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The Ultimate Sales and Operations Planning (S&OP) Process Guide


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What is S&OP (Sales and Operations Planning)?

S&OP, or sales & operations planning, is a supply chain planning process designed to help supply chain executives make decisionson a wide range of topics including:

  1. Balancing demand plans with supply plans for mid to long-term planning
  2. Understanding and making planning adjustments related to near term challenges in sales and operations execution (S&OE)
  3. Facilitating introduction of new products and phase out of old products
  4. Examining proposals and investments related to entering or exiting markets
  5. Examining proposals and investments related to onboarding new suppliers
  6. Ensuring annual operating plans and company KPI’s (customer service, P&L, operating expenses) are met in selecting a consensus plan

While the process is designed and executed by supply chain leaders, inter-departmental communication is critical to success. Data support from partners in finance, sales & marketing, procurement, engineering and operations (e.g., workforce planning) are usually required.

With an eye on financial and business impact, the goal of S&OP is to enable executives to make better-informed decisions through a dynamic connection of plans and strategies across the business. Often repeated on a monthly basis with weekly touch points by key participants, S&OP enables effective supply chain management and focuses the resources of an organization on delivering what their customers need while staying profitable.

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Guide Index:

The 6 Steps of the S&OP Processes

      • Product Review:  In this first phase of the S&OP process, planners involved in R&D, product development, and new product introduction analyze the health of products in the market, examine product pipelines, and arrive at decisions about product planning. These decisions might include setting dates for new production or sunsetting to determine project prioritization and resource allocation. Other topics discussed in this phase may include the impact on existing products when a new product is introduced, also known as cannibalization, or supersession.
      • Demand Review:  The goal of this phase is an unconstrained forecast or consensus demand planning, incorporating a holistic picture of independent and dependent demand. Factors influencing independent and dependent demand may include marketing, new product introduction, consumer trends, product hierarchy, and interplant part demand. The consensus demand plan is based on a combination of sales, marketing, and product plans.The demand plan is measured either in units or revenue. Statistical forecasting is combined with input from customers and marketing plans to estimate, refine, and arrive at a consensus plan. Historic performance will be factored into the plan, and eventually the demand plan will be compared to the results of the finance review to find any revenue or demand gaps.
      • Supply Review:  The goal of this phase is a supply plan that syncs with the consensus demand plan. Ideally, these two plans work in unison. The supply plan should balance customer service and minimize inventory as well as operating costs. A baseline production plan and rough-cut capacity plan are developed, along with alternate supply plans that factor in capacity and demand variations.“What-if” scenarios play a key role in this phase of the process, so it’s essential to have a technology platform with the capability to run them using real-time data. These scenarios vary from more tactical “what-if” questions to longer-term scenarios, but the function of both is the same: to reduce risk and understand the up and downsides of a wide range of adjustments. Examples of more straightforward scenarios include inventory or workforce re-balancing, and more complex scenarios such as on-boarding a new supplier, new capacity, or workforce training.Ideally, as these scenarios develop, they’re automatically connected to budgetary needs so financial risk projections can be made.
      • Finance Review:  There’s some debate around the position of this stage in the process. Some insist that it falls after the first three phases are complete, and others preach that it should be “always on.” Either way, the mission remains the same: to produce a set of baselines that then become adjustments to product, demand, and supply review, along with input used in pre-S&OP and executive S&OP reviews. In this phase, financial performance for the previous month is consolidated to provide inputs for analyzing the current month’s S&OP cycle.Finance owns this process and it can include different categories or views, including product, geography, customer, and channel. Actual costs are compared with budgets and forecasts to analyze forecast accuracy over a rolling time frame. A connected approach to S&OP means that no matter where this step in the process falls, financial analysis plays a key role in producing inputs into pre-S&OP and executive S&OP.
      • Pre-S&OP:  Pre-S&OP is a series of meetings conducted with leaders at various levels that showcase the connectivity of plans across product, demand, supply, and finance. Ideally, these meetings center around a cloud-based platform that houses all the plans in a single place. The purpose of pre-S&OP is to identify key gaps and disconnects and create strategies to handle those issues. The plans are reviewed in shared dashboards and actual vs. variance is analyzed, keeping targets and budgets in mind.Metrics like revenue, profit, and inventory are analyzed by both rolling up to the corporate level and down to the product-line level to gain an understanding of the financial and operational implications of decisions. Adjustments to the product, demand, and supply plans are made in real-time.
      • Executive S&OP:  The finish line is in sight. The final phase of S&OP brings all plans and data together in a unified, cloud-based platform to be used in executive S&OP meetings. “What-if” scenarios and the associated risks are reviewed, and decision points are noted so leadership knows when they’ll need to make the appropriate choices. Any key decisions that weren’t resolved in the first five phases are addressed in this phase, the reasons for escalation are examined, and decision deadlines are set.

