S&OP is a business process that connects the overall strategic plan with daily operational plans, enabling companies to achieve a balance between product demand and supply. It is a cross-functional process involving active participation from sales, customer service, manufacturing, marketing, finance, and supply chain teams.
Sales and operations planning is an integrated business management process that aids top management in making informed decisions. During S&OP meetings, all relevant factors influencing future demand, such as new product launches and promotions, are taken into account. The S&OP process encompasses demand and supply planning as integral components. Some companies mistakenly assume they have an S&OP process merely by implementing demand planning and supply planning.
How To Streamline Sales And Operations Planning?
Enhancing sales and operations planning brings strategic advantages as it impacts significant business and process KPIs. Key metrics affected include fill rate, working capital, demand forecast accuracy, manufacturing and sales costs, and inventory turnover. To improve planning, it is essential to establish robust planning processes before considering the implementation of optimization software, including AI solutions. Prioritizing process efficiency is crucial to avoid technology becoming a mere distraction and failing to deliver the expected results.
Ideally, the sales and operations planning process should encompass six steps. Five of these steps, including demand generator planning, demand generation planning, supply planning, sales and operations consensus, and sales and operations executive meeting, are typically conducted on a monthly basis. The sixth step, operational execution, is recommended to be carried out on a weekly basis to ensure effective implementation of the plans.
Active participation from various stakeholders is essential throughout the planning process, involving roles such as the supply chain director, sales director, marketing director, operations director, planning manager, financial manager, and trade marketing manager. While specific job titles may vary across companies, the key concept is that these functions should contribute to planning at different stages, ensuring comprehensive input from all relevant stakeholders.
Introducing AI Solutions To Improve Sales And Operations Planning?
Once the organizational groundwork is completed—identifying stakeholders, defining KPIs, and establishing a roadmap—it is time to leverage technology. One technology solution to consider is AI-powered demand forecasting and inventory planning. These tools can enhance decision-making and performance, particularly during the demand generation and supply planning stages.
Implementing AI-driven demand forecasting and inventory planning platforms enables businesses to achieve highly accurate forecasts, identify risks, and develop action plans to optimize KPIs under various scenarios. These solutions also uncover inefficiencies, such as overstock and out-of-stock situations, empowering better planning and preventing financial losses. For instance, optimizing inventory levels can lead to substantial reductions in warehouse rental costs and other related expenses.
When incorporating AI for accurate forecasting, it is crucial to consider data availability and requirements. The quantity and type of data needed vary depending on the business type and needs, necessitating a case-by-case definition in this aspect. Data can be sourced from spreadsheets, databases, ERPs, or accounting systems. Generally, a larger volume of data enhances forecast accuracy.
In summary, leaders in manufacturing, distribution, retail, or e-commerce should focus on optimizing sales and operations planning to maximize profitability. Additionally, empowering planning teams with AI solutions is beneficial, while recognizing the significance of data and developing a robust data strategy tailored to the company’s unique circumstances and requirements.
6 Steps of the S&OP Process
Gather and Manage Data
During this step, historical sales data is collected, and trend analysis is conducted to assess the accuracy of forecasts. Advanced S&OP planning software can automate data upload processes and provide built-in reporting capabilities, simplifying these tasks. However, certain data maintenance steps may still require manual handling as necessary.
The Demand Planner usually takes the lead in this step of the process. While inputs from sales and marketing are crucial, it is important to consider input from operations/supply, logistics, and finance as well. Their insights contribute to a comprehensive understanding of demand patterns and help improve the accuracy of the forecasting process.
Develop Demand Plan
Demand planning involves the validation of forecasts, identification of demand sources, consideration of variability, and adjustment of customer service policies. It also encompasses the integration of promotion plans, one-time events, and the introduction of new products and customers.
The primary responsibility for developing the Demand Plan lies with the Demand Planner. However, it is essential to consult sales and marketing teams for their input and verification. Their insights and expertise contribute to the accuracy and reliability of the Demand Plan, ensuring that it aligns with the market dynamics and business goals.
Supply planning encompasses the conversion of the demand plan into a suitable supply plan. Its objectives include establishing inventory targets, safety stock levels, and production approaches for both level loading and demand chase strategies. Additionally, it involves evaluating the capacity, inventory, and operations scheduling to assess the ability to meet the demand.
The Head of Supply takes on the responsibility of developing the Supply Plan. It is crucial to involve key personnel from manufacturing, operations, logistics, and finance to gather their insights and ensure the accuracy and validity of the plan. Their input and verification contribute to the robustness and effectiveness of the Supply Plan.
Reconciliation of Plans | Pre-S&OP Meeting
The pre-S&OP meeting takes place monthly and focuses on addressing supply-side concerns to assess the feasibility of accommodating the sales plan and meeting inventory and backlog objectives. This step also involves reviewing supply performance from the previous month and presenting forecasts.
The S&OP leader is usually in charge of facilitating this meeting, ensuring its smooth execution. Key stakeholders such as sales, marketing, operations, logistics, and finance actively participate in this session to contribute their insights and expertise. Together, they collaborate to analyze the supply-side factors and make informed decisions for the subsequent steps of the S&OP process.
Approve and Release | Executive S&OP Meeting
After aligning and finalizing the demand and supply plans, the executive team convenes in a monthly Executive S&OP meeting to review the outcomes. The objective of this meeting is to obtain approval for the demand and supply plan, ensuring its smooth execution by the operations team.
The responsibility of overseeing this meeting/step lies with the S&OP leader, while the presence and active involvement of the Executive Sponsor are essential to finalize decisions and outcomes. Their participation is crucial in achieving consensus and driving the implementation of the approved plan.
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