In microeconomics, supply and demand is an economic model of price determination in a market. It postulates that in a competitive market, the unit price for a particular good, or other traded item such as labor or liquid financial assets, will vary until it settles at a point where the quantity demanded (at the current price) will equal the quantity supplied (at the current price), resulting in an economic equilibrium for price and quantity transacted.
Across all industries, one of the most common problems facing manufacturers is the difficulty of effectively balancing demand with supply. Manufacturers are continually faced with the challenge of determining what to make, how much to make, and when to make it. When companies fail to meet this challenge effectively, they suffer a multitude of consequences.
Demand and supply matchmaking is a constant struggle. The consequences of poor customer service, high inventories, cash flow difficulties, and failure to meet planned business goals lead companies in search of a process to better manage the delicate balance of demand and supply.
Sales and Operations Planning
Sales and operations planning (S&OP) is a business process that helps companies better manage demand against supply. The APICS Dictionary defines the S&OP process as "the function of setting the overall level of manufacturing output and other activities to best satisfy the current planned levels of sales, while meeting general business objectives of profitability, productivity, competitive customer lead times, inventory and/or backlog levels, etc." S&OP enables management to establish the desired levels of customer service, inventory levels, and production plans. More importantly, it guides the organization toward managing their business proactively towards optimal performance.
Sales and Operations Planning Business Process
The S&OP process is rigorous. Held on a monthly basis, it includes representatives from most functional areas, including top management, sales and marketing, manufacturing, engineering, and finance. The goal is to reach consensus on the current status and future plans for each product family, for both demand and supply.
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