Building Your First S&OP Process: A Step-by-Step Guide

If you've ever spent the last week of the month frantically expediting raw materials because sales landed a "surprise" deal, or watched inventory expire because marketing cut a promotion without telling operations, you already know why you need Sales and Operations Planning (S&OP).

The pain of disconnected planning is real. It shows up as stockouts, excess inventory, finger-pointing in meetings, and missed financial targets.

The S&OP process is the antidote to this chaos. It isn't just another meeting—it's the decision-making heartbeat of a healthy company. It aligns your commercial teams (who generate demand) with your supply chain teams (who fulfill it) and your finance teams (who pay for it).

If you are starting from scratch or trying to formalize a loose set of spreadsheets and emails, this guide is for you. We'll walk through exactly how to build your first S&OP cycle, who needs to be in the room, and how to survive your first executive meeting.

The 5 Steps of the S&OP Cycle

A standard S&OP cycle typically runs on a monthly cadence. While every company tweaks the timing, the core logic remains the same: gather data, align demand, align supply, reconcile differences, and make executive decisions.

Step 1: Data Gathering

Week 1

Before you can make decisions, you need the truth. This step involves closing the books on the previous month and updating your baseline data.

• Update Actuals: Load last month's sales data, production output, and inventory levels.
• KPI Review: Calculate forecast accuracy, manufacturing schedule attainment, and On-Time In-Full (OTIF) rates.
• Baseline Forecast: Generate a statistical forecast for the next 12-18 months based on history.

Pro Tip: Don't spend weeks here. If you're manually pasting CSVs for three days, you're already behind. Automating this step is the first big win of modern planning.

Step 2: Demand Review

Week 1-2

The goal here is an unconstrained demand plan. "Unconstrained" means asking: If we could make everything customers wanted, what would we sell?

• Inputs: Statistical baseline, marketing calendar, sales pipeline data.
• Who: Sales leaders, Marketing, Demand Planners.
• Output: A consensus demand plan in units and revenue.

This is where you capture market intelligence that history can't predict—like a competitor going out of business or a new product launch.

Step 3: Supply Review

Week 2

Now, operations looks at the demand plan and asks: Can we actually make/buy/ship this?

• Inputs: The consensus demand plan from Step 2.
• Activities: Check machine capacity, labor availability, material constraints, and logistics.
• Output: A constrained supply plan and a rough-cut capacity plan (RCCP).

If demand exceeds supply, operations needs to propose solutions: overtime, outsourcing, or pre-building inventory.

Step 4: Pre-S&OP (Partnership Meeting)

Week 3

This is the rehearsal. The S&OP leader, finance, and key stakeholders meet to resolve 80% of the issues before the executive meeting.

• Goal: Reconcile demand and supply. If you can't meet demand, decide what gets cut or delayed based on margin/strategy before bothering the CEO.
• Gap Analysis: Compare the financialized plan against the annual budget. Are you hitting the revenue target? Are inventory costs ballooning?
• Preparation: Build the deck for the Executive S&OP.

Step 5: Executive S&OP

Week 4

The main event. This is a decision-making forum, not a "show and tell."

• Who: CEO/General Manager, VP of Sales, VP of Ops, CFO.
• Agenda: Review KPIs, approve the plan for the next cycle, and resolve the toughest escalations (e.g., "Do we spend $500k on air freight to save the Q3 target?").
• Output: One approved operating plan for the entire company.

Who Should Be in the Room?

S&OP fails when the right people aren't involved. You need authority in the room to make binding decisions.

| Role | Responsibility | |------|----------------| | Executive Sponsor | Often the COO or CEO. Breaks ties, enforces attendance, and owns the final plan. | | Sales/Commercial | Owns the revenue number. Provides market intel and signs off on the forecast. | | Operations/Supply Chain | Owns the ability to execute. Provides capacity constraints and inventory risks. | | Finance | Owns the budget. Validates that the operational plan meets financial targets. | | Marketing | Provides visibility into promotions, product launches, and pricing changes. | | S&OP Leader | The facilitator. Owns the process, the calendar, and the data deck. |

Setting Up Your First Cycle

Don't aim for perfection in month one. Aim for completion.

1. Start with a Monthly Cadence: Pick a "go-live" month. Work backward to schedule your meetings.
2. Define Inputs/Outputs: Create a simple checklist. (e.g., "Sales must submit forecast updates by Day 5").
3. Create Templates: Don't let every department bring their own format. Creating a standard "S&OP Deck" is crucial for consistency.
4. Set Expectations: Tell stakeholders, "The goal isn't to be perfect. It's to be aligned. We will be wrong, but we will be wrong together."

