Sales and Operations Planning (S&OP) – Tools To Run Your Business
S&OP (Sales and Operations Planning) is not a computer system that can, at a flick of a switch, resolve your business issues. S&OP is a way of life, a way to help control your business, presenting the ability to formulate
objectives at suitable levels of detail to ensure inventory levels are met, production schedules can (or cannot) be achieved and most importantly sales plans can be met.
Using S&OP as a tool
Having had many years experience at running an S&OP process the key is to become disciplined in the way it is approached. You need to know what your sales people are doing, ensure they submit both forecasts and deforecasts (and have tools to track if they are doing what they should do), collect data, analyse and share the information down the supply chain to ensure demand can be met by the capacity that is available in production, or service areas. S&OP can also be used not only to drive volume estimates but it can also be a critical tool to drive revenue forecasts as well. In many cases the Operations Director is the person to drive this process forward.
S&OP Planning
Sales & Operations Planning is a key alignment process that can bring all relevant areas of the business into position to meet business objectives. The process can enable organisations to achieve business growth and at
the same time, depending on the forecasting horizons, define clearly what is going to happen in the future. This can help build sufficient capacity for a growing business or just a critical, identify where lower capacity is
required and thus forward plans can take a new direction in order to bring costs in line with market place decline. At manufacturing level the S&OP can help develop rough cut capacity planning which in turn can cascade further
down as far as raw material procurement. The S&OP is the master tool for balancing the business and if managed correctly can be one of the most critical elements in a business tool box.
Business Operations
If you are new to the S&OP process, it can actually be started in a very simple way with the use of market intelligence, sales data, requirements data (which can be calculated of you have the sales and forecast data) all
in an excel spreadsheet. If you have multiple sites, then through spreadsheets the consolidation of the data can be easily achieved by a person with intermediate knowledge of worksheets. You have to have the passion to follow the process through and have the support of the company’s management. If you do not have this then there is a chance that all the good work you put in could actually result in nothing.
Management Buy-
When creating S&OP plans ensure there is senior management buy-
S&OP meets the expectations and performance of the business e.g. you plan to meet 98% stock availability by forecasting in your S&OP and creating suitable statistical replenishment plans to hit the probability of 98%. The
theory of the S&OP should be understood by all right from the CEO down to the shop floor worker; everyone is aligned to meet the company’s objectives.
Supply and Demand
It is always a balancing act in terms of demand and supply. Businesses, in order to keep unit manufacturing costs at their lowest possible levels obviously want to keep their order books as full as possible. S&OP should not only be just a spreadsheet full of numbers, the process relies on excellent communication between sales and manufacturing in order that everyone benefits. Poor forecasts can influence a businesses success; forecasts that are too high can result in under utilisation of manufacturing, one that are too low and the businesses credibility can be severely dented as sales people wont hit their commissions and more importantly customers are let down. The ultimate issue could be that if you are a public limited company, then your share holders could be asking some serious questions on how the company is being run.
Forecasting
Forecasting is probably the most key element within the S&OP process. Business intelligence, Customer Relationship Management and dialogue with sales are all elements that should be used to acquire excellent
forecasting performance. If you are developing a forecasting tool at this moment in time, I would certainly recommend it has a feature that can measure demand versus forecast and if possible an output (report) which can advise you of the forecast error being given every month (or whatever your forecasting time period is that is critical to your business).
In Conclusion
If you have not already done so for your business, no matter how large or small consider introduce an S&OP process. Keep it very simple and one that can be maintained on an ongoing basis. If you have CRM or other
information ensure you use it to build a forecasting profile. The process will assist in ensuring all elements of the business are in alignment and it will flag any business critical issues, even ones that may be occurring in two years
time!
Nigel Penhearow was a Business Operations Director for a major blue chip company
based in the UK. He now holds the position as Category Sales Director. He is a member
of various Institutional bodies and has given various speeches in the UK and the
USA on business analytics, key performance measurement and best business practice.
More information can be found on his web site www.operations-
Nigel Penhearow is a Business Operations Director for a major blue chip company based
in the UK. He is a member of various Institutional bodies and has given various speeches
in the UK and the USA on business analytics, key performance measurement and best
business practice. More information can be found on his web site www.operations-