then obviously they’ll talk about what’s pressing right now—delivery issues, backlogs, disruptions. That’s when the long-term perspective gets lost,” explains Patrik.
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 development 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 have begun to grasp the financial connection, 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 Engine
According to Patrik, the full potential of S&OP lies in scenario planning. Here, it’s no longer just about creating and coordinating plans, but about evaluating alternative options. What happens if demand increases by 20 percent in a particular 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, linked to the business strategy
One clear change in recent years is that supply chain issues have been elevated to the very 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 management and board levels, the process must be linked to 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 a prerequisite for S&OP to evolve from an operational planning routine into a strategic tool for management and the board of directors. More specifically, this involves linking planning to the company’s strategic priorities—such as growth and profitability, service levels, and marketing initiatives—where the plan must address the question: ”How do we deliver on our strategy and business objectives?”.
Another component that Patrik believes is essential for S&OP to take the final steps toward becoming a strategic management tool is the implementation of a systematic approach to scenario planning and “what-if” analyses as part of the S&OP process.
How do software, AI, and automation have an impact?
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 that the role will become more specialized. Instead of manually creating plans, the work will increasingly involve 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 contribute to 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 tool—requires more.
“The companies that are most successful are those that use S&OP as a mechanism for making better business decisions,” Patrik concludes.
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Text and interview by Marika Karlöf and Stefan Karlöf
