S&OP: compare demand, capacity and financial choices

Sales and operations planning (S&OP) brings sales, operations, procurement and finance together to agree an aggregate business plan. The useful outcome is a decision about demand, supply and their financial consequences, followed by work that the responsible teams can carry out.

A family forecast of 200 units can look unchanged while its production load increases. If the mix has moved toward the slower product, a unit total hides the constraint. This guide follows a fictional planning review from that mix change to a costed choice, keeping the demand plan visible throughout.

Agree what the planning review must decide

SAP's S&OP overview describes cross-functional demand and supply planning, reconciliation and management approval. A monthly cycle is common, but the appropriate horizon, families and review frequency depend on the business.

Use the review to settle the aggregate plan and unresolved tradeoffs. Bring a dated demand version, its assumptions, the supply constraints and a financial comparison on a stated basis. Sales explains the demand; operations tests the supply options; procurement checks the supplier inputs; finance checks the financial measure. The authorized management team chooses the plan and accepts or escalates the remaining exposure.

Keep three things identifiable: what the market or customers are expected to need, what the business plans to supply, and what it has actually committed to individual customers. Reducing the supply plan to fit capacity does not remove demand or authorize a customer-date change.

Count firm orders inside the forecast once

The example is one future month extracted from a rolling plan for an actuator family with variants A and B. All quantities, hours and amounts are invented. All money is in EUR.

For this example, the agreed forecast already includes firm orders for the same variant and month. Each firm-order unit consumes one forecast unit. This is a stated convention, not a rule for every ERP or demand model.

The planning demand is 200 units, consisting of 120 firm and 80 forecast units not yet covered by firm orders. Adding 120 to the inclusive forecast of 200 would double-count demand and produce a false total of 320.

Before using a real report, establish whether its forecast is inclusive or additional, how orders consume it, and which dates and units apply. Retain the source and version when sales changes the mix.

The same 200 units now need 80 more hours

Assume opening stock of 20 A and 10 B, usable and unallocated to other demand. These are planning assumptions, not an independently verified physical count. There is no opening work in progress, other inbound supply, scrap or required ending stock in this simplified example.

Both variants share a constrained work centre. A needs one productive hour per new unit; B needs three. Normal available capacity is 280 productive hours, after other accepted work, maintenance and setup. Assume the other operations, materials, receiving and release arrangements can support the modeled monthly quantities. Actual detailed timing still needs validation.

An earlier version of this same month's forecast had 160 A and 40 B. Sales now proposes the 120 A and 80 B above. The total remains 200.

The mix change adds 80 hours, and the revised plan exceeds normal capacity by 310 − 280 = 30 hours. An average carried forward from the previous mix would understate the revised load. Use the applicable product mix and resource basis; the supplier capacity guide covers the separate evidence behind capacity and competing allocations.

Compare a constrained plan with an additional capacity block

At 280 hours, one option is to produce 100 A and 60 B: 100 × 1 + 60 × 3 = 280. Adding opening stock supports planned shipments of 120 A and 70 B, or 190 units. The ten-unit gap is B forecast demand. Both variants' firm orders are covered first in this example, so this gap is not an actual customer backorder.

For comparison, assume a qualified additional block of 30 productive hours is available for a fixed incremental charge of €1,500. It brings total capacity to 310 hours and supports the full revised mix. The charge is for the block; it cannot be prorated when comparing fewer additional units shipped.

Finance supplies a planning contribution of €80 per A unit shipped and €180 per B unit shipped, after all other modeled variable costs but before this additional fixed charge. Assume those per-unit contributions apply to both options, with no further incremental costs. This defined measure excludes common fixed expenses, tax, financing and inventory valuation. It is not company net profit or cash savings.

The normal-capacity contribution is 120 × €80 + 70 × €180 = €22,200. Supplying the full mix gives €24,000 before the additional charge, then €24,000 − €1,500 = €22,500. The improvement within this model is €300, not the €1,800 contribution from the ten additional B units shipped before paying for capacity.

That small difference makes the demand assumption worth examining. Shipping eight additional whole B units contributes €1,440 before the fixed €1,500 charge, leaving a €60 shortfall. Nine contribute €1,620, leaving €120. The continuous break-even volume is €1,500 ÷ €180, about 8.33 units; at least nine additional whole B units must therefore be shipped.

The ten additional B units are forecast demand, not firm orders. Sales must support that outlook, and finance must check the actual cost basis. A positive modeled contribution does not guarantee those shipments or decide the business's service and risk priorities.

Record the decision and the conditions behind it

Suppose the authorized team accepts the forecast risk and chooses the additional block. Record the approved family plan of 120 A and 80 B, the 30-hour addition, the maximum €1,500 incremental charge, the demand version and the assumptions supporting the choice. Keep the normal-capacity alternative and its ten-unit forecast gap alongside it.

Give the follow-through specific owners. Planning validates the detailed sequence and calendars. Procurement confirms the supplier inputs and their usable dates. Finance verifies the charge and contribution basis. Sales monitors conversion of the remaining forecast and owns customer-facing commitments through the agreed process.

One possible conservative review trigger before committing the block is that sales no longer supports a plan for at least nine additional whole B units to be shipped. This is a planning trigger, not a universal approval rule. After commitment, evaluate incurred charges and cancellation terms separately; do not assume the block can be canceled without cost. Changed capacity, material or release assumptions also require a fresh decision.

Infor's S&OP explanation separates aggregate goals from downstream site and item decisions. Carry the approved plan into master scheduling and MRP, then check the detailed dependencies. A monthly total does not prove that a particular order can arrive on a particular day. Use the sales-order guide for an actual customer change and acceptance.

In Cartograph, the data model links sales orders, production orders and purchase orders. Inbox & Tasks keeps an unresolved supplier question with its owner, linked records, communications and approval history. Use configured permissions for follow-up. The planning and finance teams maintain the calculations; the authorized management team approves the plan, and the evidence behind a supplier input remains available when an assumption changes.

Questions teams ask

What does S&OP stand for?

Sales and operations planning. It is a cross-functional process for reconciling aggregate demand, supply and financial objectives and approving a plan. The example shows one period of that process, rather than a complete company implementation.

Should open customer orders be added to the forecast?

First establish the report's convention. In this example, the 200-unit forecast already includes 120 firm-order units, leaving 80 unconsumed forecast units. Adding all orders again would double-count them. Other systems and planning rules need their own reconciliation.

Is the example's €300 improvement a profit forecast?

It is the difference between two explicitly defined planning contributions: €22,500 minus €22,200. The figures use assumed shipments, per-unit contributions and a fixed capacity charge. They do not establish company net profit, cash savings or a realized result.

Does aggregate plan approval confirm customer delivery dates?

No. Detailed material, capacity, receiving, quality and transport checks still apply, as do the authorized customer and supplier change processes. Retain the demand plan, chosen supply plan and accepted customer commitments as distinct records.