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Is S&OP Dying?

Or is it just an issue of semantics?

11Nov
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There is a lot of confusion around Sales & Operations Planning (S&OP), which is ironic given its designs to integrate functions and simplify processes. This confusion exists primarily because of a habit that software companies and the business community have of changing the name every time it’s tweaked, to things like Sales, Inventory and Operations Planning (SIOP) and Integrated Business Planning (IBP). Their introductions have led many to claim the demise of S&OP. IBP and SIOP seem to amount to little more than next-gen S&OP, but are they? Or are they truly deserving of their own acronym, and is S&OP really being replaced?

Sales & Operations planning (S&OP) was born in 1987 as a solution for operational issues. It now incorporates demand management, feasible supply and capacity planning, product portfolio management, financial integration, customer and supplier integration and resource management amongst others. It uses the Sales, Marketing, Supply Chain, Finance and Executive functions for its forecasting. IBP looks to the same functions that S&OP does, but incorporates such elements as financial modeling and project strategy.

The main difference appears to be an issue of emphasis. The arguments for a shift from S&OP to IBP rest on the principle that in the traditional S&OP process, financials are considered, but are not typically a key driver for planning. There are many blogs detailing why IBP and S&OP are different, but they are mostly extremely subtle additions. IBP is not really a replacement for S&OP, it incorporates and expands S&OP through increased scope, outlook and planning term. They both look to satisfy demand, but IBP is more active in that it helps companies optimize business results through considering more factors over a longer term.

Companies need to stop focussing on what they call it, and concentrate on start doing it well. Gartner tell us most S&OP processes never get beyond stage 2 of 5. It needs leadership. Not semantics. According to the software vendor Kinaxis, modern-day S&OP needs at least four key capabilities: scenario management, by which a company can explore multiple "what-if" situations; financial measures, including cash-to-cash cycle, gross margin and economic value-add; early alerting, when key performance indicators exceed tolerance levels, and management by exception, with the ability to identify the precise cause of an out-of-tolerance condition. These need to be in place first for a company to gain a competitive edge, arguments about the name come later.

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