Sales and Operations Planning (S&OP) Explained

Sales and operations planning (S&OP) is a crucial process for any business — especially post-COVID, as plenty of businesses have seen pipeline shrink and sales cycles lengthen.

S&OP is about making sure that sales don’t just generate revenues for the business, they generate profits. Let’s have a look at how the process works, and then at some tips about how to do it well.

What Is S&OP?

Sales and operations planning (S&OP) is a business management process. It involves all the functions of the business working together to manage the future supply chain as efficiently as possible. It is intended to maximise revenue by planning ahead to ensure that customers orders are met as efficiently as possible.

It involves taking predictions about sales, and peaks and troughs in future demand, and identifying the impact that will have on future production, supply chain logistics, and finance. All parts of the business, including the chief executive, are likely to be engaged in the process.

S&OP requires detailed forecasts of predicted sales, so the rest of the business can respond correctly to fulfil the deals made by the sales department.

It also gives sales greater transparency over what products will be available to sell, and when.

What Is the Purpose of the S&OP Process?

Sales and operations planning is more crucial in businesses which have to physically make and ship products to customers, but it is a necessary part of life for all companies.

S&OP has a number of benefits for the sales department and the company as a whole. It increases transparency between teams. It provides the departments developing products with more information about demand. It provides more information for all teams about product life cycles. And it gives everyone more information to allow for better budgeting and forecasting.

What’s the difference between sales operations and S&OP?

Sales operations and S&OP sound similar, but they are quite different. Sales operations is about running your sales department as efficiently as possible. Typically a sales operations team will gather data, onboard staff, and monitor and improve workflow within the sales department.

S&OP, on the other hand, is about synchronising what happens in sales with what happens in the rest of the business.

How to Develop a Sales and Operations Process?

With all that in mind, what are the steps you need to take to develop a sales and operations process?

Experts in the field outline a number of different models you can use for S&OP, some of which are extremely complex, but here’s a simple one which makes sense from a sales perspective.

1. Forecasting

Start out with sales forecasting. This involves looking at all the usual elements of a sales forecast – historical data, strength of pipeline, new products entering the market, and external factors such as the time of year, the weather, and any major upcoming events. Once you’ve got the sales forecast, that allows you to identify the level of demand on your supply chain.

2. Demand planning

The forecast gives you the ability to identify likely demand. A cross-organizational team of operations, sales and finance should get together to work out how much demand there will be for your products, and where and when it’s going to occur. You can use this period to match up historical demand data against sales forecasts and check that the two match up.

3. Supply planning

Now it’s time to assess what supply capacity you have, and how it matches up against predicted demand. Where and when is production going to occur, and how does that match up to the anticipated demand? How can the two be reconciled?

4. Pre-S&OP

This is the stage at which all factors are brought together. This is the point where it makes sense to identify the barriers to meeting demand and the finance implications of reconciling the two. Does the business need to bring on board more staff, onboard a new supplier, or allocate more resources to transport? How do the budgets for these things match up against anticipated financial projections?

5. Executive S&OP

At this stage, the projections are considered by the executive team, all scenarios are considered, and the plan gets signed off.

6. Implementation

Once it’s approved, the plan is finalized and implemented. Any data gathered is fed back into the forecasting process for the next round.

How Do You Implement S&OP?

Without the right approach and structure, S&OP can quickly become more of a burden than an asset.

We’ve put together seven tips to improve your sales and operations planning process so you can avoid common pitfalls, improve ROIs, and develop responsive solutions in real-time.

Identify your key metrics for individual segments

What are the most important indicators for your company and industry? Rather than relying on generalized metrics, your team needs to pinpoint the most relevant KPIs for your organization. You need KPIs that echo your company’s objectives and show that you’re on track to success.

Any S&OP process without the appropriate KPIs in place to guide it is likely to produce oversights and lead to inaccurate forecasting.

The right metrics ensure you stay aligned with your goal and bring cohesiveness to your S&OP, so everyone’s on the same page, regardless of their position or responsibilities.

