Supply Chain Strategy

Why traditional sales and operations planning (SOP) does not work anymore, and what can companies do to bring SOP into the twenty-first century.

In a quotation famously, and perhaps apocryphally, attributed to Intel Corporation founder Andy Grove, he said: “For one brief moment the demand will equal supply and we will have the perfect union. Rest of the time we struggle with either too much supply or too much demand.”

Understanding and acceptance of the fundamental truth in the above quotation is perhaps the start of i-SOP – intelligent sales and operations planning. No demand forecast is perfect and no supply system is capable of meeting all the demand perfectly all the time.
The result we are seeking is to work collaboratively, in order to create an organisation capable of maximizing profitability under every demand and supply condition it could possibly encounter. That, in itself, is a lofty goal, given we don’t even know the whole range of demand and supply conditions that could possibly be encountered.

​Intelligent sales and operations planning
Amazon Supply
So, what does a well-functioning i-SOP organization look like? Let us start with the end in mind. The goal we are seeking from this i-SOP process is profit maximization. It is not inventory minimization – numerous IT systems purport to do this, and many do an adequate job.

It does not cost minimization. Again numerous supply chain systems do this adequately enough. The goal is not revenue maximization either; multiple yield management systems do that adequately enough.

The end goal of a successful i-SOP process is profit maximization. To our knowledge, no IT system does this adequately enough – hence the need for an elaborate process aided by a toolkit…