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What is sales and operations planning?

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“A good forecaster is not smarter than everyone else, he merely has his ignorance better organized” -Anonymous

Planning for the future is difficult for every company, but having a clear process for making, adjusting and utilizing forecasts increases a company’s ability to adapt to uncertainty. Sales and operations planning (S&OP) is a practice of utilizing forecasts to create and implement a plan to adapt to future conditions. In short, it is a tool for translating an organization’s strategic goals into a tactical blueprint.

The S&OP is generally broken down into a monthly cycle with five phases: product review, demand planning, supply planning, financial review and executive approval. Each phase conducts analysis on existing data and provides its findings to the teams in the subsequent step to iteratively update assumptions.

  • Product Review: This phase is meant to provide an update on product development, product changes and process adjustments. It includes input from both sales and production managers and produces insight that will be used in determining the expected demand for products or anticipating disruptions in supply.
  • Demand Review: Here demand side professionals (sales, marketing, etc.) refine their forecasts and produce a unified estimate of demand going forward. Short term estimates will be used in planning production for the next month (or next S&OP cycle) and long-term forecasts are used to anticipate supply-side investment needs and will be updated from meeting to meeting when new information is available. While this process often concludes with a brief meeting to create consensus on estimates, a considerable amount of preparation is necessary. This preparation may include standard analysis on recent demand, or may include special research that was assigned at the previous meeting.
  • Supply Review: Now that a clear demand forecast is in place, supply side manager meet to create a plan for fulfilling that demand. This includes an overview of how resources will be utilized to meet the demand plan or, if the demand plan cannot be feasibly met, alternatives to address the disconnect. Most often, these will be addressed by overproducing in low demand periods to build inventory for busier periods or by increasing capacity (e.g. hiring, approving overtime, investing in new machinery, etc.). If no other alternative can close the gap, the demand plan may need to be revisited.
  • Financial Review: As its name suggests, the financial review meeting is meant to take the demand and supply plans and assess their financial feasibility. The Financial impacts of the plans will be analyzed and the finance team will make a recommendation on whether and how the plans meeting the financial goals of the organization.
  • Executive Approval: Finally, the proposed plans are presented to the CEO for approval. Ideally, leaders from the demand, supply and finance functions would meet prior to presenting the plan to identify areas where there is consensus and where there is disagreement. The output of this phase (and the process) is a single blueprint that all departments use to achieve the company’s goals.

Overall, S&OP provides a structure for gathering, analyzing and communicating data to a variety of stakeholders to provide clarity and balance a wide range of objectives.