Sales and operations planning (S&OP) is the process of mapping and structuring a supply chain to help business leaders balance supply and demand.
The right sales and operations planning process is a beacon for supply chain pros looking to make informed decisions about:
- Reducing costs
- Managing inventory
- Improving customer satisfaction
- Building a more resilient supply chain
If your company’s S&OP falters, the impact can quickly ripple through each part of the supply chain, affecting profitability.
A Breakdown of Key Components of S&OP
While S&OP processes vary depending on an organization’s approach, they all have three common components.
Forecasting
Forecasting predicts future sales and market demand by analyzing historical data, market trends, and feedback from various stakeholders. From this analysis, an organization can lay the groundwork for demand and supply planning to anticipate revenue, allocate resources, and set performance targets.
Demand Planning
After forecasting future sales, the next step is building a demand plan. Planning for demand requires a business to evaluate factors that impact demand, such as:
- Market conditions
- New product introductions
- Seasonal consumer trends
Insights from this evaluation allow an organization to balance supply and demand.
A demand plan helps your company ensure it has the right products at the right time to meet customer needs and reduce the risks of stockouts or excess inventory.
Supply Planning
In the supply chain scenario planning process, organizations will outline resource usage and highlight potential constraints in meeting market demands. They can then project inventory levels over a specific period.
Planning supply allows them to manage customer objectives, inventory, and operating costs. With a supply plan, your company can prepare to meet customers’ desired quantities, deliver orders on time, and account for returns.
What is the S&OP Process: A Six-Step Guide
The S&OP process involves comparing forecasted demand to available supply. Business leaders then gather insights from this comparison and plan their supply chains to meet demand shifts and business goals.
S&OP follows a structured approach. Here’s a look at each step of the sales and operations planning process.
Step 1: Product Review
In this first phase of the sales and operations planning process, teams involved in research, product development, and new product introduction analyze the company’s market health, examine product pipelines, and decide on product planning.
Based on product review analysis, your organization can decide to set launch dates for new products, discontinue underperforming items, or adjust product strategy as needed. The goal is to ensure your company’s product portfolio aligns with market demand and business objectives.
Step 2: Demand Review
After streamlining your product to meet market demand and organization goals, the next step is forecasting and planning for future customer demand. In this step, your team reviews past sales data, market trends, customer orders, and any upcoming promotions to predict the product quantity that customers are likely to buy in the forthcoming period.
As such, demand planning in supply chains might involve revising or developing new pricing plans, marketing campaigns, and promotional offers to influence demand in a way that aligns with your company’s goal. You’ll want to strengthen collaboration between sales, marketing, and product management teams to ensure the demand forecast reflects a comprehensive view of market conditions.
Step 3: Supply Review
The next step is to align your company’s supply capabilities with the forecasted demand. Your team assesses the company’s production capabilities, including inventory levels, manufacturing schedule, and available resources, to ensure you can meet the forecasted demand without overproducing or underproducing.
In supply review, your organization can identify and address any potential constraints in the supply chain and mitigate them by adjusting production schedules, sourcing additional materials, or considering new outsourcing options.
Step 4: Finance Review
In this phase, the finance department evaluates the financial implications of the demand and supply plans. The team typically assesses the S&OP’s profitability, plans the finances, and explores different scenarios to understand the financial impact of various decisions.
Finance reviews also expose any financial risks associated with the plans — such as potential cost overruns or revenue shortfalls — and develop strategies to mitigate them.
Step 5: Pre-S&OP
The Pre-S&OP is a series of meetings held by leaders from different departments to review product, demand, supply, and finances involved in S&OP. During these meetings, business leaders discuss every planning cycle to ensure feasibility and cross-functional collaboration.
Step 6: Executive S&OP
The final phase is the executive S&OP meeting, where senior management reviews and approves the plan. The executive assesses the proposed plan to ensure it aligns with the company’s overall strategy and objectives.
If any key decisions weren’t resolved in the first five phases, the executive addresses them in this phase and sets the decision deadlines.
Four Benefits of S&OP for Your Organization
S&OP offers more than just supply chain management. Here are four more benefits that S&OP may provide.
Enhanced Collaboration
S&OP encourages collaboration across various departments, such as sales, marketing, finance, operations, and supply chain management. Regularly bringing these teams together improves communication, eliminates departmental silos, creates consensus, and keeps every department focused on achieving the same goal.
