The Keys to Effective Sales and Operations Planning

Sales and Operations Planning (S&OP) is an ongoing, nonstop process.

It requires ongoing effort to ensure each department’s plans align with the company’s vision. But it’s worth it. S&OP creates a simplified company business plan that identifies the resources necessary to achieve a company’s goals.

Effective sales and operations planning

S&OP is a process that synchronizes the many areas within an organization to enhance productivity. Some benefits of S&OP include:

  • Better sales and budget forecasting
  • Informed decision making about a product’s demand and supply
  • Improved inventory management
  • Increased transparency between departments
  • Improved customer experiences
  • A deeper understanding of a product’s management and lifecycle

Below are the key aspects of S&OP and best practices to follow.

Product review

The first phase of the S&OP process is analyzing the health of your current products. Here, you will create a forecast for future product demand. Develop your forecasts based on past sales results. Be sure to include related factors such as holidays, seasonality, and market trends.

Also, examine new product development pipelines. This includes setting specific dates for new production and prioritizing new products. Finally, analyze the health of current products in the market, and discuss the possible impact of new products such as cannibalization.

Demand review

Next, adjust your demand plan by product based on your sales forecasts. This way you can ensure you produce enough inventories to meet demand. Involve team members from multiple departments to get their input. Have them review previous months’ sales and demand plans to determine and improve your accuracy.

The goal of this phase is to establish a clear and unified picture of both dependent and independent demand. You must also account for some of the variables affecting demand such as trends, marketing, and new products.

Supply planning

The goal of this phase is to create a supply plan that coincides with the demand plan. The two must work in unison. Bring in representatives from finance, operations, and materials to evaluate capacity. Collectively determine if there are any constraints on people, machinery, or suppliers.

The two key elements in determining how to effectively fulfill the demand plan are:

  • Inventory optimization: How much inventory is currently available and where is it in the supply chain?
  • Production/procurement optimization: Do we have the production or purchasing capability to meet the demand plan?

Answer these questions and use them to develop a supply plan that allows you to meet demand.

At this point, you’re going to run into quite a lot of what-ifs. Use planning software that allows you to run possible scenarios using real-time data.

Such scenarios include:

  • Taking on a new supplier
  • New competitive entrants
  • Employee training and skills enhancements
  • Anything that could affect budgetary requirements

You need to address these scenarios whether they are short or long-term ones. You should reduce risk as much as possible in your business. And you have to understand the wide range of adjustments you can make within your business.

Financial review

Some S&OP experts debate the timing of the financial review phase. Some argue that it should happen only after the supply and demand phases are complete. Others believe it should be a part of every conversation right from the start. In any case, the main goal is the same. It is to develop a set of financial baselines to improve the demand, supply, and product reviews.

In the financial review phase, analyze actual versus forecasted financial results. While your forecasts will never be perfect, over time, you’d like them to become more and more accurate. Figure out where you misforecasted, so you can improve in the future.


The pre-S&OP phase includes a series of meetings with leaders in multiple areas of your organization. The goal is to gain consensus on overall vision and to address any gaps in the company’s plans.

Like in the financial review phase, the team must compare actual results from the previous month’s plans to projections. The team must identify and analyze variances while keeping targets and budgets in mind. Participants must also identify and review key metrics such as revenues, profit margins, and inventory. They will use these metrics to ensure company performance is acceptable.

Executive S&OP

The executive S&OP phase is the grand finale of the S&OP process. Here the team reviews all plans, forecasts, processes, and recommendations together.

It is crucial here that the team reviews all “what-if” scenarios and risk factors here. Bring any decisions that were not made in the previous phases to the table to examine. At the end of this phase, the executive team will approve the final S&OP plan. They will then deploy it to all departments of the business.

Executive support in the S&OP process

Leadership engagement is a hallmark of the most successful S&OP processes. Direct involvement from the executive level is required for adequate guidance and support. If executed properly, S&OP aligns all planning across functions throughout the company. It results in plans to meet the company’s objectives and advance its performance.

Sometimes there will be conflicting opinions. For example, operational managers may disagree on the best approach, and compromise will be necessary at times. Bring new recommendations to the executive S&OP phase, so the team can consider them and find solutions.

Without oversight here, these processes could begin to decline or even fail completely. For example, operations managers might find other ways to resolve issues. This often results in confusion, tension, and poor performance. Such circumstances sabotage the S&OP process, so avoid them at all costs.

What makes an S&OP process successful?

S&OP success is dependent upon the participation of all team members. It is important for groups to be cross-functional and welcome all perspectives. Reiterate to your team the importance of their views to the S&OP process.

Each of the several steps of the S&OP process should be clearly stated and defined. It’s important to understand that the process can always be improved, and over time, it should be.

Like many other business processes, S&OP requires clear communication between departments. Without it, departments can’t deliver the work needed for the business as a whole to be successful.

What is far too often dismissed or forgotten in S&OP planning are risk mitigation plans. Many times these are swept under the rug as “we’ll cross that bridge when we come to it” issues, but in actuality, putting plans in place for such potential issues is critical. So include risk mitigation plans in your process. This way, if challenges arise, your organization isn’t caught off guard and can tackle them head on.

You can also greatly improve success by having constant review processes. Such reviews should compare past projections to results. While your projections will rarely if ever be 100% accurate, you want to get as close as possible.

After each S&OP period, review results. See what actually happened compared to your forecasts. Figure out the differences.

What caused the discrepancies? Was it internal factors (staffing, management changes)? Was it external factors within your control (supply chain management)? Was it competitive forces (competitors launching new products)? Was it due to changing customer wants and needs? Or was it due to factors completely outside your control (a global pandemic)?

The more you can pinpoint and learn from the differences between your past forecasts and actual results, the better you can forecast in the future. And the better you forecast, the better you can plan, improve operations, decrease costs, and improve profits.

Sales and operations planning vs. business planning

Does sales and operations planning trump or replace traditional business planning? It mostly does, but not fully. As you’ve learned, the S&OP process is a very complex and comprehensive process. At its core, is its ability to pull view points from each functional department within the organization.

The result of the S&OP process is very similar to a business plan in that it:

  • Presents a unified, company-wide plan of action
  • Communicates the vision throughout the organization
  • Presents sales and financial forecasts
  • Analyzes the industry, customers, and competition
  • Presents marketing plans to increase product demand

However, what’s lacking from the S&OP is the longer-term company vision. A good business plan will identify where the company is today and then present a vision for where management wants the company to be in five years. Then, the company determines what it must accomplish in the coming year to be on the trajectory to meeting the five-year goals.

As such, it is recommended to first complete this part of the business plan before starting sales and operations planning. Once you know your one-year goals from the business plan, you can create the S&OP to most effectively accomplish it.

The takeaway

S&OP planning provides a practical approach to efficient production. It boosts profitability. And it helps departments align operations to reach their goals. The executive team can and should use the process to convey the company’s values and goals to align the entire company. This way the entire business can focus on the same objectives and maximize success

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