Sales and Operations
The growing complexity of organizations – SKU proliferation, new product launches, shortened lead times, and pressure for more data and better customer service levels is continuously challenging sales and operations planning processes.
Sales and Operations Planning (S&OP) is a strategic business process that companies use to synchronize the executive, sales, and financial operations to gain alignment on goals and achieve better business results. During the Sales and Operations Planning process, an execution plan is developed to align its strategic goals with the business plan. The Sales, Operations, and Finance teams work to align innovation, supply chain, marketing, and sales towards those goals by creating detailed forecasts for the predicted sales. It is a customer-driven business process with a mid to long-term horizon.
Sales and Operations Planning
Sales and Operations Planning (S&OP) is how departments collaborate to build detailed forecasts for the predicted sales. It creates transparency between departments and helps organizations to ensure proper alignment and achieve profitability. Organizations often plan in silos using offline plans and forecasts. Without this collaboration and transparency or an integrated strategy, companies can experience an inability to keep plans updated, inventory issues, inaccurate forecasting, and failure to respond rapidly.
All of this leads to higher operating costs and other inefficiencies throughout the supply chain.
Sales and Operations Planning involves a process by which tactical plans are created and linked together. The plans can be monthly, yearly, or more.
The benefits of S&OP include:
- Alignment and transparency between departments
- Informed decision-making around supply and demand
- Increased customer experience through a streamlined process
- Improved inventory management
- Better forecasting – for sales, production, and inventory
- Improved product life cycle management and new product introductions
The S&OP Process
The S&OP Process is critical for any business. Without this alignment, organizations run the risk of not achieving their profitability goals or customer service levels.
The planning process includes forecasting, demand and supply planning, and executive review.
- Forecasting – Gather data about historical sales and forecast. Consider internal and external factors that might impact sales (competition, customer trends, etc.).
- Demand planning
Demand planning is when cross-functional collaboration becomes important. The forecasts are analyzed, and adjustments are made to inventory and customer service policies based on the product demand and sources of demand. The demand can be measured in either revenue or units of a product.
- Supply planning
Supply planning involves representatives from finance, operations and materials teams that evaluate capacity. They determine the effects of the plan on people, machinery, and suppliers and build the plan accordingly.
- Pre-S&OP meeting
Leaders from finance, sales, marketing, operations, materials, product management, and human resources meet to collaborate. They’ll compare the forecasts to the demand and supply plans, and they’ll consider the financial impact of the plans.
- Executive S&OP meeting
Executives meet to analyze all the forecasts, plans, and recommendations from the pre-S&OP meeting. By the end of the executive S&OP meeting, a final sales and operations plan will be approved.
- Finalize and implement
Once the sales and operations plan has been approved, it is time for implementation. After implementation, the S&OP should be evaluated on a regular basis to ensure success.
The final output isa business plan with six plans linked to it:
- Financial plan
- Sales plan
- Operations Plan
- Inventory Plan
- Marketing Plan
- Product Life Cycle Plan
The S&OP team uses these inputs to manage supply and demand and considers product mix, new product introductions, sales and marketing promotions, product life cycles, and inventory management.
The S&OP plan sets the overall level of manufacturing output (production plan) and other activities. It seeks to satisfy the current planned sales levels based on inputs from the sales and marketing plan while meeting profitability, productivity, and customer lead times. It establishes production rates to affect inventory levels, customer backlog levels, and workforce stability. It looks far enough out to plan labor, equipment, facilities, materials, and finances. Below is a diagram that illustrates the continuous S&OP process.
The President or Chief Executive Officer should sponsor the S&OP Team. The team should include the functional heads of sales, marketing, manufacturing, product development, finance, supply chain, and systems and key individuals from master production scheduling, forecasting, production & inventory control, and procurement.
The team charter should define the scope. Determine whether it has Global S&OP vs. Regional S&OP responsibilities and define the product families.
The scope of the S&OP team should not exceed 12 product families. Products included in a specific family most have a proportional impact on:
- Costs
- Revenues
- Production Capacities
- Supplier Capacities
Units of measure must be consistent within a planning family with a direct relationship to the manufacturing process. The units of measure must provide a consistent translation back to the currency for financial analysis.
Next, define a planning format. Below is a time-phased matrix that can serve as a guide:
It is recommended that you use an integrated S&OP technology (such as Outperform Planning) to bring any level of sophistication to the process.
- Sales History
- Production History
- Historic Inventory Levels / Backlog
- Current Forecast
- Current Master Production Schedule / Production Plan.
Use this data and the S&OP spreadsheet or Outperform Planning Software to establish the S&OP Policies:
- Objectives
- Meeting Schedules
- Attendees and responsibilities
- Description of the mechanics of the planning process and horizons
- Definition of demonstrated capacities by product family
- Definition of Rough Cut Capacity Planning Techniques
- Primary product families to focus upon
- Guideline for managing change to the plans
- Description of mechanics to translate to financial plans and budgets
The S&OP team should meet monthly to execute the S&OP process.
Sales and Operations Planning Software
Sales and Operations Planning Software unifies all relevant business unit plans into one connected platform. Different teams need access to the same data to view and model it in various ways to make decisions for their function. Having a single source of data ensures the alignment of the overall business objectives.
Sales and Operations Planning Software are either desktop or cloud-based solutions. The software integrates the plans and signals from sales, finance, production, marketing, and supply chain.
Most Sales and Operations Planning Software provides the following capabilities:
Integrated Planning and Collaboration
Cloud-based Sales and Operations Planning Software helps organizations integrate their plans from all business areas. It allows for the broad community of people, including sales, marketing, vendors, and suppliers, to work from the same, updated information, and refine it in real-time.
The software gives an organization the ability to see its business’s current state at any given time.
Forecasting and Scenario Planning
Forecasters and Planners want to understand the risk and benefits of different plans and the effects those plans will have on the entire supply chain. S&OP Planning software facilitates this process by allowing you to run scenarios such as new products or suppliers, alternate routes, and see the effects on inventory, delivery times, and labor resources. The software gives you insight into the impact of decisions on every part of the business. It allows you to update and refine your forecasts with current information automatically. You can drill down to more detailed information at the product or location levels.
Reporting
Most S&OP software solutions offer dashboards and reporting to give you end to end visibility of your supply chain performance. Dashboards and data for each major functional area are at your fingertips and can often be customized for the level of detail you need – from a planner to an executive. You have access to the integrated plan and can see any changes or refinements that have been made and what areas they affect. The information is designed to help leaders effectively manage their business functions with accurate and real-time data.
S&OP Consultants
S&OP Consultants are experts in developing and implementing an S&OP process that complements your S&OP technology and supports your planning processes.
These independent consultants will help you create an implementation plan for your S&OP process that includes:
- S&OP process design
- Organizational structure and alignment
- Technology assessment and selection (if required)