Example S&OP Calendar

A typical monthly rhythm looks like this:

| Week | Activity | Owner | |------|----------|-------| | Week 1 | Data cut-off, update actuals & baseline | Demand Planner | | Week 1-2 | Demand review meetings (Sales & Marketing input) | Sales/Marketing | | Week 2 | Supply review meetings (Capacity check) | Operations | | Week 3 | Pre-S&OP reconciliation (Resolve 80% of issues) | S&OP Coordinator | | Week 4 | Executive S&OP meeting (Final decisions) | S&OP Leader |

The S&OP Meeting Agenda (Template)

Your executive meeting should be 90 minutes max. If it goes longer, you're diving too deep into the weeds.

EXECUTIVE S&OP MEETING AGENDA (90 minutes)

1. Opening & Metrics Review (15 min)
   - Last month's plan vs actual
   - Key KPIs: accuracy, service level, inventory

2. Demand Review Summary (20 min)
   - Consensus demand vs previous plan
   - Key assumptions and risks
   - Major variances requiring discussion

3. Supply Review Summary (20 min)
   - Capacity status
   - Constraints and risks
   - Mitigation options

4. Gap Analysis & Scenarios (20 min)
   - Demand-supply gaps
   - Scenario options (if applicable)
   - Financial implications

5. Decisions & Action Items (15 min)
   - Approve/modify plan
   - Escalated decisions
   - Action items with owners

Note: For a deeper dive into how this differs from other planning methodologies, check out our guide on S&OP vs. SIOP.

Common S&OP Mistakes

We've seen many companies launch S&OP with fanfare, only to let it fizzle out six months later. Here is what usually goes wrong:

• No Executive Sponsorship: If the CEO doesn't care, nobody else will prioritize the meetings.
• The "Data Show": The meeting becomes a history lesson where people read slides about last month. S&OP is about the future. Spend 20% of time on the past (learning) and 80% on the future (planning).
• Too Much Detail: Executives don't need to know about SKU #12345's packaging delay unless it impacts the quarter's bottom line. Aggregation is your friend.
• No Consequences for Misses: If Sales consistently forecasts +20% and misses, and Ops builds inventory for it, there must be accountability.
• Tool Before Process: Buying expensive software before you have a meeting cadence and defined logic is a recipe for disaster. Fix the process first.

Measuring S&OP Success

How do you know if it's working? Look at your business health, not just meeting attendance.

• Forecast Accuracy: Is the gap between plan and actual shrinking?
• Plan Attainment: Are you actually executing what you agreed to in the meeting?
• Inventory Turns: Are you carrying less safety stock because you trust the signal more?
• Service Levels: Are OTIF rates improving?
• Meeting Effectiveness: Are decisions actually being made, or are items deferred to next month?

Maturing Your Process Over Time

Your first S&OP cycle will feel clunky. That's normal. Once you have the basic rhythm established (Level 1), you can start maturing the process (Level 2+).

• Add Scenario Planning: Instead of one plan, bring three options: "Base," "Upside," and "Downside," with financial implications for each.
• Integrate Financial Planning: Move from reconciling units to reconciling P&L impact in real-time. This is often called Integrated Business Planning (IBP).
• Continuous S&OP: Move away from batch processing at month-end to a more continuous flow of information, often enabled by modern platforms.

How Software Enables Better S&OP

While you shouldn't buy software to fix a broken process, you also can't scale S&OP on spreadsheets forever. Excel is great for flexibility but terrible for collaboration and version control.

A dedicated platform like DemandPlan helps by:

1. Automating the grunt work: Automatically generating statistical baselines so you start Step 2 faster.
2. Visualizing gaps: Instantly showing where demand exceeds supply capacity.
3. Scenario modeling: Letting you toggle "What if we win that big contract?" and seeing the inventory impact instantly.

For more on laying the groundwork for tools, read about building your demand planning process.

Conclusion

Building your first S&OP process is an investment in sanity. It moves your organization from reactive firefighting to proactive orchestration.

Start small. Get the right people in the room. Focus on the next 3-12 months. And most importantly, focus on making decisions. The perfect plan doesn't exist, but an aligned plan is powerful.

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Ready to streamline your S&OP cycle? See how DemandPlan can help you automate data gathering and focus on strategy, or explore our complete S&OP vs SIOP comparison.