All insights
Sales and Operations Planning Explained
Feb 7, 2024
If the 2020s have taught us anything so far, it’s the ongoing value that resilience, agility, continuity, and sustainability has for organisations.
In a time when demand shocks, workforce challenges and other risk factors are fuelling supply chain uncertainty, it’s useful for businesses to consider which strategies can help them tackle an increasingly complex operating environment.
Whilst it’s easy to discuss the importance of these concepts in broad terms – no supply chain executive would argue against the need for agility – there can sometimes be a gap between what is desirable for organisations and what it actually takes to cultivate these qualities. As McKinsey research shows, just 37% of organisations said they implemented scenario planning in the post-pandemic period.
To build genuine resilience and agility, supply chain leaders are called to implement more visibility and scenario planning into their operations. So, how can this be done? Adopting a Sales and Operations Planning process (S&OP) is one approach that your business can tap into to cultivate that all-important agility.
Sales and Operations Planning (S&OP) is a strategic business management process that aligns and synchronises an organisation's sales, marketing, operations, finance – and other functional areas – to achieve overall business goals. By aligning demand, supply, and financial planning, organisations can use S&OP to improve customer satisfaction and use resources more effectively – two factors that can really lift the bottom line.
The term Sales and Operations Planning is often used interchangeably with integrated business planning (IBP), but we view the fundamentals are effectively the same – so for the purpose of this article, we’ll use the term S&OP.
Sales and Operations Planning is also compared to Sales and Operations Execution (S&OE). Whilst S&OP and IBP can operate on various planning cycles, S&OE works on a short-term, daily or weekly basis, addressing immediate operational concerns.
We’ll break down the Sales and Operations Planning process into its key components:
1. Demand Planning: This involves forecasting future demand for your products or services. Sales teams and marketing departments typically play a crucial role in providing input during this process, to account for anticipated peaks shaped by promotional campaigns and seasonal factors.
2. Supply Planning: This step focuses on determining the resources and capabilities you need to meet the forecasted demand. At this stage, you will be assessing the availability of materials, production capacity, and any resources required for manufacturing.
3. Inventory Planning: Here, S&OP addresses inventory levels to ensure they are optimised. Factors such as carrying costs, storage capacity, and the potential for stockouts or overstock situations will be taken into account.
4. Financial Planning: The financial implications of your sales and operations plan are crucial. Here is where you’ll need to ensure the plan aligns with financial goals and budgetary constraints.
5. Cross-functional Collaboration: As the above components suggest, S&OP requires collaboration across different departments such as sales, marketing, finance, and operations. Effective communication and coordination among these functions are essential for the success of the process.
6. Regular Review and Adjustment: S&OP is an ongoing process and plans may need to be adjusted based on changes in market conditions, customer demand, or other relevant factors. Regular reviews and updates are critical to keeping the plan current and effective.
With S&OP being a continuous process, timing intervals are critical. It makes good sense to review plans within a pre-determined timeframe (anywhere from a quarter to more than two years, depending on your business requirements). Within a set timeframe, monthly meetings to gauge demand, supply and financial trajectories will enable teams across various functions to tie it all together.
The S&OP process isn’t simply a ‘nice to have’ – it’s vital for supply chain effectiveness. Even prior to the pandemic, industry research has highlighted significant dividends for businesses using an S&OP model.
Aberdeen Group found S&OP businesses had better financial performance, customer service levels and profitability thanks to this model, findings echoed by McKinsey’s later research. In other words, supply chain and operations excellence is possible with effective scenario planning in the form of S&OP.
In industries like global manufacturing, retail, pharmaceuticals and FMCG, the sales and operations planning process gives businesses a bird’s eye view over the broad array of moving parts that impact operations and growth. S&OP can help companies avoid overproduction and stockouts, whilst facilitating a smooth entry into a new market.
It’s also a powerful tool for meeting sustainability objectives, by helping reduce wastage and lowering the environmental impact associated with storage and disposal of surplus goods.
To tap into this strategy for improving supply chain effectiveness, buy-in from the entire executive team is a must to ensure resources can be allocated properly.
Next, it’s essential to define clear and specific (SMART) goals and objectives for the S&OP process, which will keep everyone on the same page and allow them to track progress.
Adopting the right technology tools will also play a key role in the successful implementation of S&OP processes. Look for tools that allow your organisation to simplify data collection and perform analytics, as a robust reporting practice is integral to S&OP.
Lastly but especially critical, is assembling a cross-functional team that will bring the S&OP process to life. As sales and operations planning is inherently collaborative, you’ll be bringing together people from operations, sales, finance, marketing and possibly other areas, depending on your requirements.
Supply chain effectiveness ultimately depends on skilled and adaptable leaders who are energised by scenario planning. Such leaders are not readily found with traditional executive search recruitment approaches. If you’re an executive with S&OP experience, your capabilities are in more demand than ever.
With executive search and consulting expertise located across the UK and EU, (Benelux), Melium Consulting connects great leaders to businesses that embody supply chain and operation excellence. To discover new career opportunities or to hire senior FTE talent or consultancy support talent for your business, contact us today.