There are many definitions of S&OP. Too many. This is one of the few acronyms in supply chain that everyone recognizes—Sales and Operations Planning. I see this with my LinkedIn posts; I don’t even need to spell it out—just saying S&OP is enough.
But beyond the letters S, O, and P, there are many perspectives on what S&OP truly means. That’s what I wanted to capture in these S&OP equations.
The Equations that Define S&OP
#1 Demand – Supply = 0 → S&OP
This is S&OP in its simplest form. At its core, S&OP is about balancing demand and supply. Historically, this was the primary focus, and for companies starting their S&OP journey, this is where to begin. If demand is greater than supply, there are shortages. If supply exceeds demand, there’s excess inventory. S&OP ensures balance.
#2 Demand – (Inventory + Manufacturing Capacity + Warehousing Capacity) = S&OP
With this equation, I am showing the factors on the supply side. You can see that I have split capacity in manufacturing and warehousing. The reason is that I have seen manufacturing lines running well, but then the warehousing team doesn’t know where to put all these products.
#3 (Operational + Commercial + Financial) X Planning = S&OP
S&OP isn’t just an operational process—it’s cross-functional.
Here, we go beyond balancing supply and demand to include:
- Operational Planning (production, logistics, inventory)
- Commercial Planning (sales, promotions, marketing)
- Financial Planning (revenue, costs, cash flow)
True S&OP integrates all three, ensuring the company operates with one aligned plan.
#4 Forecast + Demand Plan + Supply Plan + Financial Plan = One Game Plan = S&OP
Here we are reinforcing the concept of integrated planning. The different functions in the business align in one single game plan. Without this integration, companies operate in silos, leading to inefficiencies and missed opportunities.
#5 (Demand – Supply) + Finance Integration + Scenario Planning + Portfolio Optimization = S&OP
This is another equation that applies to advanced S&OP. When the business is at this level, we can find portfolio optimization as a formal step in S&OP. Scenario planning is also critical to be better prepared for the world ahead.
#6 Executive Sponsorship + Functional Alignment + Decisions = S&OP
This equation tells us what’s behind a successful S&OP. Each element is critical. Without executive sponsorship, S&OP cannot exist. The same applies to a lack of alignment. Decisions are the key output of S&OP. These decisions go beyond the functional silos, considering the benefit for the business as a whole.
#7 Annual Operating Plan (AOP) Gap + Decisions = S&OP
A key function of S&OP is identifying gaps between the Annual Operating Plan (AOP) and reality. The proxy to reality is the demand forecast.
Most companies set annual targets, but as the year progresses, actual performance deviates. S&OP acts as a correction mechanism, making strategic decisions to stay on track or adjust expectations.
#8 Mix Variance Analysis + Price Variance Analysis + Root Causes = S&OP
S&OP is also about understanding variances.
- Mix variance analysis: Are sales shifting toward lower-margin or higher-margin products?
- Price variance analysis: Are changes in pricing impacting demand or profitability?
- Root cause analysis: What’s driving these shifts, and what corrective actions are needed?
S&OP doesn’t just quantify gaps and changes—it seeks to understand and address root causes.
#9 Demand Review + Supply Review + Reconciliation Review + Executive Review = S&OP
In most S&OP processes, companies follow a monthly meeting cadence:
1️. Demand Review – Validates forecast and assumptions; shows forecast accuracy and bias.
2️. Supply Review – Evaluates whether supply can fully support the demand forecast or if there are constraints.
3️. Reconciliation Review – Aligns finance, operations, and commercial teams. A key point is defining whether the business can meet the plan.
4️. Executive Review – Final decision-making meeting.
#10 Balanced Scorecard with Metrics + Performance Assessment + Decisions = S&OP
S&OP is about making data-driven decisions. It is not just sharing information.
For this, we want to make data actionable. A balanced scorecard tracks key metrics from different perspectives, providing a holistic approach compared to traditional KPIs (key performance indicators).
A performance assessment helps identify what’s working and what’s not, making it a valuable tool for improving S&OP.
#11 Higher Service Levels + Inventory Reduction = S&OP
When we have the fundamentals right, a successful S&OP process delivers higher service levels (product availability) while reducing inventory levels. These benefits also have a positive impact on the financials.
In the infographic bundle, there is one-pager that shows the benefits of S&OP.
#12 Operational Efficiencies + Strategic Decisions = Greater Profits + Better Cash Flow = S&OP
Ultimately, S&OP is about business impact.
Operational efficiencies reduce costs.
Strategic decisions (like adjusting product mix or investing in capacity) drive long-term growth.
Profitability and cash flow improve, making S&OP a strategic process, not just within the supply chain world.
S&OP is my favorite topic. Typically, I have only one question but this time I have 3 questions for you:
- What does S&OP mean to you?
- What is your favorite equation? If not listed, please also share.
- In only one word, what is S&OP?
