Sales and Operations Planning (S&OP) is one of the most critical elements in supply chain management, yet it’s often overlooked. Without a well-defined S&OP process, organizations can run into costly roadblocks that prevent them from making strategic decisions. The process allows organizations to respond effectively to volatile market conditions, plan their materials and resources, manage costs, prioritize production schedules, evaluate demand risks, and develop strategies for success.
With an ever-changing marketplace demanding swift decision-making processes that are both efficient and cost-effective, S&OP helps ensure your business stays ahead of the competition by actively aligning sales objectives with financial goals in real time. But how do you go about creating an effective S&OP process? Read on about what S&OP is, the process steps, how it works, and why it’s so vital for you today.
What is Sales & Operations Planning in Supply Chain Management?
Sales & Operations Planning (S&OP) is integral to supply chain management. It involves planning and coordinating sales and operations activities to ensure alignment between supply and demand, optimize customer service levels, and minimize cost. It is an integrated decision-making process that incorporates VUCA (Volatility, Uncertainty, Complexity, and Ambiguity) markets, allowing organizations to consider external and internal changes that may impact supply and demand.
Sales and Operations Planning vs. Demand Planning
Demand planning is part of the sales and operations planning process. Whereas S&OP focuses on balancing supply and demand, demand planning looks at future demand and means of meeting it using sales forecasts and experience. It is a forward-looking approach that looks at market trends and consumer behavior to anticipate future demands, production needs, and customer requirements. Demand planning is particularly critical for businesses with long lead times or launching new products.
S&OP allows for the integration of demand planning into the S&OP process, enabling organizations to enhance their forecasting accuracy further and integrate new customer requirements or product offerings. Demand planning helps organizations ensure they have the right product in the right place at the right time.
S&OE vs. S&OP
Sales & Operations Execution (S&OE) is the process of executing sales and operations plans into reality. It is a crucial part of the S&OP process and focuses on optimization rather than planning. While S&OP focuses on forecasting and planning for the future, S&OE ensures that planned objectives are achieved through optimization.
Benefits of Sales and Operations Planning (S&OP)
An effective sales and operations planning (S&OP) process can have several tangible and intangible benefits for organizations. From increased collaboration across departments to improved decision-making and profitability, S&OP can help businesses become more efficient and successful.
- Improved Cross-Departmental Collaboration: One of the most significant benefits of an S&OP process is improving collaboration across departments. By gathering key stakeholders from all areas of the enterprise, S&OP provides a forum for exchanging ideas and information on upcoming challenges, current trends, and other important opportunities. This kind of collaboration helps to ensure that each department is aware of what other departments are doing and can make better decisions more quickly.
- Better Decision-Making: With the S&OP process, there is data-driven decision-making. Organizations can tap into a larger pool of data and resources by involving stakeholders from all company areas to help inform decision-making. With better access to information, businesses are better equipped to make quick and effective decisions that help them remain competitive in the market.
- Higher Profitability: An effective S&OP process helps improve profitability, as organizations can better forecast demand and plan accordingly. With greater visibility into supply chain needs, businesses can respond more quickly to customer demands and reduce costs associated with overproduction or costly last-minute changes.
- Predictable Operating Performance for Shareholders: An S&OP process also provides greater transparency into operations, enabling more predictable performance for shareholders. By better understanding the company’s future performance and resources, shareholders can make more informed decisions on whether to invest in the business.
Challenges of Sales and Operations Planning
Some of the challenges associated with S&OP are:
- Gathering and accurately interpreting data from different departments to make sound decisions.
- Focus on the short term while keeping an eye on the long term.
- Lack of the right resources and personnel to meet demand.
- Managing conflicts between departments as they strive to achieve their respective goals.
- Keeping stakeholders informed and engaged throughout the process.
The Four Fundamentals in Sales and Operations Planning
Companies need a sound understanding of the four fundamentals for successful S&OP. According to Dr. Gopaldas Kumar’s conference paper, “Sales and Operations Planning(S&OP)- An Overview,” demand, supply, volume, and mix parameters form the fundamentals of S&OP.
Demand is a driving factor in S&OP. It determines the resources, capacity, and inventory level a company needs to meet customer requirements. It is crucial to recognize consumer preferences and needs changes over time to identify demand problems. It includes understanding seasonal trends, the impact of promotional activities, and a product’s lifecycle.
Supply is the other fundamental aspect that needs in S&OP. It is essential to understand how much material and labor are needed to meet customer demand and the cost associated with the process. Companies should consider lead times, capacity constraints, and cost when evaluating supply requirements.
Volume is essential for achieving a balance between supply and demand. Companies should track the units of products produced, moved, and stored to ensure they meet customer needs. This data helps companies adjust production and inventory levels and identify potential problems.
Companies should differentiate mix-related problems from those of volume. Mix covers individual goods, while volume covers Product families. Innovative businesses plan their volumes first since volume-related questions precede mix-related ones. S&OP executives try to balance demand and supply at the volume level. A firm must ascertain what types of products to produce and in what quantities. With this information, a company can allocate resources effectively.
Sales and Operations Planning Process
Creating an effective S&OP process requires planning and coordination across all departments. All businesses plan, though not all of them plan effectively. A linked, all-encompassing approach to S&OP is one crucial factor that distinguishes organizations planning from the rest. The sales and operations planning process comprises six steps discussed below.
Data Gathering and Forecasting
The first step in the S&OP process is data gathering and forecasting. This includes taking previous sales history into account and any relevant market conditions. It also includes reviewing the organization’s product mix and external factors such as competitors’ pricing and customer demand. Based on this data, organizations create a forecast for future sales. Businesses should use both quantitative and qualitative forecasting methods to ensure accuracy. It helps them anticipate customer needs and plan for supply chain operations.
