An Overview of the S&OP Process, from Alignment to Risk Management

At the core of every Supply Chain is the mismatch between supply and demand problem. For years supply chain practitioners have tried to answer the question. How do we balance supply and demand?

In the early 90s, many companies focused on improving their operations. Thus, centering its attention on raising productivity and efficiency while reducing costs. It was the raise of Lean Manufacturing techniques and Just in Time philosophy. Although we have seen great improvements across operations, few were improved to balance supply and demand. Indeed, most companies were acting reactively. I still remember those long meetings and discussions trying to find the causes and of course the guilty.

However, as the demand became more complex and required a faster and more accurate response, the necessity to find alignment between sales, operations, and planning was triggered. Thus, setting up the first step in the S&OP process as we know it today. How can we define the S&OP process? If you go to the internet, you will find plenty of definitions, some narrower, some very complex, and others centered only on software solutions. I personally like Tomas Wallace’s definition “S&OP is a set of decision-making processes to balance demand and supply, to integrate financial planning and operational planning, and to link high-level strategic plans with day-to-day operations.”

Indeed, the S&OP process goes beyond an alignment but links the strategic goals with the day-to-day operations by finding the best balance between supply and demand.

Nowadays, plenty of companies have a formal S&OP process or are in the implementation phase. While the aim is still to find alignment and integration, the pandemic, the war in Ukraine, and various conflicts across the world have triggered the necessity to manage risks by taking advantage of technology and scenario management software. Nonetheless, is every supply chain ready to implement a software solution? There is no “yes” or “no” answer to this question. Indeed, many supply chains are rushing to implement software solutions to automate to a certain degree their S&OP process. I have been lucky enough to interview some pharma and chemical industries and ask them where they are in their S&OP process. Even though they have a formal process and are discussing how to reach a world-class S&OP process through technology, they still struggle to achieve alignment and, in some cases, they’re still trying to find the guilty.

One of the main reasons for this situation is the limited understanding of their S&OP process maturity. When talking about maturity Gartner’s model is a referent. However, Neto et al. (2022) propose a simpler approach linking the process integration and the technology required.

For companies intending to achieve a world-class S&OP process, this model could help them to understand their current status and define the roadmap to the desired status. In addition, a value stream map and further diagnosis instruments might be also helpful. Nonetheless, since the pressure for digitalization and the exposure to more complex risks are rising other approaches might be considered. Consequently, I’ve adapted the older Canvas Business Model to a Digitalization Need Assessment.

While some of you might find this approach a bit simple, bear in mind that many of your employees dislike complex approaches and feel threatened by them. This method could help to unveil a clear roadmap to a digital transformation in your supply chain and manage the critical risks, it is facing.

Finally, this method helps us to understand that we are shifting from an alignment process to a risk management process in which integration is key as well as resilience.