February 21, 2024

Why is Sales and Operations (S&OP) Planning Important? How to Effectively Do It?

In this post, I will discuss what Sales and Operation Planning (S&OP) is, why it’s important, and how to do it effectively.

Without wasting time, let’s get straight to this important topic.

But before that, make sure you have also joined the scmguide telegram channel to get notifications of the latest posts from this blog and further insights about supply chain management.

Why Sales and Operations Planning is important

Sales and Operations Planning is important because it aligns your sales needs with your operating capacity.

The planned high sales figures mean nothing without adequate operating capacity support, right?

Vice versa, you don’t need a high operational capacity if your sales team doesn’t need that many products.

Therefore, it is very important to align sales plan and operating capacity.

In the Sales and Operations Planning meeting, you will discuss a lot of strategic issues that can hinder the achievement of company targets.

What are the possible obstacles?

The following are some of them.

Insufficient operating capacity

What I mean by operating capacity here is not just your production line capacity. But that also includes your storage warehouse capacity, your transportation fleet, and of course your suppliers.

If you miss any of these, your overall operating capacity will be reduced.

Competitors movement

You are not alone in the market. You have competitors. And they do not sit still. They are also actively looking for ways to increase their market share.

They hold promotions, give discounts, launch new products, and much more.

You should pay attention to this. Otherwise, you will lose the real competition in the market.

You must also have a way to seize the market from the hands of your competitors.

Financial ability

Your operation certainly requires commensurate financial capabilities.

You cannot carry out any activity if you do not have adequate financial support.

Why is Sales and Operations (S&OP) Planning Important? How to Effectively Do It?

Therefore, your company’s financial capabilities may limit your movement to operate. So, make sure you can maximize this financial capability to achieve your operational goals.

Plan ahead of each function

Each function in the supply chain certainly has its own agenda. Sometimes, these agendas can conflict with each other between one function and another.

If this is the case, achieving company goals will be difficult because the functions within them are not aligned.

Availability of materials on the market

Recently, there has been a shortage of several automotive components on the market. This of course makes many companies revise their sales targets.

Cases like this are one of the topics that must be discussed at the S&OP meeting.

Maintenance plan

Machines cannot run forever without maintenance.

And when it comes to machine maintenance, of course, your operations have to stop for a while.

You should consider this in your Sales & Operations Planning.

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What are the advantages of Sales & Operation Planning

There are several advantages that you can get by doing S&OP.

Let’s see.

Have the same number

The result of Sales & Operation Planning is that all functions will have the same sales and production figures. It will be a reference for them to carry out their daily operations.

By sticking with the same number, all functions will also move in the same direction. No more functions that move independently, let alone walk in opposite directions.

Have the same vision and mission

Often Sales and Operations have their own interests.

The Sales team sometimes blames the Operations team for not providing the product they need. Meanwhile, the Operations Team blames the Sales team for not providing an accurate sales forecast.

With the S&OP, these two main functions have the same vision and mission, aligned with the company’s goals.

Transparency

When the S&OP is running effectively, everyone will be able to see the opportunities and risks that are in front of them. Everything becomes transparent.

And that is a great start for future cross-functional collaboration.

Quick decision making

The presence of Top Management as the final decision maker at the S&OP meeting is of course very helpful when there is a deadlock between one function and another.

Top Management can immediately decide on the next steps to be taken by the related function. There are no more conditions where one function is greater than the other. All must follow the final decision.

How to do an effective Sales & Operation Planning

We come to the important part. How can S&OP work effectively?

The following are some things you should pay attention to.

Sales forecast

Your Sales Team should provide their short term sales projections, for example for the next year, across all functions.

This is important as it will form the basis for all functions to review their current operating capacity and determine next steps.

Analysis by all functions

Based on the sales forecast provided, each function must analyze and determine whether they can support the sales figures or not.

If not, they must determine what they need to meet that number.

They also have to be able to predict what obstacles may arise on the way to meet these sales figures.

Coordination between functions

Once a potential bottleneck is identified, several functions may need to work together to resolve it.

For this reason, a joint action plan is needed between related functions in this regard.

Presenting the results of the study at the meeting

Every opportunity and obstacle in meeting sales target figures must be presented in a meeting in front of the Top Management.

Each function must clearly communicate whether or not they can meet projected sales figures.

If not, what support do they need from Top Management to meet those numbers.

Top Management Decisions

After listening to the results of the review of each function, Top Management must provide a decision, or feedback, which must be followed by all functions.

And this number decided by Top Management should be the basis of every activity in every function.

Do it regularly

Do this S&OP process regularly, for example once a month. Review future sales figures whether adjustments need to be made or not.

Don’t forget to see your achievements too. Did you hit your target, or are you still behind the plan.

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What hinders Sales and Operations Planning (S&OP)

The S&OP crashes when every function withholds information on their end. Transparency is key to the success of the S&OP.

When any function withholds information, what happens is it makes the wrong decision. Which of course will harm your business.

In this case, every function must have the right mindset if the goals of everyone in the company are the same, namely achieving the company’s targets.

Why is Sales and Operations (S&OP) Planning Important? How to Effectively Do It?

Another thing that can hinder S&OP is when each function prioritizes its departmental KPIs above the company’s interests.

Of course you know, some of these KPIs can conflict. S&OP requires a trade-off between KPIs. And that is what Top Management has to make decisions for all functions to follow.

Who should join the S&OP meeting

As I said above, every result of the analysis and review for each function must be presented before Top Management at the S&OP meeting.

Who must attend the meeting?

Let’s see.

Sales

A representative from the Sales team must be present at the meeting to present their sales projections going forward.

Including conveying the opportunities and risks that may be faced.

PPIC

The Production Planning & Inventory Control (PPIC) team must convey the available operating capacity to support sales projections submitted by the Sales team.

If there really is something that needs to be decided by Top Management, this is the right time to convey it.

Finance

The Finance Team will convey the company’s financial condition to support future sales projections.

The Finance Team can also request other functions to also support the company’s financial condition, for example by reducing inventory levels so that the company’s cash flow is better.

Other functions within the company

Other related functions are also required to attend this S&OP meeting, such as Production, Maintenance, HR and Purchasing. Sometimes it is necessary to discuss some specific things related to each function.

Top Management

And what is no less important is the presence of Top Management. He is the one who will give approval or decision after listening to the material presented by each function.

Top Management’s role is to approve proposals put forward in meetings, provide feedback, or make decisions when functions are in conflict.

Conclusion

Sales & Operation Planning (S&OP) is an important process in Supply Chain Management which functions to align all functions within the company to achieve the company’s big goals.

The S&OP is important because it will produce the same numbers that are the basis for the operations of every function in the company.

Every function within the company, must be involved in the S&OP process to convey their respective opportunities and risks so that this S&OP process will produce something that has taken all aspects into account.

And Top Management will be the party that is fully responsible for the decisions it makes at the S&OP meeting.

Hope it is useful!

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Dicky Saputra

16+ years of experience in supply chain management. I help companies improve their end to end supply chain performance.

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