In 2023, the buzzword on the block is 'efficiency.' Why? Because companies can no longer afford to simply hope for the best – they need precise and intentional planning to stay afloat. That's where Sales and Operations Planning (S&OP) really comes into play.
In short, S&OP is a process that helps organizations balance the demand for their products and services with available resources. The process requires the integration of sales, finance, operations, purchasing, and marketing to create a comprehensive plan that meets customer needs while also keeping costs in check.
Keep reading for a comprehensive and beginner-friendly guide to Sales and Operations Planning.
What is Sales & Operations Planning?
In the year 1988, a manager at Goodyear by the name of Phil Ensor coined the term 'functional silo syndrome.' He believed that functional silos – or the isolation of departments relating to their goals, data, and processes – were the main cause of inefficiency and lost profits.
The simple reason for that was a lack of communication and coordination between the different departments. Instead of cooperating over shared goals, departments were almost unintentionally working against one another.
Sales and Operations Planning (S&OP) is a process designed to dissolve functional silos by creating a comprehensive plan that involves sales, operations, and finance departments. Goals and processes across all departments are integrated to create an efficient and effective plan for the organization.
Who Is Involved In S&OP?
The success of S&OP relies on the involvement and cooperation of multiple departments. It won't follow the same structure for every organization, obviously; the members of S&OP planning are typically selected based on the needs and size of the organization.
Generally speaking, however, S&OP involves representatives from sales, operations, finance, marketing, and purchasing departments. Each representative is responsible for providing their department's data and insights to create a holistic plan that meets customer needs.
How Often Does S&OP Happen?
Organizations typically run S&OP planning on a monthly or quarterly basis, depending on the size and complexity of their operations. There are no strict guidelines; some companies will find it beneficial to run S&OP planning more frequently, especially if their operations are constantly changing.
S&OP Planning vs Demand Planning
According to Gartner, the term 'demand planning' refers to, "...the development of a consensus-driven demand plan that optimizes the balance between market opportunity and supply network capability."
Those who are new to S&OP planning often struggle to understand how it differs from demand planning. The two terms are often used interchangeably, but they represent different processes.
While S&OP is a comprehensive process that involves multiple departments and plans for the long term, demand planning is more focused on forecasting customer demand so that resources can be allocated accordingly.
In short: demand planning is often a component of S&OP, but S&OP is much more comprehensive.
S&OP: What Are The Benefits?
The Hackett Group ran a survey several years ago to find that over 70% of organizations had adopted S&OP planning – a figure that has only increased since then.
The reasons are obvious: S&OP planning helps organizations streamline their operations and become more efficient overall. Without it, we see issues arising, such as inventory and supply chain mismanagement, customer dissatisfaction, and poor use of resources.
But what are the specific benefits of adopting S&OP?
- It creates one source of truth. According to a Treasure Data survey, 47% of organizations name data siloing as their biggest barrier to business intelligence. S&OP eliminates this issue by implementing new data architecture that integrates data from all departments.
- Operational costs are reduced. Communication centers that operate with siloed data and departments reportedly spend 15% of their time overcoming communication hurdles. That time wastage could be eliminated via a monthly S&OP process meeting, saving businesses a significant amount of money.
- It improves customer satisfaction. By integrating data from all departments and creating a comprehensive plan, S&OP helps organizations to understand their customer needs better, thus leading to higher levels of overall customer satisfaction.
- Better demand and supply decisions are made. S&OP equips organizations with the data and insights needed to make informed decisions about their demand and supply – like when to increase/decrease production and how to respond to market changes.
- It improves compliance with regulations. S&OP ensures that businesses are compliant with all relevant laws, regulations, and standards, which is critical for risk management and staying competitive in the long term.
Since sales and operations planning helps to improve transparency across the board, all departments gain a better understanding of the product lifecycle and their respective roles in it.
Ultimately, this helps to create a more efficient and productive organization – one that is better equipped to overcome any competitive or operational challenges that may arise.
The S&OP Process Step-By-Step
So, you've decided to implement S&OP planning. It's crucial to follow the right process so that all goals and objectives are met. Keep in mind your ultimate goal: to align your supply chain, sales, and operations in terms of resources, decision-making, and strategy.
Let's walk through the different stages of S&OP:
The forecasting stage of the process is heavily data-driven. A company's objective here is to evaluate the current demand, market trends, and customer feedback to accurately forecast future supply needs.
Data is collected not only from sales and operations but also from external sources such as the stock market, economic data, or customer surveys. Any trends are identified and used to create a reliable demand forecast.
2. Demand Planning
The process of demand planning involves analyzing sales forecasts and making necessary adjustments to inventory levels, customer service policies, and other relevant factors based on the expected demand for a particular product.
Demand can be quantified in terms of revenue or units of the product, depending on the needs of the organization. The ultimate goal of demand planning is to ensure that the right products are available in the right quantities at the right time to meet customer needs and keep inventory levels optimized.
A well-executed demand planning process can help organizations to minimize stockouts, reduce waste, improve customer satisfaction, and increase overall efficiency and profitability.
3. Supply Planning
A crucial component of the supply chain management process, supply planning involves collaboration among finance, operations, and materials representatives. The process starts by evaluating the capacity constraints of the organization, including limitations on labor, machinery, and suppliers.
Based on this evaluation, a comprehensive supply plan is created that takes into consideration any capacity constraints. This supply plan outlines the steps required to ensure that the necessary resources are available to meet the demand for the organization's products.
By carefully evaluating capacity constraints and developing a well-structured supply plan, organizations can improve the overall efficiency of their supply chain operations. This can help to avoid stockouts, reduce waste, improve customer satisfaction, and increase overall profitability.
