Definition of S&OP Terms

 

The following are examples of definitions used in Sales & Operations Planning. Each company has to discuss, document, tailor to your environment and agree to the specific definitions used in its company. These definitions are used to define the data collection process.

Assumptions: Information about demand streams that is used to create a sales plan. Examples would be:

·        price reduction will increase sales 8% within 30 days

·        new packaging will increase sales by 12%

·        Competitor X will increase prices 4% within 90 days

·        New product Z will have 15% market share within 12 months

·        International sales will be 20% of total business volume

Backlog: All customer orders that have been received, but not yet shipped. They are not necessarily late or past due. Past due orders or back-orders would be considered a part of the customer order backlog. The orders may be in the order entry process, credit check, on hold, engineering, already produced, or in production but not shipped.

Back Orders: Customer orders that were due to be shipped in prior periods but have not been shipped.

Booking: Refers to the act of accepting a customer order. The customer order may have incomplete information (design, credit, terms, shipping, etc.) but a commitment to provide the product has been made to the customer.

Cycle Time: The time from the receipt of a customer order through shipment.

Data Collection Process: The formal month-end activity that produces the demand and supply data to support the S&OP process. This includes total sales, total production, finished goods inventory ending balance by family. This process also could be the source for the performance metrics used in steps 1-5 of the S&OP process.

Demand: Forecasts, customer orders, changes in inventory levels, changes in customer order backlog levels. These are examples of different demands that need to have supply matched to them.

Demand Planning: An ongoing day to day process within all levels of sales and marketing. This process is used to develop sales plans, inventory plans, customer order backlog plans, document and update market assumptions, document sales and marketing action plans, and document the risks associated with these items. Typically, as part of the S&OP process, a recommended production plan is created.

Demand Manager: An individual whose primary responsibility is to support the demand planning process. This individual will typically be involved in the collection, organization, analysis of information concerning sales, forecasts, action plans, inventory levels, financial objectives and production activities.

Demand Streams: The different types of demands which affect a particular product family. Examples are sales plans, international, OEM, aftermarket, actual customer orders, new products, service parts, sister plants, samples, trials, etc.

Finished Goods Inventory - On Hand: Good quality finished product that is within your control (some examples are your warehouse, a supplier’s warehouse or a third party distribution warehouse) that has not yet been shipped or invoiced to a customer. It may be committed to an order, or available for allocation.

Forecast: Typically means a prediction of future customer orders or future shipments that have not been received or shipped yet. In many companies this is a mathematical calculation. (See sales plan)

Inventory: Inventory that is stocked in anticipation of customer orders for assemble or finish‑to‑order products. This may include "in-process product" and raw material.

Inventory Plan: The agreed upon inventory plan by month by family for the next 12 months of the planning horizon.

Inventory Targets: These are the goals or objectives (dollars or units) that are established as guidelines for each family. The inventory targets are used to validate the inventory plans. In seasonal companies, a min and max target can be set for different times of the year.

Month: The planning period used in S&OP. This should match the fiscal periods used in accounting. Some companies have 13 fiscal periods instead of 12 months.

Month End: The end of the planning period. This is used as the cutoff time for transactions. It should match the cutoff time of the fiscal period used in accounting.

Pareto: A problem solving tool used to separate out the trivial many from the key few. This is sometimes referred to as the 80/20 rule.

Past Due: An activity that was scheduled to be completed prior to the current date. This can apply to customer orders, production, engineering tasks, action items, etc.

Planning Horizon: The number of future periods for which both demand and supply data will be provided. This should be a minimum of twelve months.

Product/Process Family: A grouping of items that have production resource commonality. This grouping is used to facilitate modeling, production planning and analysis of "what if" scenarios.

Production: An item that has been completed in manufacturing and has been accepted into finished goods inventory or shipped. The production facility could be a supplier.

Production Days: The number of scheduled work days each month for production operations. This may vary by department or work-center or product family.

Problem Solving Tools: Tools used to identify process problems and to find the root causes of the process problems.

Root Cause Analysis: A key step in solving business process problems. Several problem solving tools exist to assist in finding root causes of business problems. Finding the root cause allows process owners to make fundamental process changes to eliminate or reduce the occurrence of process problems.

Sale: Usually refers to a customer order that has been shipped and invoiced. In many companies there is a time lag between "booking" an order, "shipping" the order and "invoicing" the customer. Sometimes people will use these as interchangeable terms. This creates lots of confusion. We suggest that a common standard definition be created and used.

Sales Days: The number of selling days each month for customers.

Sales Family:  A grouping of items that have a sales related commonality. This grouping is used to facilitate modeling, sales planning, and analysis of "what if" scenarios.

Sales Plan: A collection of information that provides specific quantities and dates by product family or specific item and includes specific action steps and assumptions about the market place, customers, products, competitors. A forecast is typically one component of a sales plan. This is one of the key inputs into the supply planning process. This plan is converted to dollars and is used as input to the financial plan.

Shipment: A customer order (both internal and external customers) that has physically been transferred to another site, customer or freight company. A bill of lading is typically used to recognize shipment. This could be totally independent of  sales, booking, or invoicing.

Simulation Forecast: Used for long range material, capacity and facility planning.

Supplier: A production resource that is not under the direct control of management. Maybe be owned by the same company or totally independent.

Supply Planning: The process of establishing production plans for each family by utilizing rough cut capacity tools, production factors, key supplier capabilities, and other resource constraints. The sales, inventory, customer order backlog plans are key inputs into this process.

Time Fence: Typically the sum of the critical path lead times for any item. This includes order entry, engineering (for items not pre-engineered), purchase, fabricate, sub-assembly and final assembly, and test.