Sales & Operation Planning (S&OP) creates a consensus-based business plan that facilitates corporations to handle inventory costs while significantly improving service levels. S&OP coordinates different business areas to meet customer demand with the appropriate level of supply.
It is a monthly business management process that allows experts to focus on core Supply Chain drivers encompassing marketing, production, inventory management, sales, and demand management. It joins forces to generate a single production/supply plan. The far-reaching goal is to line up future company strategy with functional capability.
Implementing S&OP
Initially identify the roles and responsibilities of each individual/team in the S&OP process.
When setting up your strategy, it is essential to ponder who will control each stage—set opportunities for meetings, hand-offs, and how you will communicate changes; the input determines the effectiveness of the S&OP planning. To advance with a monthly S&OP plan, you must establish that minimal significant modifications can be added to the demand plan within the month.
Outline functions, responsibilities, and timing of each step after the end of each month. The actions and responsibilities can then be introduced into a collective plan with reminders, meetings, and attendee’s scheduled responsibilities.
Typical S&OP process
Demand Planning
This phase demands data on trend analysis, past sales, and forecast accuracy assessments of forecast accuracy. Advanced S&OP planning software can supervise several tasks through developing automated data and built-in reports. The Demand Planner usually is accountable for leading this phase in the process. Principal contributions for this phase will come from sales and marketing, and you should consider the information previously supplied from operations/supply and logistics.
Supply Planning
Supply planning encompasses translating the demand plan into an appropriate supply plan. Its tasks are determining inventory targets, production methods for safety stock levels, and demand track. It also involves assessing the ability to meet demand by reviewing available capacity, inventory, and operations scheduling.
The Head of Supply will be accountable for creating the Supply Plan. For input and authentication, check with the strategic team from finance, manufacturing, operations, logistics.
Understanding of Plans through a Pre-S&OP meeting
The S&OP leader is typically responsible for the efficient execution of this meeting. Essential partakers incorporate Marketing, Sales, Operations, and Logistics (including finance).
Resolving if the sales plan adjusts inventory and backlog objectives demands classifying through supply-side issues to determine if the sales plan can be modified, inventory and backlog purposes can be met. This step happens during the monthly pre-S&OP meeting. Additional tasks include evaluating supply performance from the earlier month and submitting forecasts.
Executive S&OP meeting to agree and make public outcomes
Once the demand and supply plans are settled, planners communicate the result to the decision-making team in the monthly Executive S&OP meeting. The meeting results are an agreed demand and supply plan that the company can effectively implement.
The S&OP leader will supervise this meeting/step in the process, but the Executive Sponsor is a vital partaker and will be needed to conclude all decisions/outcomes of the meeting.
Roles and Responsibilities
Executive management: The CEO/Leader is the principal connection for dispute resolution throughout the S&OP process:
- S&OP Board meeting serves as ultimate decision-making authority.
- It holds the companies’ responsibility for planning.
Marketing and Sales leaders: It is the central contact for issues associated with strategic sales/customer decisions:
- Establish expectancies with Sales team members; they will implement sales forecasting and improve forecast accuracy.
- They are the owners and speak for sales performance and forecasts in the executive S&OP meeting.
- Ensure adherence to the monthly forecasting cycle.
Demand planning: Is the contact for issues related to the development of sales, analysis of forecasts, and progress of final demand planning:
- The leader submits the demand plan report in a timely, accurate, ready-to-use condition.
- The Planner performs some of the pre-plan analysis and statistical forecasting.
- The Demand Planner works with sales to complete data collection and demand planning.
- The leader centers on any issue and tackles possible interruptions to future forecasts.
Sales personnel: Each account manager is the key contact for issues related to sales forecasts for customers and segments and assists in gathering data from designated customers and incorporating outcomes into the demand plan:
- Accomplish sales forecasting for assigned customers, markets, or other sales subdivisions.
- Must know the actual vs. forecast sales accomplishment, reasons, and remedial actions.
- Update the sales forecast monthly and align in the corporate sales review meeting.
Operation leader: Is the principal advocate for issues correlated to strategic operations/supply decisions:
- Establishes the expectation with the production and materials team to develop the supply plan corresponding to the process and proceed to that plan.
- Warrants that the aggregate level data presented the link to all the detailed developed planning.
- They preside over the monthly or periodic supply planning meeting.
- Explains inventory and bottleneck performance vs. forecast in the executive S&OP meeting.
- They display the actual vs. forecast performance for inventory.
Supply planning and master scheduling: The principal contacts for issues attached to orders, inventory, and the supply planning process:
- They review the inventory plan monthly or more frequently.
- Take care of manufacture rates, safety stocks, vendor implementation, lead times, and other supply planning features.
- They communicate the inventory factors in the supply planning business meeting.
- Checks orders, due dates, and inventory and determines via analysis what, when, where to build for each supply plan.
S&OP drives enormous benefits to lower inventory expenses, higher efficiency, and better customer satisfaction. Top Supply Chain planning solutions further enhance benefits by facilitating the S&OP plan to drive requirements and move from planning to implementation.
By Indeed Editorial Team
December 1, 2021
Companies use a variety of metrics and planning processes to establish projections and forecasts for their business. One popular process is the sales and operations plan (S&OP) to help companies allocate resources based on supply and demand projections. Creating an (S&OP) is a smart move for proactive planning and can save the company money. In this article, we explain what a sales and operations plan is, describe why it's important, provide steps to create one and list the benefits of using one.
