S&OP – Achieve greater profitability with sales and operations planning
Sales and operations planning, or S&OP is a business management process that ensures each business function’s alignment with forecasted demand. In practice, sales & operations planning enforces coordination between different departments which increases transparency and balances supply and demand. Ultimately, all this results in greater profitability. So, it’s not a surprise that sales and operations planning has been such a hot topic during the past few years. More and more companies are discussing taking up S&OP. Are you one of them? What does S&OP mean for your company? Let’s take a closer look!
What is sales and operations planning?
Sales and operations planning, or S&OP is an integrated planning process to align a company’s supply, demand, and finances. The outcome of the S&OP process is a feasible and actionable plan about production levels, supply chains, staffing levels and other resources. The S&OP’s plan makes sure that the company will meet the forecasted demand for production and distribution in a lucrative way.
Sales and operations planning is sometimes mixed with business planning. They are similar processes but not synonyms. Sales & operations planning is typically done by the executive team on a monthly or quarterly basis to make sure that there are no misalignments between sales and operations. Whereas business planning is a more general and unstructured concept. Basically, business planning happens every time the management team discusses business plans, from informal lunches to official executive meetings.
S&OP – Process in practice
There are as many different S&OP processes as there are companies who do it. For example, a leading global clothing retailer has their sales and operations planning process fine-tuned to perfection and each KPI monitored on an hourly basis. For most companies though, it’s enough to measure and report weekly key figures on sales and supply chain performance. These figures can be, for instance, demand forecasts versus actual demand, production forecast versus actual production, capacity utilization, timely delivery, and inventory turnover.
Regardless of the company size, they should find out how to use data produced in a S&OP process in an optimal way. As a rule, S&OP makes forecasting more accurate and enables separate sales forecasts for different customer segments and accounts. This gives valuable information for decision making. For example, marketing department can plan campaigns to a specific segment or procurement can make timely orders.
Sales & operations planning – Why now?
Sales and operations planning, or S&OP was introduced already in the 1980’s, but its popularity increases each year. Why is that? Collecting, processing and analysing data gets more and more advanced each year, so it is worthwhile to take up computer-based systems such as S&OP. Also, the need for planning and forecasting increases constantly – in both frequency and accuracy. That is, for one, because product cycles have gotten shorter. Also, in many industries profit margins have shrunk which forces greater efficiency and lower buffers – like storages. Sales and operations planning is a great tool to improve inventory management.
Escalated customer experience is also a desirable outcome of sales and operations planning. Granted that nowadays “customer experience” is a somewhat hollow buzzword. However, in its true meaning it is an integral part of any company’s success and it can be improved with S&OP. The S&OP process helps to increase transparency between departments and gain a clearer companywide understanding of the products and customers’ perceptions of them. Thus, the executive team can form a better framework for product management which hopefully improves customer experience.
Sales and operations planning – How to proceed?
In practice, S&OP depends on a company’s industry, size, and lifecycle phase among other things. Similarly, the S&OP steps can vary in different companies. Here’s an example of what the S&OP process might look like:
- Step 1: Gathering data. The finance team goes through previous sales, trends, and other key data to make predictions about future sales.
- Step 2: Planning demand. Team members from different departments like sales, operations and marketing join in to discuss inventory levels, sales strategies, and customer service processes to match sales predictions.
- Step 3: Planning production. The leadership team analyses the supply chain’s capacity in relation to the forecasted demand. A supply plan outlines the needed changes in machines, human resources, and suppliers.
- Step 4: Financial planning. This important step of sales and operational planning aims to evaluate its financial aspects such as viability of the production plan.
- Step 5: Developing sales and operation plan. Next the executives from different departments develop the final sales and operation plan.
- Step 6: Executing sales and operation plan. Once the S&OP is approved, it’s time to execute it and start monitoring it for further improvements.
S&OP – A data centric approach
The success of a company’s sales and operations planning depends greatly on its ability to collect and analyse data. The companies that want to use sales and operations planning as a real value creator have moved from spreadsheets to intelligent S&OP software. S&OP software helps to streamline your process and make sure that you make the most out of your data.