What is Sales and Operations Planning?
Sales and operations planning is a business process whose purpose is to align all business processes to balance supply and demand. Sales operations planning or S&OP requires cross-organizational collaboration to develop accurate forecasts for predicted sales volume.
Sales and operations planning is one of the most crucial processes for the success of every business. In order to create a product of good quality and to provide excellent customer service to your customer, you should make sure that all your business processes are fine-tuned and are well executed from manufacturing to delivering the final product to the doorstep of the customer.
The sales and operations planning makes sure that there is transparency between all the operations taking place in the organization and all operations are directed towards one common goal, i.e. profitability. Sales and operations planning can take place on a monthly, half-yearly, yearly and even 2-3 years basis, depending on the goals of the organization.
Importance of Sales and Operations Planning
In an organization, different tasks related to the production are performed by different departments. In large organizations, it becomes difficult to establish continuous communication between different departments. In such cases, the sales and operations planning plays an important role and helps in creating transparency among all the departments of an organization.
Moreover, sales and operations planning helps in making informed decisions about the demand and supply of a product. As a result of which inventory management in the organization improves. In the absence of sales and operations planning, the inventory management becomes poor, and inventory levels are either low so that it fails to meet the demand for the product or high that products rot lying in the storage.
As with the help of sales and operations planning, decisions are made at least a few months or a year ahead about the production; the organization can make better budget and sales forecasting.
In addition to this, Learning about the lifecycle of a product is an essential part of sales and operations planning. With the help of the lifecycle of a product, an organization gets clear knowledge about the lifecycle of a product, manages effectively and controls losses.
Serving customers is the ultimate goal of an organization. Every organization makes efforts to enhance its services so that they can satisfy their customers. The sales and operations planning helps in streamlining processes that help in improving the overall experience of customers.
Steps involved in Sales and Operations Planning
The sales and operations planning consists of various steps, such as forecasting, demand, supply planning, and executive reviews. The objective of sales and operations planning is to coordinate the activities of all departments and get them on the same page.
In this section, you will learn about the essential steps of sales and operations planning. However, the number of these steps can be increased or decreased as per the type of industry or product.
Step 1. Forecasting
The first step in sales and operations planning is forecasting. In this step, the data is collected about the previous sales and on the basis of this data forecast are made for the future sales. While forecasting, it is not right to only consider the number of sold units, but it is important to consider both internal as well as external factors that might impact the sales of products.
For example, the entrance of new competitors in the industry, slow down in the economy, change in the preferences of customers. It is important to determine new trends, and they should be analyzed before making a final forecast.
Step 2. Demand Planning
Demand planning is the second step of the sales and operations planning. This is the step where cross-functional collaboration becomes a part of the demand planning. At this step, the forecasts made at the first step are analyzed.
Based on this analysis, the adjustments are made to the inventory and customer service policies. The demand for the product, as well as the sources of the demand, are analyzed. In the demand planning phase, the demand is measured either in the form of units of the products or revenue generated.
Step 3. Supply Planning
The third step in sales and operations planning in the supply planning. The supply planning is concerned with the supply of finance, materials, and operations. The managers of all these departments come together to evaluate the capacity.
The main concerns of all the representatives are to find out the constraints on machinery, people, and suppliers. Based on this knowledge, a supply plan is generated. This supply plan will account for any capacity constraints.
Step 4. Pre-Sales and operations planning meeting
The next step in sales and operations planning is the pre-S&OP. Sales and operations planning can only be effective if all the departments of the organization work together. In the pre-S&OP The representatives of sales, finance, operations, product management, materials, and human resource meet and discuss the essentials.
They meet to compare the forecasts made for demand and supply plans. In addition to this, they look for any loopholes left in the planning and work on it. Most importantly, they discuss the financial impacts of the plans.
Step 5. Executive Sales and operations planning meeting
In this step, the representatives meet again to analyze all the forecasts, plans, and recommendations made and discussed in the pre-S&OP meeting. At the end of this meeting, a final sales and operations plan is developed and approved by all the representatives of the departments.
If any change is needed to be made before the final step.
Step 6. Finalize and implement
Once the sales and operations plan is finalized, it is time for its implementation. After the implementation, the job is not done. It should be monitored and evaluated regularly to ensure that the plan is successful.