Key takeaways
An S&OP is an integrated business management process that creates detailed forecasts for sales, supply and demand.
S&OP software is commonly used in large organizations that need dedicated operational planning.
An S&OP compares projected demand to projected supply to improve a company's profitability through data-driven resource management.
Participation by all departments—such as product, sales, marketing, supply operations and finance—is vital to the S&OP process.
An S&OP is an integrated business management process that projects supply and demand for an organization. Sometimes called “aggregate planning,” it's usually curated monthly by various departments and company leadership. S&OP software analyzes the supply chain process for impacts on sales, marketing, demand management, production, inventory management and new product introduction. The result is a set of processes to balance demand and supply, integrate financial and operational planning and link high-level strategic plans with day-to-day operations.
The goal of an S&OP is a single operating plan that manages resources for the entire company. The plan forecasts supply chain demands and makes recommendations to support customer needs and maintain profitability. Department leaders compile recommendations into a report for company executives to review and use.
Use of S&OP software is most common in large organizations that need dedicated operational planning since they often have many employees, departments and possibly multiple locations. Smaller companies usually create short- and long-term operational plans with other metrics that require less time and resources to compile.
Related: Supply and Demand: Definition and How It Works
Why is sales and operations planning important?
S&OPs are important because they inform important resource allocation and connect disparate elements of the company. An S&OP compares projected demand to projected supply, improving a company's profitability through data-driven resource management. Companies usually generate these reports monthly, allowing the business to regularly evaluate and update service and cost resources to meet customer and company needs.
Related: Business Planning: Definition and Example
How to create a sales and operations plan
Creating an S&OP requires frequent data collection and analysis. Follow these steps to make a useful plan:
1. Review product
Research and development employees review product success, new product development and any other aspect of product design and development that they can improve in the first step of the process. They use metrics on sales and production costs to help inform their direction. Usually, these employees will create a report included in the overall S&OP.
2. Assess demand
Sales, marketing and production teams work together to determine potential product demand. They use analytics from past and current marketing efforts and sales figures to project how high demand will be in the coming month. Like the research and development team, this group creates a report for the final S&OP.
3. Evaluate supply
Using the information provided by the production and demand teams, employees evaluate the product supply for the coming month. They might look at the current stock of the product and compare it to projected sales to determine how much more product to make and stock. They record these projections and recommendations for the final S&OP.
4. Analyze finances
The finance team evaluates the previous month's sales and costs to inform resource allocation to other departments. This stage in the S&OP process uses the past month's S&OP along with data from other departments to create a spending and earnings forecast for the company. They also write this information up for the final S&OP.
5. Prepare elements
Before creating the final S&OP report, various levels of company leadership meet to review all the information and reports created by the research, development, sales, marketing and production teams. They use the reports and metrics to determine an effective course of action for the whole organization moving forward.
6. Create the report
Finally, employees create a comprehensive report detailing the information they gathered from various departments and the conclusions reached in the leadership meetings. They will then share the final S&OP for the month with top-level executives who make the final resource decisions for the company.
Benefits of sales and operations planning
S&OPs provide companies with various benefits covering company cohesion to increased profitability. Benefits include:
Understanding operations holistically: S&OPs provide employees with a holistic view of company operations. Since S&OPs combine information and data from multiple departments, people can get an accurate view of overall operations.
Unified collaboration: With an S&OP, every employee in the company receives the same information. This improves interdepartmental collaboration and planning.
Improved customer service: S&OPs identify high-selling products and effective marketing strategies to help employees know what customers want and better meet their needs.
Increased profits: With a clear understanding of what's making money and how to allocate resources, most companies can see improved profitability.
Higher revenue: The product, supply and demand assessments of the S&OP ensure that the business is using its resources appropriately, which should lead to increased revenues.
Decreased inventory: Less inventory on hand means that the company is spending less on unnecessary production and inventory storage, saving the company money.
Improved lead times: With a deep understanding of customer needs and highly attuned marketing and sales teams, companies might see reduced lead times and quicker sales.
Increased response time: A clear, company-wide S&OP means everyone in the company knows what's expected of their department and themselves, leading to quicker responses on tasks and challenges.
Better management: When managers know how their team's work product impacts the company as a whole, they can better manage their employees and provide them with the resources and support to meet goals and deadlines.
Tips for a successful sales and operations plan
Here are some tips to help get the most from your S&OP:
Provide effective leadership
The S&OP process crosses organizational boundaries so all leaders, guided by the chief executive officer (CEO), should support the efforts to meet company objectives and improve performance. As the executive leader, the CEO should take the lead to consider team recommendations and choose the course of action.
Bring all departments together
Participation by all departments—such as product, sales, marketing, supply operations and finance—is vital to the S&OP process. If a department is not represented, it can hamper the ability to deliver customer value and financial performance. Consequences may include material or capacity constraints, poor product rollouts, reduced volume and unsupported marketing campaigns.
Focus on what you need
While accurate data is key to a successful S&OP, gather only what you need. While they might be interesting to know, irrelevant fact-gathering may only hamper the overall project. Work to determine the most relevant metrics—usually 10 to 15—for gauging how supply and demand needs are being handled. It’s important you know exactly what business problem you are trying to resolve and understand the minimum data necessary for the project.
Document past S&OPs
Developing a successful S&OP is an ongoing process that requires learning from past challenges. You should try to keep detailed records of past plans and document all aspects of the S&OP process. As reference points, they can be central to your S&OP’s sustained success.
Read more: 7 Tips for Planning Your Sales and Operations