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S&OP: Getting to “The Story” Interpreting the numbers to help you make decisions

Updated: Nov 17, 2022

Getting to the Story

Here are two of the most frequent S&OP questions that I am asked:

From the S&OP team: How do we get senior management, especially our CEO, involved in the S&OP process?

From the CEO: What should my role be in the S&OP process?

It should be obvious that you need to answer the second question first. In this article, I will share my opinions on the CEO role and how you should approach the S&OP process. As CEO, you need to hold your team accountable and make the tie breaking decisions. To do this, you need to understand the numbers and then get past the numbers to “The Story”. I will shed some light on understanding the numbers and getting to “The Story”. Holding people accountable and making decisions is why you get to be CEO.


For the purpose of this article, I am going to assume you are using some version of the standard 5-Section S&OP sheet. You may have a slightly different format but you should be able to relate to the one below.

5 Section Sheet

Definitions of the terms vary from organization to organization so I need to document the ones I will be using in this article.

  • Bookings are customer orders taken during the period. The bookings for a month would be the sum of all of the customer orders received, regardless of planned ship date.

  • Shipments are all of the shipments during the period. This term can get fuzzy as we look at inter-company shipments, progress billings and FOB points. For the sake of simplicity in this article I am going to assume shipments and billings are the same and that this transaction occurs when material leaves the finished goods inventory linked to the production facility.

  • Backlog are all of the open customer orders for the family. This would include past due and future orders. Bookings increase the backlog and shipments decrease it.

  • Aged Backlog are the open customer orders placed in their planned shipping period.

  • Production is the total finished product produced for a family in a period.

  • Inventory is the finished goods inventory for the family at the end of the period.

Getting to “The Story”

Take a look at the S&OP 5-Section sheet again. There are more than 250 numbers on this family presentation. That’s a lot of numbers. How do you quickly work through all these numbers and get to “The Story”? I am going to outline my approach, not to suggest it is the only approach, but it works for me. So here it is step by step:

1. Validate the numbers. Having been fooled by Excel magic in the past, I do checks to make sure people are paying attention to the data. Checking won’t prove that the data is right but it will uncover some of the common problems:

Validate the Numbers

a) Take the actual opening backlog, add the bookings and subtract the shipments. Check the result against the closing backlog. In this case, the December closing backlog was 150, the January bookings were 460 and the January shipments were 410. The resulting backlog should be 200, and it is. The numbers check but you would be amazed how often they don’t. Make sure your team understands you check them and you expect them to cross-check.

b) Do the same for inventory. The opening inventory (previous month’s closing inventory), plus production, minus shipments should equal the closing inventory. In this case, the December closing or January opening inventory was 50 units, production was 410 and shipments were 410 so the ending inventory should be 50. It is, and the numbers tie out.

2. Check last month’s performance to plan. The grey column (in The 5 Section Sheet) represents the month just closed. The previous S&OP represents the previous month’s plan for that month. The current S&OP represents the actual results. Compare the plan to the actual and see how you did. For example:

Checking Performance

a) Bookings were planned at 410 and they came in at 460. This is a 50 unit variation or more than 10%. If the booking tolerance for this family is +/- 10%, then the bookings for this family are out of tolerance. I would expect answers. Looking at the past, it looks like the actual bookings have been higher than the call for the last four months. Hold that thought.

b) Shipments were planned at 420 units and the actual shipments were 410. Not a big miss, but 30 units in the backlog went past due and the bookings were strong. That’s another thought to hold on to.

c) The backlog was planned at 140 and actually came in at 200. You can probably see where the 140 was higher than target because of production constraints. In fact, the target is actually to get the backlog down to 100 units. It went the wrong way. There could be customer service and lead-time issues on the horizon. (Some people will add a row for the target backlog.)

c) Production was planned at 400 units and the actual was 410. Not a big variance and probably not an issue.

d) Inventory was planned at 60 units and came in at 50. The financial people may say this is good but the targeted inventory is 100 units. For four months in a row, the inventory has come in low.

3. Look at the changes to the future plan. Compare the previous S&OP to the current S&OP from Month 1 (February in this case) out into the future.

5 Section Sheet

a) The February bookings have been turned up from 410 to 430 and the March bookings have been turned up from 500 to 540. The demand owners are getting more bullish, probably based on the last four months history of under calling demand.

b) The February shipments have been held constant and the March shipments have been reduced by 10 units. The shipments start to catch up to the bookings from April onward.

c) The backlog continues to grow into April and then comes down but never to the target of 100.

d) Production has been turned up slightly in February, (usually not a good idea to change Month 1 as it is probably locked in. In this case the change of 5 units is eraser dust). It has been turned up for most of the rest of the year as well.

e) Inventory has been adjusted to come back close to plan in April.

4. Look for “The Story”. In this case it is pretty straight forward.

a) We have been booking over plan for the last four months and we have been slow to react to the sales increase.

b) As a result, the backlog has increased and the finished goods inventory has fallen below target.

c) We are probably experiencing service issues in this family.

d) The production response to the demand change is lagging behind sales due to current output constraints and the responsiveness of the supply chain.

e) In total we are 100 and 50 units behind. The backlog has increased by 100 units over target and the finished goods inventory is 50 units below target for a total of 150 units. This is roughly one to two weeks at current output rates.

5. Ask the hard questions.

a) To Sales: Are we still under calling the bookings? We have under called the plan for four months in a row. Is the plan going forward pessimistic? If so, what is the upside that we may be faced with?

b) To Production: What would we have to do to bring the backlog back down to 100 units by April? This would mean adding 130 units to production assuming we hold the same booking plan. If the booking plan is increased again next month, when could we respond to the change? What are the constraints and what are the options?

6. Make the decisions. The S&OP data is only a portion of what goes into making decisions but it does at least give some hard facts. Here is what this CEO is faced with: Do I increase output to bleed off backlog and put myself in a better position for demand increases? If I do, and the demand falls off, I will end up with inventory and I will need to turn off capacity. If I don’t and the demand increases I will get further behind and risk serious service issues.

Making Decisions

The numbers can’t make the decision but they are a big help. In this case, production should be throttled up to at least re-balance the inventory and backlog. Based on the history of under calling sales, I would be inclined to error on the high side of production and be prepared to adjust it down next month. Each family will have a different story every month. However, if you follow these steps to interpreting the data and getting to “The Story” and then combine “The Story” with your intuition, you will make better decisions.

This post was originally published in the DBMExecutive on March 17, 2010. You can download the original PDF here.


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