Sales and Operations Planning

In order to coordinate and match demand planning with supply planning, we need to go through the process of sales and operations planning, (acronym S&OP). In this article we are going to have a look on what is sales and operations planning, its benefits and steps to execute.

Sales and operations planning is a part of supply chain planning that is considered as an integrated business management process where both business’s top management and executives are collaborating and continually focus on that every business function is going toward balancing business’s supply with market demand. This will lead to generate more detailed business plans and forecasts for the predicted sales; but also, production and capacity plans, inventory and storage plans, plans for the development of new products, and strategic and financial plans. The extensive goal is to bring daily operations into line with corporate strategy.

The sales and operations planning can benefit business by increasing transparency between business departments. Furthermore, S&OP can help improving inventory management process and enhancing the forecast accuracy for both sales and budget. Additionally, it will help to understand the product life cycle and how to manage it, and improving the overall customer satisfaction. This will help all of both managerial and operational departments to be on the same page.

The sales and operations planning process consists mainly of five steps,

·         Collecting Data: this step is concerned with gathering all historical data required for statistical forecasting including old forecasts and actual data and their variances. This will help to understand the behavior of the market during the last period to estimate the future behavior, taking into consideration internal and external factors that may affect future sales.

·         Demand planning: in this step planners are going to analyze the sales forecast resulted from the previous step, comparing it to the annual operation and business plan, and making necessary adjustments to inventory and customer services policies.

·         Supply Planning: this phase is called either production planning. It is concerned with evaluation of the production and distribution capacity and any resources limitations. This step is performed by finance, materials and production agents.

·         Pre S&OP Meeting: in this step, a reconciliation is made from all the above three steps and arrange for any necessary recommendations. The sales forecasts is compared with the demand and supply plans and ensuring that all are brought into line with both the financial targets and company’s objectives.

·         Executive S&OP Meeting: in this phase all concerned executives come across the analysis of all forecasts, plans, and recommendations from the previous step. The result will be the final approval of the S&OP to be implemented and to provide a regular basis evaluation to guarantee success.

Sales and operations planning is like any other process that need to be evaluated on regular basis to make sure of its efficiency. The metrics of S&OP is divided into two categories,

·         Demand and Supply metrics: such as demand and production forecast accuracy, inventory turnover, and capacity utilization.

·         Financial metrics: such as total sales in a period versus forecast, actual working capital versus plan, and gross margin.