The main goal of data gathering and forecasting is to develop a comprehensive, accurate picture of the organization’s current situation and potential future demand. It is also essential to have a plan for responding to market or customer needs changes. This step helps the organization create a realistic sales and operations plan.
The demand planning step is arguably the most important in the S&OP process. It involves analyzing forecasts in step one and creating a demand plan that outlines how much, when, and where demand needs to be met. Organizations need to review demand forecasts regularly, as demand can change quickly. They should consider demand variabilities, such as seasonality and promotional demand.
Demand planning is a collaborative effort between sales, operations, and other departments. Organizations can create demand plans that align with their operational capabilities and customer demand by working together. For example, a demand plan may consider current inventory levels, demand for certain products, and supply chain capacity. Organizations should consider options such as demand shaping or management in this step. Demand shaping techniques — launching a new product or offering discounts — influence demand patterns. Demand management strategies can help organizations adjust demand forecasts or shift demand to other channels.
The production planning step involves capacity evaluation and capacity utilization. Capacity evaluation is the process of ensuring that capacity matches demand, while capacity utilization is how well capacity is being used. Organizations should consider their capacity constraints to create a realistic sales plan. This step aims to develop a supply plan that meets the demand forecasts.
Organizations should use capacity planning software and capacity models to assess capacity utilization, evaluate capacity constraints, and align production plans with customer service objectives. Capacity planning software helps organizations maximize capacity utilization by providing real-time feedback on capacity constraints. Capacity models provide a high-level overview of capacity utilization and capacity planning goals.
A finance review is a crucial step in the S&OP process and provides inputs for the subsequent steps. It involves analyzing actual costs from the previous month and evaluating current financial performance. This step also includes forecasting financial performance for the upcoming period.
The main goal of a finance review is to ensure that organizations are meeting their financial goals. When planning for the upcoming period, organizations should consider potential risks, such as revenue volatility and supply chain disruptions. They should also plan for necessary investments, such as equipment or personnel.
Pre S&OP Meeting
The pre-S&OP meeting is where the organization brings key stakeholders from different departments. This includes sales, operations, finance, human resources, and other relevant departments. The goal of the pre-S&OP meeting is to ensure that all departments align with overall plans and objectives. During the pre-S&OP meeting, the organization discusses gaps and disconnects in its plans and strategies. It helps them identify areas of improvement and ensure that they have the resources necessary to meet customer needs. The cloud-based S&OP platform with all the plans is helpful during this meeting. Targets and budgets are put into account during the review of plans in collaborative dashboards. Variance analysis is done, and recommendations are provided.
Executive S&OP Meeting
The executive S&OP meeting is the final sales and operations planning step. It is where senior executives from all departments review the plans, recommendations, and strategies developed during the pre-S&OP meeting. The executive S&OP meeting is a chance for executives to finalize plans, track progress, and make any necessary changes.
The executive S&OP meeting also provides an opportunity to review business performance and compare it against goals. Organizations should consider their overall performance, customer service levels, and any other relevant metrics in this step. They should also review their financial performance and adjust their plans accordingly. Once changes are agreed upon and plan approved, organizations must communicate them to all involved departments for implementation. To ensure success, the assessment of S&OP should be regular.
S&OP Software Tools
S&OP software tools help you plan more efficiently and save time. It allows you to develop long-term plans and quickly adjust for changes in customer demand or market conditions. Here are some software tools to streamline your sales and operations planning.
Infor S&OP offers a comprehensive suite of tools to streamline the sales and operations planning process. With Infor’s software, you can create “what if” simulations, collaborate with stakeholders in real-time, measure performance against KPIs, and get event alerts. It also offers powerful analytics capabilities to help you optimize demand and supply plans.
Kinaxis RapidResponse helps organizations plan more efficiently by providing real-time visibility into their operations. The software offers sophisticated analytics to predict customer demand and plan accordingly. It also provides comprehensive collaboration tools to ensure all stakeholders are kept informed. With Kinaxis RapidResponse, organizations can quickly adjust to changes in customer demand or the marketplace.
SAP IBP S&OP
SAP integrated business planning for S&OP is an integrated unified planning platform that helps organizations manage their sales and operations processes. It offers advanced analytics capabilities to create detailed forecasts, plan for customer demand and supply chain issues, and make faster decisions. It also provides ad-hoc collaboration tools for transparent communication.
It integrates with Microsoft Excel, allowing users to create sophisticated financial models and forecasts. It also features configurable process-definition templates, consensus forecasting, dashboards, continuous plan monitoring, and more. With Oracle S&OP, you can easily define business rules and logic to regulate the supply chain process. The system provides real-time visibility into sales & operations plans and collaborative planning capabilities. It also features an intuitive user interface to quickly and easily access the necessary information.
Sales and operations planning is a crucial process that helps organizations balance supply and demand, optimize resources, and increase profits. A successful S&OP process requires comprehensive planning, data gathering and forecasting, demand planning, production planning, finance review, pre-S&OP meeting, executive S&OP meeting, and using S&OP software tools.
Investing in the right S&OP process and tools ensure your business meets customer needs while achieving optimization goals.
It is essential to regularly assess and adjust your plans to ensure that customer requirements are met. Doing so will help you maximize profits, optimize resources, increase efficiency, and create a more successful business. Are you ready to integrate your sales and operations planning? We help you develop an effective S&OP process and find the right tools to meet your business’s needs. Contact us today to get started and optimize sales and operations planning.