Sales and operations planning, often abbreviated to S&OP, is the cross-functional process of assessing customer buying habits to ensure a company is able to meet the forecasted production, distribution, and purchasing demands required of it.
S&OP is typically conducted by executive-level management professionals on a monthly basis and allows them to better align their plans with company-wide objectives.
One of the most common organizational issues is misalignment between sales and operations teams. Fortunately, this problem is easily fixed via sales and operations planning that is profit-centered and focused on building relationships between company departments.
Sales and operations planning (S&OP) is a critical process that aligns business objectives, sales plans, and operations plans. Implementing S&OP helps organizations balance supply and demand, improve workflow, and drive business growth.
In this comprehensive guide, we will walk through the steps for establishing an effective sales and operations planning process at your company
What is Sales and Operations Planning?
Sales and operations planning is a monthly integrated business management process that balances demand forecasts and supply capabilities to determine optimal production levels. It brings together leaders from sales, marketing, operations, production, finance, and other departments to collaborate on tactical and strategic plans.
The key goals of S&OP include:
- Achieve alignment between what customers want and organizational capabilities
- Ensure production and distribution plans meet sales demand forecasts
- Identify risks and develop mitigation tactics
- Establish company-wide goals and create consensus on action plans
- Improve workflow, productivity, and agility across the business
With an effective S&OP process, organizations make betterinformed decisions foresee potential problems and optimize the business.
Typical S&OP Process
While the details vary by organization, a typical S&OP process contains these key elements completed on a monthly cadence:
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Demand planning – Create statistical forecasts for sales based on historical data, market trends, and inputs from sales/marketing teams.
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Supply planning – Determine production levels and inventory needs based on demand forecasts, available capacity, budget, etc.
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Pre-S&OP meeting – Supply chain leaders meet to review forecasts, identify gaps between demand and supply plans, and develop recommendations.
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Executive S&OP meeting – Executive team reviews supply/demand gaps, risks, and pre-S&OP proposals to make strategic decisions.
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Publishing – Final production plans are shared across departments and implemented. Progress is tracked through key performance indicators.
Cross-functional participation, data integration, executive oversight, and transparency are critical for S&OP success.
S&OP Roles and Responsibilities
Effective S&OP requires participation from leaders across departments, each with defined responsibilities:
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S&OP Process Leader – Develops agendas, facilitates meetings, monitors process, reports on progress to executives.
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Demand Planning Manager – Creates statistical forecasts, analyzes past trends, incorporates sales/marketing inputs.
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Supply Planning Manager – Determines production capacity, inventory needs, labor requirements to meet demand.
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Finance – Provides spending forecasts, profitability insights, budget parameters.
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Sales – Shares customer insights, predicted growth opportunities, risks to convey in demand plans.
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Marketing – Communicates market conditions, promotional plans, competitive factors.
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Operations – Reviews production/distribution capabilities, resource constraints.
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Executive Sponsor – Champions S&OP process, validates recommendations, allocates resources to support plans.
Steps for Implementing S&OP
Follow these best practices to roll out an S&OP process:
Step 1: Gather and Manage Data
- Integrate data from ERP/CRM systems, inventories, and financial records into a centralized database.
- Cleanse data to ensure consistency and accuracy.
- Enrich data with additional inputs from teams.
- Develop standardized reporting templates.
Step 2: Develop Demand Plan
- Create statistical demand forecast using historical sales data.
- Adjust using inputs on upcoming promotions, seasonality, economic conditions, etc.
- Segment by product line, channel, customer type.
- Compare multiple demand scenarios.
Step 3: Supply Planning
- Map production, sourcing, distribution, and inventory needed to meet demand forecasts.
- Identify capacity constraints and gaps.
- Model different supply plan scenarios and constraints.
Step 4: Reconciliation of Plans
- Compare demand and supply plans to find gaps.
- Pre-S&OP cross-functional meeting to discuss scenarios and develop recommendation.
- Reconcile plans as needed based on resources, strategies, and financials.
Step 5: Approve and Release
- Executive S&OP meeting for leadership to review recommendation and agree on consensus plan.
- Communicate final plans to organization for implementation.
- Manage key performance indicators to track progress.
S&OP Implementation Best Practices
Follow these vital tips for rolling out a successful S&OP process:
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Secure executive support – Management must fully sponsor and participate in the process.
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Develop implementation plan – Document rollout timeline, data infrastructure, cross-training needs, etc.
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Define metrics and goals – Establish quantifiable KPIs to track, like forecast accuracy, inventory turns, etc.
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Choose S&OP technology – Robust planning software centralizes data and enhances collaboration.
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Train thoroughly – Employees need education on their roles and the overall process.
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Communicate openly – Stress the importance of consensus-based decisions focused on company-wide optimization.
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Start slow – Pilot process with a few product lines before expanding company-wide.
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Review and improve – Evaluate after each S&OP cycle and enhance as needed.
S&OP Meeting Tips
Well-run S&OP meetings are critical for success. Use these tips:
- Send agendas in advance so attendees come prepared.
- Limit to one hour with clear objectives.
- Enforce cross-functional participation.
- Facilitate discussion but stay on track.
- Stress openness to find the best scenario for overall company.
- Capture notes, decisions, actions, and next steps.
- Update executives not in attendance.
S&OP Process Challenges
When establishing S&OP, organizations often face these challenges:
- Insufficient executive commitment
- Resistance to transparency and collaboration
- Data inaccuracies and siloed systems
- Unclear roles and responsibilities
- Lack of training on protocols
- Inconsistency following initial rollout
- Poor meeting facilitation and follow-through
Proper change management techniques can help overcome common barriers.