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      The decisions made in this phase can have far-reaching implications across the business, so when using the right technology platform, the impacts of those decisions can be analyzed and applied to key metrics in real-time. In the end, the goal of executive S&OP is to generate a final, aggregated plan that’s sent to cross-functional owners and distributed downstream to all affected areas.


3 common myths about Sales and Operations Planning (S&OP)

Myth 1: Companies don’t need a planning solution to drive an effective S&OP process.

It’s actually more a matter of finding the right solution to improve the effectiveness of your business’s current S&OP process. According to the report, organizations are reluctant to adopt long term sales and operations planning software since they are already comfortable with the current setup of spreadsheets and enterprise business applications. Imagine a world in which you have no choice but to track all sales and operations processes manually in a spreadsheet. But with spreadsheets, how efficient can your business be? How much can it grow? Chances are, likely not much. Yet, only one out of two companies surveyed by SCI believes that their processes are effective.

Now imagine those S&OP processes on a global scale—such as managing a supplier in China while you’re in the U.S., for example. It’s impossible to have full visibility into the supplier’s operations without the right tool. But with the right solution in place, you can streamline those processes by providing a way to collaborate with suppliers, distributors, and other trade partners—all in one place.

Myth 2: S&OP can be effectively modeled using a spreadsheet.

Sure it can—if data and the market were to remain static. But the market is constantly changing, and modeling in spreadsheets can compromise your company’s ability to respond to disruptions. Companies also need to drill down to the most granular level of details during the S&OP process. Yes, spreadsheets are important to the business and a good starting place, but they simply can’t meet the challenges to help drive growth and improve profitability as they are unable to run “what-if” scenarios or provide an ultra-detailed view into data.

On the other hand, with well-chosen planning solution, you can quickly analyze the effects of unexpected or planned events to determine the optimal response by creating “what-if” scenarios and comparing them in real time, even for master data changes like new product introductions—something you can’t do in spreadsheets.

Still believe spreadsheets are the best solution? Here’s some food for thought: According to the Association of Chartered Certified Accountants (ACCA), more than 90 percent of spreadsheets contain errors, while more than 90 percent of spreadsheet users are convinced their models are error-free.

Myth 3: Supply chains are moving so fast that companies don’t have time to plan.

Let’s rephrase that: “Supply chains are moving so fast that companies who don’t have the right planning platform in place don’t have time to plan.”

The technology to keep up with supply and demand changes exists. Need to plan your supply chain a week or a month ahead of time? With the right solution, such as Anaplan’s Supply Chain Planning app, you should be able to quickly analyze the situation to determine the best response.

4 S&OP Best Practices

Executive support and participation in the S&OP process

The most important S&OP vital sign is whether the executive leader is directly involved in the process by participating and providing leadership in each executive S&OP meeting. In this context, the executive leader is the head of the organization in the position of CEO, president, managing director, general manager, or P&L owner. S&OP is successful because it aligns planning across functions in order to meet company objectives and improve performance. Compromise is often required between functional areas and, at times, functional leaders may disagree on the best approach. The executive S&OP meeting provides a forum for routine decision-making where the executive leader considers team recommendations and decides the course of action.When the executive leader is not committed to this decision-making forum, functional leaders will find other ways to resolve their issues and the result is friction, confusion, and under performance. As a consequence, the S&OP process is undermined, participation can drop off, and performance improvement stalls.

Fully cross-functional S&OP scope

The S&OP process drives cross-functional alignment and collaboration. S&OP success depends on participation by all functional leaders—such as VPs of product, sales, marketing, supply operations, and finance—to provide a synchronized effort to reach the company’s goals.Just as the competitiveness of an eight-person rowing crew would be compromised by an empty seat, the absence of any functional area from the S&OP process handicaps the ability to deliver customer value and financial performance. The consequences of an empty S&OP seat show up in many ways depending on the seat’s owner and can result in poor coordination on new product introductions, unexpected sales, unexpected promotions, material constraints, or capacity constraints. The result is mismatched product volume, mix, location, or timing, all of which negatively affect the company’s performance. If a check of your S&OP process reveals an empty seat in a team that at a minimum should include the leaders of product, sales, marketing, supply operations, and finance, you have likely found an opportunity to improve S&OP performance.

