S&OP (Sales and Operations Planning) and SIOP (Sales Inventory Operations Planning) are interchangeable terms, but there are two reasons why we recommend calling the process Sales and Operations Planning, and why calling the process “SIOP” understates what you should be getting out of the process.
Even though I (for inventory) is not in S&OP, it is still important. The inventory plan is an important output of the process, and it is one of the buffers we use to balance demand and supply. However, calling the process SIOP ignores the other two important buffer decisions.
The three buffers in S&OP are Inventory, Lead Time, and Upside Flex. Putting Inventory in the name, but not the other buffers, suggests that it is more important than Lead Time and Upside Flex, which is not true. And SILTUFOP is not an acronym that will stick.
Let’s define these buffers:
Inventory: Inventory is the buffer between shipments and production and is the finished goods inventory in the plant. Inventory is typical in a make to stock environment.
Lead Time: This is about understanding the difference between Customer Expected Lead Time and Production and Supply Chain Lead Times. Lead time will flex up and down and will be reflected in your backlog or open orders. Lead time is typically used in a make to order environment. This is about setting objectives, monitoring and potentially extending or decreasing lead time to accommodate for the supply chain lead time. It is important to apply promise dates to orders that align with the adjusted lead times. This helps you maintain your service levels (RDSL and PDSL).
Upside Flex: This buffer is about understanding and planning for unused capacity or capability that can be deployed when needed. This can be used to flex up and manage any demand that comes in under lead time. It occurs in the S&OP frozen zone, and involves a purposeful decision on how to use it. You need to know what you can do and for how long, without causing significant challenges in both the plant and supply chain.
S&OP is about balancing demand and supply, or balancing sales and operations, and is about improving the predictability of both. The buffers manage uncertainty, risk, volatility, and imbalances between demand and supply.
The second reason for using S&OP is that SIOP ignores the most important “word” in S&OP, which is AND. Sales and Operations. To balance demand and supply, you need to bring the S and the O together. The process needs to bring in the owners (those accountable and responsible) for the demand side of the business (sales, marketing, etc) and the delivery side of the business (operations, supply chain, etc). It is an equal partnership, and it requires input and ownership from both sides.
Some organizations who call the process SIOP focus on inventory too much, to the point where it becomes the ownership of operations, and sales becomes very passive in the process.
You can call the process SIOP while effectively using all three buffers and balance Sales and Operations, but we prefer S&OP since it is a better descriptor for what can and should be accomplished in the process.
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