Metrics for Supply and Operations Planning
Evaluation of sales and operations planning is important to learn about its effectiveness. There are a few metrics that can help you measure the performance of supply and operations planning.
Financial Sales and operations planning S&OP metrics
These metrics show how a business is performing on the basis of the financial perspective. Let us learn about them one by one.
1. Total sales in a period
The total number of units sold in a particular period of time, such as in a month, in a quarter, or in a year.
2. Total sales vs forecast sales
It is one of the best metrics to gauge the performance of the sales and operations planning. If your total sales are matching or exceeding forecast sales, then the S&OP planning is successful, and if not, then there is a need to take some actions.
3. Working capital vs plan
If the working capital is either equal to or less than the planned capital, then the performance of S&OP is good.
4. Gross Margin
The value of gross margin indicates the performance of the sales and operations planning.
Demand and supply sales and operations planning metrics
Demand and supply metrics help in determining whether the forecast made by an organization was correct or not. In the case of accurate S&OP, the demand will match the supply.
1. Production forecast vs actual forecast
Whether the actual forecast is equal to or same as the production forecast made during sales and operations planning.
2. Demand forecast versus actual forecast
During sales and operations planning the demand for the product is forecasted. The S&OP will be successful if the demand forecast matches the actual forecast.
3. Inventory turnover
The sales and operations planning is successful if the inventory turnover is the same as that decided during the S&OP planning.
4. Capacity utilization
Whether the production capacity of the company is being utilized as expected during the S&OP.
5. On-time delivery
Whether your customers are receiving their deliveries on-time or not.
6. Accuracy in order delivery
Timing of delivery is not only important for customers’ satisfaction. It is also important to achieve maximum accuracy rate of delivery to satisfy customers.
7. Cycle time
The cycle time is the total time taken for the life cycle of a product. Effective sales and operations planning can ensure the ideal life cycle of the products.
Sales and Operations Planning Software
There are various tools available online that can be used for sales and operations planning. The question is which tool do you want to use for your sales and operations planning? Don’t just depend on spreadsheets for sales and operations planning.
Have a look at the following softwares. You can use any option to streamline your sales and operations planning.
1. Infor sales and operations planning
Infor sales and operations planning is one of the best S&OP tools. Using infor sales and operations planning tools, you can synchronize supply and demand imbalance, analyze balance, and establish coordination among different departments of the company.
In addition to this, this tool also provides predictive financial analysis so that you can have clear information about the impacts of business decisions on the revenue generation.
2. SAP Integrated Business Planning
The main advantage of using SAP Integrated Business Planning tool is that it makes the Process of S&OP planning fast and quick. This tool includes key features like simulations, scenario planning, and advanced analytics.
This tool helps you make accurate forecasts and help you reach your financial targets.
3. ORACLE S&OP Cloud
The feature that Oracle S&OP cloud provides is the process template that helps in making sales and operations planning easy. The best thing about using this tool is that it lets you monitor each stage of the process.
With the help of dashboards, KPI summary graphics can be seen. In addition to this, using this tool, you can easily collaborate with your colleagues and can assign them tasks without hassle. The one more reason for using Oracle S&OP Cloud is that you can integrate it with Excel.
Benefits of Sales and Operations Planning
The following are a few benefits of sales and operations planning.
1. Enhanced profitability
An effective sales and operations planning can help in Increasing the profitability of the organization.
2. Improved customers’ level services
Every organization wants to provide the best services to their customers so that they can retain them for a long time. Sales and operations planning helps organizations to do that by enhancing the performance of each operation.
3. Lower inventories
No organization wants overflowing inventories. Sales and operations planning helps in inventory management; thus, lowers inventory level.
4. Increased revenue
A company can increase its revenue generation by making the use of effective sales and operations planning.
5. Quick responsiveness
Sales and operations planning helps organizations to respond to the queries of their customers quickly.
6. Better control of management
S&OP helps the top management to control the activities of the organizations as they know exactly what they want from their workers.
Pinky is an MBA in Marketing from the University of Mumbai. She loves helping people out in learning Marketing and sharing latest ideas and tactics for growing businesses.