Sales & Operations Planning (S&OP)
📈 Balancing demand and supply
Also known as	Aggregate planning, production planning
Horizon	12–36 months
Frequency	Monthly
Key input	Demand forecast, business plan
Key output	Production plan by product family
Feeds into	MPS
Part of	MRP II

Sales & Operations Planning (S&OP)

Sales & Operations Planning (S&OP) is the highest-level planning process within MRP II. It is a monthly, cross-functional process that balances aggregate demand (from sales and marketing) with aggregate supply (from operations and manufacturing) at the product-family level. The output — a consensus production plan — constrains the Master Production Schedule and aligns operational plans with the company's financial and strategic objectives.

Contents

Purpose
The five-step monthly cycle
Inputs and outputs
Production strategies
Relationship to other modules
See also

Purpose

S&OP exists to answer the question: "At the product-family level, how much should we produce in each period over the next 12–36 months?" It resolves the natural tension between sales (who want maximum product availability) and operations (who want stable, efficient production). Without S&OP, the MPS may be infeasible — overpromising to customers while exceeding available capacity or inventory targets.

The five-step monthly cycle

graph LR
    A["1. Data
Gathering"] --> B["2. Demand
Planning"]
    B --> C["3. Supply
Planning"]
    C --> D["4. Pre-S&OP
Meeting"]
    D --> E["5. Executive
S&OP Meeting"]
    E -.->|"approved plan"| MPS["MPS"]

    style A fill:#f8f9fa,stroke:#333
    style B fill:#d5e8f5,stroke:#333
    style C fill:#d5f5d5,stroke:#333
    style D fill:#fff3cd,stroke:#333
    style E fill:#cedff2,stroke:#333

Data Gathering — Collect actual sales, shipments, inventory levels, and production performance from the prior month.
Demand Planning — Sales and marketing update the statistical forecast with market intelligence, promotions, and new product launches.
Supply Planning — Operations develops a proposed production plan that meets the demand plan within capacity and inventory constraints.
Pre-S&OP Meeting — Cross-functional managers review gaps between demand and supply, propose alternatives.
Executive S&OP Meeting — Senior leadership approves the plan (or resolves remaining conflicts), authorising it as the company's operating plan.

Inputs and outputs

Inputs	Outputs
Business plan & strategic goals	Approved production plan (units by product family by month)
Demand forecast (statistical + judgmental)	Inventory/backlog targets
Current inventory & backlog levels	Resource requirements (workforce, equipment)
Resource capacity constraints	Financial projection (revenue, cost, margin)

Production strategies

S&OP must choose a fundamental strategy for each product family:

Level strategy — Produce at a constant rate; absorb demand fluctuations with inventory or backlogs. Minimises hiring/layoff costs but increases inventory carrying cost.
Chase strategy — Adjust production rate to match demand each period. Minimises inventory but incurs higher labour and capacity adjustment costs.
Hybrid strategy — A blend of the two, often the most practical choice.

Relationship to other modules

graph TB
    BP["Business Plan"] --> SOP["S&OP"]
    SOP -->|"constrains"| MPS["MPS"]
    MPS -->|"drives"| MRP["MRP"]
    MPS -->|"checked by"| CRP["CRP"]
    SFC["SFC"] -.->|"actuals"| SOP

    style SOP fill:#cedff2,stroke:#333

S&OP sits between the business plan and the MPS. It translates strategic intent into an operational production rate. The Master Production Schedule then disaggregates this into individual item-level schedules. Feedback from Shop Floor Control on actual production and from Inventory Management on stock levels informs the next month's S&OP cycle.