Sales & Operations Planning – Process Overview

Sales and operations planning is a monthly business process enabling a company to determine the organizational goals. It allows the organization to meet its operational, sales, and financial targets.

The process is typically the responsibility of a specific sales and operations planning team. This includes the company’s decision makers and line managers in marketing, sales, finance, operations, and customer service functions.

The sales and operations planning process enable the company to effectively manage the demand of its customers. It holds the capacity of its operations too. Sales and operations planning generates a uniform and agreed-to set of numbers used to drive the business. It specifically integrates strategic, tactical, and operational planning.

A company’s planning horizon consists of short-, medium-, and long-term periods:

• Strategic company planning – One to five years, reviewed yearly. Sets the company’s strategic direction for future growth. The strategic planning processes set the timing and key strategies for the plan period and strategically allocate resources.

 

• Tactical planning – Eighteen months, reviewed quarterly. An output of strategic planning. Tactical planning identifies the material requirements and resources to translate medium-term plans into a short-term operational plan and execution.

 

• Operational planning – Rolling twelve months, reviewed monthly. Translates tactical plans into specific objectives and confirms activities and timings through short-term plans and execution.

Goal of S&OP process

The primary goal of the sales and operations planning process is to facilitate the flow of information between demand and supply planning. Master planning is concerned with coordinating the supply side of the organization. It seeks efficient and economical ways to fulfill market demands by creating purchasing, manufacturing, and distribution plans.

The process of demand planning focuses on generating future forecast estimates based on historical customer sales order patterns. Sales and marketing campaigns further enrich the baseline forecast.

The process itself is fairly simple and comprises the following five essential steps:

1. Create a demand plan.
2. Create a supply plan.
3. Compare the demand and supply plans.
4. Reconcile the demand and supply plans with the financial plan.
5. Update the sales and operations plan.

 

Below figure shows a typical monthly cycle for sales and operations planning. The demand review is performed first, followed by the supply review with possible supply chain constraints (for example, reduced capacity) before the sales and operations planning meeting is conducted.

The example shows that the sales, marketing, planning, and finance teams reached a demand planning consensus during the first week of the monthly cycle. The second week focuses on supply planners’ efforts to balance the unconstrained demand with the constrained supply planning.

Meetings are held before the official sales and operations planning meeting to resolve any demand and supply imbalances with alternative supply chain options.

Case Study – Manufacturing Company S&OP Process

A consumer goods company markets its electronics products in North America. Since its product offering has less known in the market than its competitors’, the company depends heavily on promotions and direct consumer selling marketing strategy. The company recently received Class A accreditation and provides an example of industry best practice organization.

The company sets an example in the industry by integrating their sales and operations planning with their core business process, building a rich data, and working on an exception-driven decision-making process, which ensures demand and supply plans are proactively balanced.

The figure below shows the participants, format, and result that come out of the weekly and monthly meetings. The collaboration leads to better demand and supply matching with proactive measures to meet market demands.

The sales and operations planning process for the company results in a one-number plan that is then distributed in functional-specific formats of sales, supply, distribution, inventory, and financial plans, as shown in the figure below: