Written by Meredith Hart @meredithlhart
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Henry
Ford, business magnate and founder of the Ford Motor Company, once said,
"Quality means doing it right when no one is looking."
If
you want to create a quality product and provide an outstanding customer
experience, your business processes should be fine-tuned so every step, from
manufacturing to delivery, is well-executed.
Processes
can be made for just about anything. And the sales and operations planning
(S&OP) process is crucial to any successful business.
Let's
demystify sales and operations planning (S&OP) and learn more about the
S&OP process.
Sales and Operations Planning
(S&OP)
Sales and operations planning (S&OP) is a business management
process where leadership and executive teams meet to ensure each business
function is aligned to balance supply and demand. It requires
cross-organizational collaboration to create detailed forecasts for predicted
sales.
So,
what's the purpose of S&OP? It's to coordinate across business units,
increase transparency, balance supply and demand, and to achieve profitability.
S&OP can occur on a monthly, yearly, or even two or three-year basis,
depending on the company and its goals.
There
are some key benefits to sales and operations planning (S&OP).
·
Increased transparency between departments
·
Informed decision making about a product's demand and supply
·
Improved inventory management
·
Better sales and budget forecasting
·
A clear understanding of a product's lifecycle and its management
·
Streamlined processes that improve the overall customer experience
S&OP Process Steps
1.
Forecasting
2.
Demand planning
3.
Supply planning
4.
Pre-S&OP meeting
5.
Executive S&OP meeting
6.
Finalize and implement S&OP
The
S&OP process includes forecasting, demand and supply planning, and
executive review. The goal is to coordinate sales and operations planning
across business functions so they're all on the same page. The exact steps can
vary depending on the company, its products, and its industry.
1. Forecasting
At
this stage of the S&OP process, data is gathered about prior sales and
forecasts are made for future sales. It's important to consider any internal
and external factors that can impact sales (e.g., industry, customers,
competition). Any trends will be identified and analyzed.
2. Demand planning
Demand
planning is when cross-functional collaboration comes into play. The forecasts
are analyzed, and adjustments are made to inventory and customer service
policies based on the product demand and sources of demand. The demand can be
measured in either revenue or units of a product.
3. Supply planning
During
supply planning, representatives from finance, operations, and materials to
evaluate capacity. They'll determine if there are any constraints on people,
machinery, and suppliers. From there, a supply plan is created that will
account for any capacity constraints.
4. Pre-S&OP meeting
During
this stage of the S&OP process, leaders from finance, sales, marketing,
operations, materials, product management, and human resources meet to
collaborate. They'll compare the forecasts to the demand and supply plans, and
they'll consider the financial impact of the plans.
5. Executive S&OP meeting
In
this stage, executives meet to analyze all the forecasts, plans, and
recommendations from the pre-S&OP meeting. By the end of the executive
S&OP meeting, a final sales and operations plan will be approved.
6. Finalize and implement
Once
the sales and operations plan has been approved, it is time for implementation.
After implementation, the S&OP should be evaluated on a regular basis to
ensure success.
Here's
a visual overview of what the S&OP process looks like.
S&OP Metrics
When
evaluating your S&OP process, there are some key metrics you can use to
gauge performance.
Demand and Supply S&OP Metrics
Demand
and supply metrics will help you determine if your forecasts are accurate and
the demand matches the supply.
·
Demand forecast versus actual
·
Production forecast versus actual
·
Inventory turnover
·
Capacity utilization
·
On-time delivery
·
Accuracy in order delivery
·
Cycle times
Financial S&OP Metrics
These
metrics show you how the business is performing from a financial perspective.
·
Total sales in a period (e.g., month, quarter, year)
·
Total sales versus forecast
·
Gross margin
·
Working capital versus plan
S&OP Software
Which
tools should you use for your sales and operations planning? Instead of solely
relying on spreadsheets, here are some software options you can use to
streamline your S&OP.
Oracle
provides process templates you can use to make your sales and operations
planning run smoother. You can monitor each stage of the process and dashboards
allow you to see KPI summary graphics. It allows you to collaborate with
colleagues and assign tasks. Plus, it integrates with Excel.
The
SAP Integrated Business Planning software makes your S&OP planning quick
and agile. Key features include scenario planning, simulations, and advanced
analytics so you can stay on top of forecasts and hit your financial targets.
With
the Infor Sales and Operations Planning software, you can synchronize demand
and supply imbalances, coordinate across business units, and analyze
performance. It even includes predictive financial analysis so you can see how
business decisions will impact the bottom line.
Looking
for more? Learn how to create a strategic plan for business
development next.
Originally published Feb 20, 2020 2:30:00 PM, updated February
21 2020
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