Sales and operations planning (S&OP) is a method for improving the alignment of a manufacturer’s supply with demand by enabling the the sales department communicate with operations team for creating a unified production plan. The main aim is to match daily operations with corporate strategy. In S&OP process, several kinds of software play a significant role in automating the process and brings about collaboration among marketing, sales, finance and operations. The sales and operations planning software also makes important data more accessible and provides analytics and anticipation of what-if situations.
The departments which are included in the demand and supply side commonly participates in the S&OP process that involves marketing, manufacturing, procurement, finance and transportation. S&OP comprises various steps that are generally executed in monthly meetings. The names and numbers might vary for different companies but all have the same order of steps. With the proper sales and operations planning software, you can improve forecast accuracy, minimize inventory expenses, and enhance revenue and market share by increasing the efficiency of new products and marketing initiatives.
Let us look at how to implement the S&OP process for your organization.
Steps of S&OP Processes
Step1 – Data Collection and Monitoring
The step involves gathering historical sales data and considering forecast accuracy and trend analysis results. Modern S&OP software can tackle these tasks through automated data uploading and in-built reporting. Additional data maintenance should be carried out manually regularly, and the demand planner is usually in charge of this process. Significant inputs are obtained from sales and marketing for this step apart from inputs from logistics, operations/supply, and finance.
Step2 – Developing a Demand Plan
Demand planning involves clarifying forecasts, accounting for variability, comprehending demand sources and reframing customer service policies. Moreover, it also accommodates the inclusion of one-time events, promotion plans and new product launches. The demand planner develops the demand plan, but the sales and marketing team is referred to for input and verification.
Step3 – Supply Planning
Supply planning includes transforming the demand plan into a proper supply plan. This step includes identifying the inventory goals, production methods and safety stock levels for demand chase and level loading. The capacity to meet demand by checking available inventory, capacity and operations planning is also assessed. The head of supply is in charge of producing the supply plan. Essential operations, manufacturing, finance and logistics employees must be referred to for input and verification.
Step4 – Reconciliation of Plans
This step happens along with the monthly pre-S&OP meeting. It involves sorting through supply-side problems to understand if the sales plan is feasible and whether the inventory and backlog aims can be fulfilled. Supplementary jobs involve gauging supply performance from the past month and providing forecasts. The S&OP leader is responsible for executing this pre-S&OP meeting effectively, and the essential participants should include the marketing, sales, logistics, finance and operations teams.
Step5 – Approve and Release
After the supply and demand plans have been finalized and reconciled, the result is sent to the executive team during the monthly Executive S&OP meeting. The outcome of the meeting is an accepted demand and supply chain, which is carried out efficiently by operations. The S&OP leader supervises the Executive S&OP meeting.
Best Practices in S&OP Process
- Keep it Simple – Companies that conduct S&OP sometimes complicate the process when metrics are considered. Suppose you are tracking too many aspects between the demand and supply part of your business. In that case, the planning may become inefficient, and you may not be able to get clear visibility among various departments. Try to measure the most relevant and valuable metrics to understand how your overall business is progressing. It might be the calculations of how forecasts are performing against the sales figures, the inventory turnover and the collaboration between sales and operations.
- Focus on Cross-Functional Engagement – Cross-organizational communication is central to sales and operations planning. Affected stakeholders should be included in the process. The sales and operations planning would not be effective if you consider the interests and contributions of your business and ignore the operations and finance department. S&OP is based on your capability to promote unity through visibility. Every department involved should know how others are performing, and the information should be communicated between stakeholders. Communication is the best way of stressing cross-functional engagement. With sales and operations planning, every factor can be seamlessly integrated on the same page.
- Have Executive Ownership of Your S&OP – Businesses need a certain level of guidance for successful sales and operations planning. You can achieve cohesion amongst opposing elements of your business, requiring well-defined and engaged leadership. The practice needs strict executive ownership by a general manager or CEO. There may be stress between the supply and demand sides, and therefore, there is the need for an authoritative figure who ensures enforced standards of how they will work.
- Maintain Records – Successful sales and operations planning is a constant process, and it depends on your capacity to learn from previous issues. This is why your past plans and processes should be recorded in detail. You should document every aspect of the process, and these plans can contribute to your planning success.
About Us
Fountain9 is a Y Combinator backed company, which offers predictive inventory planning and optimization software for e-commerce, DTC and retail companies. Fountain9 provides an AI-powered sales and operations planning software which helps businesses undertake an integrated planning approach by extending the forecasting methods to sales, marketing, finance and operations for cohesive inputs. Advanced S&OP processes also consider the point of sale and other data relevant to the market.
Our flagship product, Kronoscope uses AI to accurately predict future inventory imbalances which lead to out of stock situations or wastage, and also recommends best ways of minimizing their impact.
Kronoscope is powered by state of the art demand sensing and pricing engine which takes into account several factors like historical sales trends, seasonality, holidays, markdown events and pricing changes to predict future inventory requirements and optimize prices. Predicted inventory demand is also aligned with supply side data to identify ideal suppliers and replenishment quantities that minimize chances of stock outs or inventory wastage.
