The first five posts in this series dealt with items: which matter (Post 1, Post 3), how much buffer each needs (Post 2, Post 4) and how much to order each time (Post 5). All of those settings assume someone has decided how much the business will sell and make in the coming months. In many small manufacturers, no one has. Sales forecasts live in one spreadsheet, the production schedule in another, purchasing works from the ERP's suggestions, and finance learns the result at month end.
Sales and operations planning (S&OP) is the monthly routine that produces one agreed plan. This post describes a version sized for a business of 20 to 200 people, and runs it for Ridgeline Coatings.
What S&OP is, and is not
S&OP balances expected demand against the capacity to supply it, by product family, over a horizon of roughly 6 to 18 months, and records the decisions taken to close the gaps. It is not a detailed schedule; the schedule comes later and works within the plan. It is not a sales forecast either; the forecast is one input. Its output is a single plan that sales, operations, purchasing and finance all work to.
The monthly cycle
| Week | Step | Who | Output |
|---|---|---|---|
| 1 | Data: last month's actuals, updated forecast inputs | Planner | Sales, production, inventory and backlog by family |
| 1–2 | Demand review | Sales lead, planner | Unconstrained demand plan by family, with assumptions |
| 2 | Supply review | Operations, purchasing, planner | Capacity and material check against the demand plan; gaps and options |
| 3 | Pre-meeting | Planner, finance | Options costed; recommendation |
| 3–4 | Executive meeting (one hour) | Owner or general manager, department heads | Decisions; one approved plan |
In a small business, the same few people attend several steps, and the whole cycle may take a few hours of each person's month. The discipline is in doing it every month, on a fixed calendar, with the decisions written down.
Worked example: Ridgeline's spring peak
Ridgeline makes three product families on one mixing line. Demand for coatings peaks in spring. The line runs two shifts on 21 working days a month; at the plant's 75% OEE, that gives about 252 effective hours a month. The table converts the demand plan into line hours using each family's rate (primers 2.0 t/h, topcoats 1.5 t/h, specialty 0.8 t/h).
| Month | Demand (t) | Demand (h) | Capacity (h) | Gap (h) | Plan (h) | Pre-built stock (h) |
|---|---|---|---|---|---|---|
| Jan | 264 | 168 | 252 | +84 | 220 | 52 |
| Feb | 297 | 189 | 252 | +63 | 189 | 52 |
| Mar | 363 | 231 | 252 | +21 | 231 | 52 |
| Apr | 429 | 273 | 252 | -21 | 252 | 32 |
| May | 446 | 284 | 252 | -32 | 252 | 0 |
| Jun | 396 | 252 | 252 | +0 | 252 | 0 |
Demand exceeds capacity in April and May by a total of about 52 line hours. Over the six months, total demand is 1,396 hours against 1,512 available, so the problem is timing, not total capacity. The supply review lays out the options:
- Pre-build. Make more than demand in a quiet month and store the surplus. Costs: inventory carrying cost and warehouse space for the stock built ahead, and the risk that the mix of demand changes.
- Overtime or a third shift in April and May. Costs: premium labour, and fatigue if extended.
- Raise OEE. Each point of OEE adds about 3.4 hours a month. Changeover reduction on the mixing line, prepared before the peak, may close part of the gap.
- Shape demand. Offer early-order incentives to distributors, or agree longer lead times on specialty products.
The plan in the table pre-builds, which is often the cheapest option for products with a long shelf life. The executive meeting approves it, and in doing so approves the consequences: purchasing brings forward resin and solvent orders using the reorder points and order quantities from Post 4 and Post 5, finance plans for the extra inventory held from January to May, and the warehouse arranges space.
Measures that make it work
| Measure | What it shows |
|---|---|
| Forecast accuracy by family | How far actual demand was from the plan, for example as mean absolute percentage error |
| Plan attainment | Production against the approved plan |
| On time in full (OTIF) | Whether customers got what they ordered, when promised |
| Inventory in weeks of supply | Whether stock is in line with the plan, by family |
| Decisions closed | Whether last month's actions were done |
Measure forecast accuracy at the family level, where S&OP works, and track bias as well as error: a forecast that is always 10% high does more damage than one that is randomly wrong by 10%, because everything built on it is consistently too large.
Starting small
- Define three to six product families that share capacity and materials.
- Pull 12 months of actual sales and production by family.
- Agree a simple capacity measure for the bottleneck resource, in hours.
- Hold the first executive meeting with a six-month view and one decision to make.
- Repeat monthly; extend the horizon to 12 to 18 months once the routine holds.
Your checklist
- Set a fixed monthly calendar for the S&OP steps
- Convert demand to bottleneck hours by family
- Cost the options for every month where demand exceeds capacity
- Record decisions and owners, and review them next month
- Feed the approved plan into purchasing settings and the schedule
The series in one place
- ABC Inventory Analysis: What It Is, How to Do It, and a Worked Example
- Setting Safety Stock Without Guessing: Three Methods and a Worked Example
- ABC Analysis for Manufacturers: Why Dollar Value Is Not Enough
- Safety Stock for Manufacturers: Raw Materials and Spare Parts
- Reorder Point and EOQ: When to Order and How Much
- Sales and Operations Planning for Small Manufacturers: One Plan, Once a Month (this post)
Chmltech Ltd. helps small and mid-sized businesses improve operations and adopt digital tools. If you would like help applying this to your own inventory, get in touch.