Improved Forecasting Accuracy
One goal of the S&OP process is to improve the accuracy of demand forecasts. It uses data from past records, market patterns, and input from various departments to create more accurate and reliable sales forecasts. An accurate forecast is critical for financial planning, managing inventory, and meeting customer demand.
Optimized Inventory Management
Effective inventory planning is an important outcome of a successful S&OP process. When you align demand and supply more accurately, you can maintain the right inventory balance and have enough stock to meet customer demand without tying up excessive capital in inventory.
Revenue Growth and Profitability
The goal of the S&OP process is to help your organization adopt an optimized demand plan for an effective supply chain. When implemented well, it can lower inventories and reduce wastage, allowing your organization to meet financial targets.
Challenges in Implementing S&OP (And How To Overcome Them)
Since S&OP is so important, you must implement it correctly. Below are some common challenges you’ll likely encounter.
Achieving Cross-Functional Alignment
S&OP requires coordination and communication across departments during the planning cycles. Each department may have unique priorities, metrics, and ways of working, making it challenging to create a cohesive plan.
The easiest way to achieve cross-functional alignment is to schedule regular meetings to discuss goals, updates, and challenges. Consider also implementing collaborative tools to facilitate information sharing and real-time communication.
Ensuring Data Quality and Accessibility
Without accurate and timely data, it’s almost impossible to create reliable forecasts and make informed decisions. Most organizations are plagued with data quality issues that could lead to inconsistencies and errors in S&OP.
Set clear standards for data entry, formatting, and validation. You can use automated tools to check for data quality. For accessibility, use a unified platform to integrate data from various systems like ERP and CRM.
Managing Organizational Change
A common challenge during the implementation of S&OP is employee resistance to change. This often occurs due to concerns about job security, unfamiliarity with new systems, or workflow disruption.
You can create a more positive reception by involving your employees early in the process, providing adequate support, and addressing their concerns.
Best Practices for Effective S&OP
While you can do many things to improve the efficacy of S&OP, getting the basics right will help you lay the groundwork for the rest of your processes.
Here are some of the most important S&OP best practices to consider.
Regular Communication
For S&OP to succeed, all stakeholders must be informed about their contribution to the planning process. You need to communicate across different departments to get everyone on the same page, foster cross-functional collaboration, and encourage open information sharing.
To achieve effective cross-departmental communication, consider:
- Holding regular S&OP meetings
- Adopting a collaboration tool that allows teams to connect
- Facilitating knowledge sharing by centralizing information
Performance Metrics
Identify and monitor performance metrics to measure the efficacy of the S&OP process and drive continuous improvement. Consider tracking KPIs directly linked to the S&OP objectives, such as:
- Forecast accuracy
- Inventory turnover
- Service levels
- Financial performance
Continuous Improvement
Continuous improvement helps maintain S&OP’s relevance and added value. Processes evolve with changing business conditions, and so should your S&OP.
You can continuously improve processes by implementing feedback loops within the S&OP, refining processes, and staying open to new ideas and technology.
Future of S&OP: Trends To Keep an Eye On
S&OP is evolving with several emerging trends. Here’s what to keep an eye on.
AI and Machine Learning in S&OP
AI and machine learning are set to revolutionize S&OP. Thanks to their ability to analyze massive amounts of data in real time, they can identify patterns and make accurate forecasts. Your organization will be able to forecast capacity more accurately and know exactly when to tweak your product plan. That means less time spent on length analysis cycles.
Advanced Analytics in Supply Chain
Companies are starting to weave advanced analytics into every part of supply chain execution — whether it’s in manufacturing, logistics, or order management. The integration boosts the flow of information across the entire supply chain and provides deeper insights into performance plans. With these insights, business leaders can make quicker and better decisions.
Discover the Best Tool To Fuel Your Sales and Operations Team
The supply chain is the backbone of commerce. However, its complex nature and dispersed workforce make it vulnerable to disruption. Besides, addressing supply chain vulnerability is nearly impossible with traditional sales and operations planning software.
With a robust solution like GAINS, you utilize powerful AI and machine learning algorithms to eliminate time wasted hunting data in spreadsheets. You can integrate all the data you need on a single platform, making it easy to manage your supply chain. You can also interweave your enterprise resource planning and supply chain planning solutions to align teams around a common purpose. Learn more about GAINS today.