Sales and operations planning (S&OP) is an integrated planning process that aligns demand, supply, and financial planning and is managed as part of a company’s overall planning. S&OP is designed and performed to support executive decision-making related to the approval of a feasible and profitable material and financial plan.
The Sales and Operations Planning (S&OP) process better matches a manufacturer’s supply with demand by having the sales department work with operations to create a single production plan. The broader goal is to align daily operations with business strategy.
Basically, other departments closely involved in the supply and demand side of the equation typically participate in the S&OP process, including marketing, procurement, production, transportation, and finance.
Sales and operations planning process
The S&OP process consists of several stages, usually carried out in periodic meetings. The names and numbers of the steps in each company’s planning process may vary, but they all have some common features:
- Data collection: collection of existing forecasts and information on key variables, such as inventories, recent sales, and cash holdings;
- Demand planning: processes for the analysis, forecasting and influence of demand, including demand sensing and demand modeling;
- Production (supply) planning: assessment of production and distribution capacity and constraints;
- Aligning demand and production plans, ensuring that they meet financial requirements and business objectives, and preparing recommendations;
- Final approval following comprehensive review by plan.
S&OP is closely related to and is often a component of integrated business planning (IBP), a more comprehensive, long-term planning process that brings together the plans of each department and ties them to the financial performance (financial planning) and strategy of the company.
Benefits of Sales & Operations Planning
In addition to improving forecast accuracy, S&OP can reduce inventory costs, which, in turn, can increase working capital by committing less money to inventory. The S&OP process can also increase revenues and market share by improving the effectiveness of new products and marketing initiatives.
The best on-time delivery rates made possible by S&OP can lead to greater customer satisfaction and the additional benefits that come with it, such as increased sales.
Better transparency over sales, marketing, operations and financial data is another benefit touted by S&OP endorsers. In addition, using specialized S&OP software to automate the process can shorten planning cycles, thereby reducing labor costs and increasing productivity as employees are relieved of the cumbersome and often manual work involved in preparing forecasts and collaborating on a unified plan.
Software for Sales & Operations Planning
Although S&OP is first and foremost a process, not a technology, different types of software often play an important role in automating the process and facilitating collaboration between sales, marketing, finance, and operations by making relevant data more accessible and providing analysis and simulation of what-if scenarios.
Sales forecasts can be prepared by specialized analysis or forecasting tools or demand planning software, but many companies still manage this stage with spreadsheets. Production planning is often handled by a dedicated module, part of the ERP software application or Material Requirements Planning (MRP) applications.
How often do supply chain plans exactly match what happens in reality? There is often likely to be deviation; even the most robust sales and operations planning (S&OP) process cannot account for every eventuality.
This is where Sales and Operations Execution (S&OE) has proven crucial, providing a process for dealing with the daily complications of supply chain management and ensuring alignment between the strategic plan and execution. Indeed, effective S&OP and S&OE cannot exist without each other, and the most successful supply chain managers recognize and leverage this symbiotic relationship.
What do we mean by Sales Operations?
Designed to optimize the organization aspects related to sales activities, the sales operations are concerned with implementing systems, strategies, communication methods, and activities that can ensure that the entire sales process takes place effectively.
It may occur that business managers make the mistake of viewing sales operations (increasingly referred to as revenue operations) as a cost instead of a potential source of revenue. Nowadays, companies have realized its value and know that sales operations help all other departments work better. Sales operations play an essential role in business growth.
In recent years, thanks to the availability of data and the digitization of purchasing processes even at the enterprise level, sales functions have become more complex. Thus, while sales operations used to measure only the productivity of sales people, they are now increasingly acquiring a key role in the growth and competitiveness of companies.
It is important not to confuse sales operations with the term “sales operations and planning,” which is specific to manufacturing companies and refers to supply chain optimization with respect to production and sales.
Sales Operation Planning
Sales Operation Planning is an activity of planning and scheduling production to create value.
The purposes of sales operations can always fall into 3 primary functions and 2 secondary functions.
Primary functions:
- Sales methodologies
- Sales enablement or application of methodologies
- Analysis (of customers and/or competitors)
Secondary functions:
- Administrative tasks
- Sales tools
The role of sales operations exists almost exclusively in large organizations, but that is not to say that the problem of organizing sales functions does not exist in smaller entities. Sales operations are essential wherever sales must be done efficiently.
A sales operations player needs to be able to operate at a tactical and strategic level. He or she must have complete visibility on the sales organization and needs to identify any possible weaknesses or missing links. His or her role is to propose solutions to the identified weaknesses, such as identifying trends for cross selling, factors affecting deal closures, and identifying touchpoints to guard and supports to implement to facilitate the sales process.
There are two professionals who play a crucial role within these scenarios: Sales Operation Manager and Sales Operation Analyst.
Sales Operation Manager
The role of the Sales Operations Manager is to identify the ways to streamline sales processes, often through automation. Sales operations managers often manage a team of sales operations analysts or specialists.
The Sales Operations Manager typically generates reports that are used by salespeople, sales managers, and executives to make decisions based on historical data, current results, and future forecasts.
Sales Operations Manager job descriptions often vary depending on the company or level of experience for which the company is hiring.
Sales Operation Analyst
Sales Operations Analysts are those who play a key role in developing and improving sales processes for companies. They help companies increase sales and revenue by providing useful information on sales activities to inform senior managers’ decision making. Therefore, Sales Operations Analysts generally work in a high-pressure environment and require many skills to succeed in the job.
What does a Sales Operations Analyst do?
Sales Operations Analysts are responsible for working with sales, product, operations, marketing, finance, and external parties in analyzing and creating sales reports. They must also do sales forecasting, budget planning, project management, and customer communication.
Supply chain leaders who implement a mature S&OP process can expect significant returns, including increased revenues and profitability.
The Sales & Operations Planning process can often be challenging for supply chain planning leaders. It is fundamental to business success, but rarely expresses its full potential. That’s because it relies, more than any other supply chain process, on people from functions outside the supply chain recognizing and addressing the interdependencies between projects, product launches and phase-outs, and all the other things that make up an organization’s operations.
“S&OP is the most important and critical inter-functional process,” says Micheal Youssef, Senior Director Analyst, Gartner. “If S&OP is executed correctly, it leads to significant returns, including increased revenue and profitability.”
However, activities concerning sales operations and supply chain planning are often complex because they consist of so many components and people, all of whom must be aligned to work towards a common goal.
Supply chain leaders can begin to generate more business value from the S&OP process by considering the following aspects:
S&OP must be decision-oriented,
- It must be focused on achieving business goals,
- It must be a medium-term process,
- It must be scenario-based,
- It must always evolve to improve.