Demystifying Sales and Operations Planning to Achieve Business Results

The concept of S&OP was conceived in the late 1980s as a means of connecting key processes across an organization by creating greater stability through the extension of the planning horizon. Planning further ahead enabled a more predictable flow of information to drive greater operational synchronicity.

The Institute of Business Forecasting defines it as “a process that integrates demand, supply and financial planning into one game plan for business. It also links strategic plans to operational plans and attempts to develop the most desirable product portfolio and product mix to maximize sales and profit.”

Companies like the idea for the same reason they like the idea of end-to-end software solutions; it beats the prospect of having to do all the hard work of really getting good at a bunch of very technical and difficult processes. However, the reality is that to extend the benefits further out and to share the planning result with a broader audience, you need to be good at planning in the first place.

S&OP is a team sport. It is possibly the most cross functional relationship in any organization. To make it work, we need participation and engagement from all players to win. Usually, this will offer a long-term view of between four and 18 months which provides a company with increased visibility of what is expected to happen. Incorporating a better understanding of the demand for its products as well as improved demand planning and forecasting will provide better inputs into the S&OP process.

As the end goal of every business is about achieving the objectives, meeting the targets and earning more profits, S&OP is a decision-making forum to plan for the long term, make tradeoffs and balance the risk and opportunities. It helps align the leadership team while helping people take accountability for the market and functional responsibilities.

1. S&OP is only about sales forecasting.

Forecasting is merely part of the overall functions as demand planning and forecasting are not stand-alone processes. It is a part of the data gathering step and it must be integrated into other aspects of operations to provide value.

To properly forecast, it will need timely, accurate, useable, qualitative and quantitative information from different functions. An Aberdeen Group study noted more than 60 percent of the best-in-class companies see the process as a strategic priority within their organization.

This process can be critical to a company’s success as it provides a decision-making tool to be used in managing sales and operations. In addition to the supply chain, it is also an important aspect of manufacturing, finance, sales and marketing, research and development and support top management’s decision-making.

2. S&OP is just another tool.

It is not just a process or a tool, it is also about mindset and behavior transformation. It is an enterprise-wide business planning process and a management transformation journey that shifts the entire organization into a new way of thinking and planning.

There are several transformations throughout the implementation stage: processes, systems and human behavior. Individuals and teams with the right mindset will increase their effectiveness and are proven to perform better and improve business outcome.

3. S&OP is focused solely on inventory management.

Yes, inventory management is a crucial element. But beyond identifying the right amount of inventory, it will also include other resources like people, equipment and materials.

It is the integration of all operations from demand planning, business development, customer management, client management, supply planning, budget and financial planning, to logistics and warehousing. All these forms one single game plan for the business.

4. S&OP is simply a supply chain issue.

Previously seen as a supply chain-driven process, it is designed to be an end-to-end business capability that integrates all functions. In practice, the decision-making driven by S&OP goes beyond the scope of the supply chain function by incorporating all functions from business development to customer management and even human resources. In other words, it is a team sport and it requires everyone in the organization to take accountability.

R. Hirneisen stated in his article, Sales & Operations Planning: “A key concept of S&OP from a demand perspective is that we are building a plan or commitment of what the sales and marketing organization will deliver.” This shows that we need to understand the potential issues and relay the subsequent information to other parties within the company.