3. Pre-S&OP Meeting
At this meeting, leaders from various departments within the organization – such as finance, sales, marketing, operations, materials, product management, and human resources – come together to exchange ideas and collaborate. Sales forecasts are compared to and aligned with the demand and supply plans, taking any financial implications into consideration.
This meeting is an opportunity for leaders to review current performance and discuss potential risks and opportunities, allowing them to make informed decisions that support the success of the organization. It provides a forum for cross-functional collaboration, where participants can bring their unique perspectives and expertise to the table.
The outcome of the Pre-S&OP meeting is a comprehensive and integrated plan that balances demand and supply and supports the organization's financial goals.
4. Executive S&OP Meeting
Now that all necessary data and information have been collected, an executive S&OP meeting is held. The final integrated plan is presented to organizational leaders.
At this stage, the focus shifts from tactical decision-making to strategic planning. The executives provide feedback on the proposed plan and discuss any potential risks or opportunities that could arise in implementation; they also provide guidance on how to adjust plans in response to changing market conditions.
Bringing all relevant stakeholders together for a comprehensive discussion of the integrated plan helps to ensure that any potential risks or opportunities are identified early on and that any changes necessary to support the success of the organization are made in a timely manner.
Once all stakeholders have agreed on an integrated plan, it is time to put it into action. The implementation process involves communicating the plan to all relevant departments within the organization, as well as to external stakeholders such as suppliers and customers.
The plan should be monitored closely so that any changes necessary to respond to changing market conditions can be made in a timely manner. Monitoring also helps ensure that the organization is meeting its financial goals and customer needs.
Key S&OP Metrics for Financial Leaders
Sales and operations planning is, first and foremost, a financial management tool. As such, it is important for financial leaders to have access to key metrics that will help them understand the true cost of sales and operations planning.
Some of these key metrics include:
- Total sales within a certain period. For instance, this could be your monthly sales or sales over a specific quarter.
- Total sales compared with your forecast (as decided in the S&OP process).
- Gross margins for each product or service.
- Working capital (cash flow) versus your initial plan.
These metrics are all telling of how well the organization is performing compared to its initial plan and can help financial leaders identify areas where improvement is necessary. However, there are more metrics to track if you want to gain a better understanding of how successful the S&OP process is:
- Demand and production forecasts versus the actual outcomes.
- Capacity utilization (how effectively are your resources being utilized?).
- Inventory turnover.
- On-time delivery and the level of delivery accuracy.
- Cycle times from order to delivery.
- Customer satisfaction scores.
A well-rounded set of metrics gives you the opportunity to consistently fine-tune and improve the S&OP process, allowing you to identify areas where cost savings can be made and new opportunities explored.
Perfect Your S&OP With Pigment
The sales and operations planning process take time, energy, and resources to get right – especially if you're managing the whole project manually. Many organizations take advantage of S&OP software to lighten the load and ensure that the process runs smoothly.
Do You Need S&OP Software?
If you've been managing S&OP manually up until now, you may struggle to justify the cost of a software solution. However, the right S&OP software could save you time and money in the long run – especially if it’s designed to be integrated with your existing systems.
Here are some telling signs that it's time to invest in S&OP software:
- You find it difficult to get an accurate view of the current state of your organization.
- It takes too long to plan, coordinate and execute sales and operations strategies.
- You are not able to quickly respond to changes in customer demand or supply chain dynamics.
- Your financial forecasts are inaccurate or not up-to-date.
Fortunately, we've got just the solution.
Pigment: Your Source of Truth
Here at Pigment, we've designed a platform that takes integrated planning to new levels of accuracy and efficiency. Our intuitive business planning software enables you to plan, optimize, execute, and track the performance of your sales and operations in real time – all from one central location.
Not only does our platform provide you with unprecedented visibility into the current state of your organization, but it also helps you stay ahead of customer demand by providing accurate forecasts for future planning.
Dissolve siloing issues and ensure that your entire team is working from the same page with collaborative workspaces. Our intuitive dashboard maintains transparency across the organization and allows you to quickly identify any discrepancies, enabling your team to make swift decisions that keep the process running smoothly.
Integrating with other systems is an essential part of the S&OP process. Fortunately, Pigment integrates with a wide range of applications and services, including ERP systems, CRMs, and supply chain management solutions.
Your data is highly valuable, and as such, it's essential that it remains secure at all times. We secure everything from access rights to audit trails with enterprise-grade systems.
Our engine is designed to help you seamlessly and powerfully forecast and calculate the data you need in order to stay ahead of customer demand and ensure that your business remains profitable.
With an intuitive design that your whole team can get on board with, integrated workspaces that keep everyone on the same page, and enterprise-grade security for your data, Pigment is the perfect solution for sales and operations planning. Get in touch to find out more about how we can help you streamline your process.
S&OP Best Practices for Finance & Revenue Teams
To round out the article, here are some best practices for financial and revenue teams when it comes to sales and operations planning:
- Prioritize customer demand – this should be your number one focus.
- Create a detailed budget that accounts for all expenses related to S&OP.
- Analyze the data in real time using integrated dashboards to ensure accuracy.
- Set up automated alerts so you can quickly respond to any changes in customer demand or supply chain dynamics.
- Involve the entire team in S&OP meetings and encourage open communication.
- Make sure you’re always one step ahead with forecasts that accurately predict future needs.
Sales and operations planning is an essential part of any business, but it can be time-consuming and complicated if done manually. Investing in the right software can make the process much easier and more efficient, saving you time and money in the long run.
Get in touch today to book a demo with Pigment.