Benefits of Effective S&OP
Companies that implement formal S&OP realize significant strategic and financial benefits:
- Increased forecast accuracy
- Improved production scheduling
- Reduced inventory costs
- Better customer service levels
- Higher revenue and margins
- Greater new product launch success
- Enhanced cross-functional alignment
- Tighter linkage between tactical and strategic plans
- Agile responses to emerging market threats and opportunities
In today’s fast-paced business climate, S&OP is a vital process for boosting productivity, reducing risks, and driving growth.
Implementing a sales and operations planning process represents a major step toward business optimization. While requiring cross-functional participation and executive buy-in, S&OP provides invaluable consensus-based plans to balance supply and demand. Following the steps outlined in this guide will pave the way for S&OP success at your organization. With dedicated leadership, training, and continuous improvement, S&OP can transform planning and fuel competitive advantage.
Better Customer Service
Exceptional customer service is a staple of successful business. By producing better products and delivering them to customers in a timely manner, you’ll be able to elevate your brand in the eyes of its target market.
Happy customers are generally life-long buyers. Since it costs five times less to keep a customer than it does to generate a new one, it’s important to ensure customer satisfaction. Additionally, happy customers have the potential to become brand advocates, which can turn into a valuable marketing channel for businesses.
Both customer retention and advocacy are more easily achieved when an effective sales and operations planning process is in place.
Higher profitability is a result of the six other sales and operations planning benefits we just discussed. If your company is able to eliminate organizational silos, predict inventory requirements more accurately, boost throughput and product quality, and better serve its customers, higher profitability is almost inevitable.
Greater efficiency is always beneficial to businesses. S&OP allows companies to intelligently streamline operations in order to boost profit numbers.
Common Steps in the S&OP Process
The S&OP process can be broken down into six essential steps: data gathering and forecasting, demand planning, production planning, pre-SOP meeting, executive S&OP meeting, and the S&OP strategy implementation.
Let’s take a look at each of these steps in greater detail:
1. Data Gathering: The sales and operations planning process consists of a series of meetings, the first of which is designed to gather data in order to accurately forecast the future. During this meeting, information from previous sales and industry trends are assessed and future predictions are made.
2. Demand Planning: This step requires collaboration between multiple departments to complete properly. Executives from sales, operations, marketing, etc. come together to adjust inventory levels, marketing and sales strategies, and customer service policies to match the data gathered in the previous step.
3. Production Planning: Next, company leadership analyzes their company’s supply chain in regards to capacity. They’ll decide if the current set up — manpower, machinery, suppliers, etc. — are adequate for their forecasted needs. A supply plan is then crafted on the decision they reach.
4. Pre-SOP Meeting: This stage of the S&OP process requires leadership personnel from multiple departments to meet, collaborate, and evaluate the financial ramifications of the forecasted demand and supply plans.
6. Exec S&OP Meeting: Next, leaders from finance, sales, operations, marketing, and other relevant departments meet once again to discuss all data previously gathered and develop a viable sales operation plan to implement.
7. Finalize and Implement S&OP: Finally, once the S&OP plan is finalized and approved, it’s implemented and monitored for effectiveness.
By conducting each of the meetings above, you’ll be able to implement a winning sales and operations plan for your organization.
Sales and operations planning isn’t a one time event. Your S&OP plan must be monitored and evaluated on a regular basis, as we mentioned. To do so, pay attention to the following metrics:
Demand Forecast Accuracy: Did you accurately forecast demand, or were your projections off? Continually assess how on-target your forecasts are.
Inventory Turnover: Related to demand forecast accuracy, how quickly are you turning over inventory? As quickly as you thought you would?
On-Time Delivery: It’s important to analyze your supply chain and ensure your team is delivering products on time. If not, you likely have a supply chain issue that needs fixing.
Order Accuracy: Similarly, it would also behoove you to monitor your S&OP plan for order accuracy. Speed is great, but not if you’re quickly producing subpar work.
Total Sales: Moving on to financial S&OP metrics, total sales numbers will help key you in to how healthy your organization is in the monetary department.
Gross Margin: Hopefully, your total sales meet your projected targets. Equally as important, ensure your gross margin is hitting company projections too.
Working Capital Projections: Does your company have as much working capital in the bank as your team forecasted? If not, it’s time to evaluate why and adjust projections.
There are plenty of other key S&OP metrics you could measure as well. But the seven listed above are important and will get your evaluation efforts started off on the right foot.
Sales and Operations Planning: How to Get Started
Do you know how to implement sales & operations planning?
Business leaders may recognize the value of sales and operations planning, yet not know how to implement it. With the right software — like SPOTIO — companies can begin the S&OP process immediately, focusing on essential business functions, then expanding S&OP to other areas over time.
What is sales and operations planning (S&OP)?
Sales and operations planning (S&OP) is how a business plans and manages its supply chain. This means that an S&OP implementation strategy is how a company executes its S&OP. The goal of an S&OP is to maximize profits by ensuring that companies meet the demands of their customers by supplying their goods.
What is a sales & operations plan?
Implementing a sales and operations planning process to keep your teams and ultimately your entire organization aligned. From streamlining your value focus to improving cross-departmental collaboration, use an S&OP to take your business to new levels. Pair an S&OP plan with work management software to reduce busywork and improve overall efficiency.
What are the best practices for sales & operations planning?
While there is no singular handbook for Sales and Operations Planning, organizations that follow certain best practices can reap the maximum benefits out of it. Fixed Regular Meetings: S&OP meetings need to be regular to achieve tangible results.