Adopt a total-systems mentality

Every member of the S&OP team should be aware of how KPIs and business metrics are being analyzed and interpreted. Cost-benefit analyses should never just focus on the numbers themselves. You need to understand how each number came to be and how each number affects the rest of the organization.

KPIs guide the sales and operations planning steps, but they’ll vary depending on the quarter, manufacturer, or even the individual product line. Adopt a total-systems mentality, and make sure you’re looking at the big picture.

Define a S&OP hierarchy

Effective S&OP requires proper prioritization and a clear structure. Make sure the executive office is fully informed and on-board with all sales and operations plans before they’re implemented. This will cut down on disruptions and last-minute changes that can slow the entire process.

Ideally, your CEO should be at the top of the strategy, with elected managers below him as designated points of contact for the different teams. Use organizational mapping to delegate core responsibilities and ensure accurate reporting.

While structure is important, keep some flexibility built in. You need this to respond to changes quickly and efficiently.

When establishing roles in your S&OP structure, do your best to maintain alignment across divisions.

Make sure each individual feels like they’re part of one team. Weekly or bi-weekly meetings can help create this. Encourage things that connect people outside of their work.

Failing to establish a team mentality can reinforce silos and lead to great ideas being withheld or unnoticed.

Consider new product introductions and end of life forecasts

New product introduction (NPI) and end-of-life (EOL) forecasting play important roles in the effectiveness of a business’s sales and operations planning process. And good forecasting has to take both into account.

If analysts fail to determine the duration and impact a new or ending product will have on your supply chain and revenue, productivity can come to a standstill.

Incorporating NPI and EOL forecasts into your day to day planning strategy does more than just prevent oversights and loss, though. It allows you to predict which products your consumers are most likely to buy and which factors make your top-sellers so successful.

Use collaborative technology

Communication is key for a successful S&OP process. Stay in touch with every individual on the team with cloud-based platforms like Google Suite and Microsoft SharePoint. Platforms like these make it easier to share ideas, give important updates, and discuss potential changes from anywhere.

Collaborative S&OP software enables you and your team to create content, manage documents, and communicate with team members all in one place.

This kind of team alignment makes it easy to integrate your sales and operations planning steps across the company. It also allows the different departments to give you immediate and constant feedback.

Stakeholders are counting on you to be one step ahead of the market. The best way to make accurate predictions and develop effective solutions is to always have the latest data and inside information.

Keep data synchronized

Don’t let your teams draw conclusions and make decisions based on out-of-date or inaccurate data. Ensure your data is accurate and keep mistakes and delayed responses to a minimum by making sure your data is easily accessible and updated in real-time.

Operational silos are your biggest enemy here. And unfortunately, they can arise unintentionally. This is why collaboration and communication are crucial to any successful S&OP plan.

Luckily, technology makes it easy to have open communication across departments and roles, reducing the negative effects of silo mentalities. Connect your CRM to a reliable S&OP software to keep everyone in the loop.

Keep operational and financial KPIs separate but aligned

Your supply chain and revenue are connected — inventory and products supply customers, which in turn allow you to turn a profit — but you shouldn’t lump them together in your S&OP plan.

The factors that influence operations are often different than the ones impacting your company’s profits.

Consider the impact each one has on the other, but make sure you measure your expenses, returns, and income separately from your operational metrics.

This will help you track progress more accurately and identify risks more easily.

Bringing It All Together

The tactical nature of sales & operations planning provides an opportunity to forecast costs, establish clear profit objectives, and make informed decisions to make those goals a reality.

It can be difficult to master initially, but once you develop a sales & operations planning process that works for your business, you’ll be amazed at how much it benefits your company.

At its core, a good S&OP plan is a powerful tool that can unite a business’s many departments and orient all its divisions around a common goal and a shared vision.

Collaboration and communication will always be the two most influential factors in a company’s S&OP success. By following these tips and taking a closer look at your current operations management, you’ll identify your strengths while also discovering and fixing the areas that need more attention.

Brandyn Morelli is CEO of Tilt Metrics, a B2B growth marketing agency based out of Providence, RI. He is also the co-founder of HelloCecil, a SaaS platform helping small businesses make smarter hires through video interviewing.

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