Sales and Operations Planning (S&OP) is a process for integrated decision making in your business, involving Sales, Operations and Finance. Think of it as a monthly operating plan that enables your business to realize and update its strategies. S&OP centres on 5 key steps:
Whether you are new to S&OP, or want to ensure your existing S&OP processes are delivering what your business needs, here are 4 best practices to put in place.
Don’t discard your existing standalone processes such as sales forecasting or production planning. Instead, make sure there are appropriate links between existing processes and that your people understand each other’s needs. Similarly, don’t think all processes need to be managed by a single all-encompassing system. For instance, sales forecasting, production planning and capacity planning can all be done on separate systems as long as they are linked by using one monthly validated and approved sales forecast.
S&OP is a major business process that manages the balance and trade-offs between the conflicting preferences of Sales (demand) and Operations (supply). It is therefore very important to have effective leadership. Best practice suggests it be owned by the CEO or General Manager. If not, then a strong coalition between your Sales and Operations Leaders is required. This coalition must be able to manage the tension between these functions and set clear ground rules and boundaries for working together.
Make sure you have reviewed and understood external influences before you focus on internal activities. For example, has your Sales forecast adequately assessed assumptions, risk and opportunities, competitors’ actions and customers’ acceptance of new products? Similarly, do you understand lead time for capital equipment to increase capacity? Has there been a dramatic increase in supply lead time for a critical production component?
Your business should have a tolerance for some level of sales forecast and production level variability, say +/-20%. Don’t focus on the steady state. Really understand where you see vast forecast over or under consumption or major production constraints. Which customers and products are affected and why? How long will the change last? Does it justify additional capital investments or re-tooling of idle capacity? For your executive-led S&OP to be effective you must highlight just the specific information required for decision making.
If you always seem to be working to two sets of numbers, it’s time to instil the discipline of Sales and Operations Planning. S&OP is a key process that helps companies achieve scale. It improves cash flow, profit and growth. Whether you have a mature business that just needs some process revitalization or a growing business that requires additional oversight and control, committing to Sales and Operations Planning will help you reach your goals!
This article was published more than 1 year ago. Some information may no longer be current.