Practicing constructive issue resolution

By its very nature, S&OP produces disagreement. After all, it is the process of developing the tactical plans necessary to achieve the corporate strategy. Functional heads are certain to have different opinions about the best approach. As demonstrated by the Mulally Ford executive team, the S&OP team needs to be able to have candid and constructive discussions about issues and challenges, otherwise tactical plans will not align with strategy, compromising the S&OP program and corporate performance.

Is technology holding you back?

The selection of an S&OP solution typically includes an initial evaluation of functional and technical criteria to determine what the solution does and whether it fits company requirements. More difficult to evaluate, but equally important, is the question of how a solution works and how it fits with a company’s unique business operations. Does the solution go beyond abstract functional requirements and provide decision support and information sharing in a way that enables a company’s unique processes? Or would the solution require unwanted changes in business operations to match the way the solution works? This is a key point of the evaluation because the success of an S&OP solution depends on its ability to enable rather than dictate business operations. A forced-fit solution typically results in low adoption and ultimately jeopardizes S&OP program success.

5 points to consider when evaluating S&OP software

Process compromise

Place high priority on the solution’s fit to your business operations. Depending on the solution type, more time (and in some cases, a pilot) may be required for fit confirmation.

Ease of deployment

Longer implementation times increase the risk that the solution will be outdated upon completion because of changing business conditions or opportunities. Minimize time to value in both the solution selection and project planning phases. Plan for demonstrable value in 8–12 weeks. Avoid anything longer.

Ease of change

Change is inevitable. Technology must flex with the business or it becomes a friction point and slows the business down. Be cautious if minor modifications require more than an hour to get into production. Avoid those that take more than a day.

Business-user administration

Modern solutions can be administered by a business user without significant support from IT. This is a welcome development since most IT departments operate at capacity. Avoid a solution if technical resources are needed for application administration.

No change orders

Business user self-service eliminates the need for change orders to the technology provider or system integrator. Change orders are expensive and time consuming, and place a formal project justification and approval process between you and flexibility.

4 keys to unlocking next-generation S&OP

Although it’s important to get the details of each phase just right, there’s more to it than just moving step to step. Let’s explore four keys to unlocking next-generation S&OP.

Don’t put garbage in (or you’ll get garbage out)

You’ll have a hard time making wise decisions based on corrupt or outdated data. It’s nearly impossible to make accurate, well-informed decisions without real-time, accurate data at your fingertips. S&OP decisions have an affect across many parts of the business, so you don’t want to make them based on a cornerstone of sketchy data. Try this three-step approach to data due diligence first:

  • Find out what data is available
  • Discover where it lives
  • Determine who owns it

Once you’ve worked through these steps, focus on getting that data into presentable dashboards and let it lead to you to discover what data may be missing. With clean data going in, you can have confidence in your decisions knowing the cornerstone is trustworthy.

Be wise with your S&OP metrics

Sometimes, organizations have too many metrics or they’re inconsistently defined. It’s easy to get buried in debates on the meaning of data or sit through torturous meetings that are only report-outs sans insight. To break free of this unproductive environment, start by defining your levels of metrics. For example, some metrics should live on executive dashboards (high-level forecasts), others belong in an end-to-end view of the supply chain (detailed supply and demand forecasts) and others describe functions (such as sourcing, manufacturing, or logistics). Next, seek alignment among the levels and work toward driving action and improvement through that alignment. Metrics don’t have to be a pile of dry numbers—they have a story to tell!

Find a champion

The supply chain leader of the future isn’t a lone ranger. It’s someone who understands the importance of cross-functional collaboration and that collaboration is essential to next-generation S&OP. To keep your S&OP process moving smoothly, find an internal champion who can play “stakeholder herder” with patience and a base of knowledge that inspires credibility as they work with all the departments involved.

Ask “what-if” for value-based decisions

Traditional supply chain planning is designed to make volume-based decisions (inventory levels, days of supply, on-time delivery, turns, etc.). Imagine running “what-if” scenarios with up-to-date financial data connected, to make value-based decisions that are best for the company’s bottom-line. Adding this level of ownership and sophistication to S&OP elevates the significance of the process and improves the overall effectiveness of the supply chain.

The bottom line

With Anaplan, sales and operations planning (S&OP) is unified across all relevant business units into one cloud-based, connected platform. When plans and data from sales performance management, financial planning and analysis, product, marketing planning, and supply chain work in sync, executives can make better-informed decisions that maximize profitability.

Additional resources

Learn more about S&OP and Anaplan below.