Supply Chain Excellence: Sales and Operations Planning
Do the following represent a typical day in your work life?
• Nothing goes right
• Everything seems to be a mess
• Materials are late
• Customers are unhappy
• Too much inventory
• Too many shortages
• Too many dumps
• Crisis Management is the order of the day!
If you answered YES to any of the above, then you need a robust Sales & Operations Planning.
A number of businesses do a very good job of having business plan and also day to day production scheduling. But not many realise that, there is a missing link, which is Sales & Operations Planning. S&OP integrates all the different plans for a business and also ensures that every functional department is on the same page.
Sales and Operations Planning (S&OP) is a powerful decision making tool for business executives as well as line managers. S&OP enables the company’s managers to view the business holistically and gives them “one set of numbers to work with” and a window into the future.
The value to any company of balancing supply and demand has long been understood. When we add volume and mix to this equation, we get the four fundamentals needed for effective business balance. For those companies grappling with these 4 fundamentals, S&OP can provide excellent benefits. The role of S&OP process is to balance supply and demand at the volume level.
S&OP process engages all business functions, finance, human resources, marketing, materials, operations, product management and sales. Ensure people recognize that S&OP is an integral part of their responsibilities. Management should view the process as an avenue to effectively running the business and determining what levers should be pulled in order to better meet customer expectations.
S&OP runs in monthly cycles. Each month the person (usually an S&OP Manager or a Demand Manager or a Planning Manager) who facilitates the S&OP process has to go through the following ten steps:
1. Import the last month’s actual sales in to the forecasting software;
2. Run the forecasts at the aggregate family level. Note that only the base line forecast needs to be derived at based on historical sales;
3. Liaise with the NPD and marketing staff to get input on any new product launches and expected lift offs on volumes;
4. Liaise with Sales staff (Key Accounts and Route Food if in FMCG) and get input into the market intelligence, i.e., product promotions both head office and in-store), price points, and competitor activity. The market intelligence should be in terms of volumes;
5. The input from points 3 & 4 is to be added to the base line forecast derived from historical sales;
6. Once the forecasts are finalised, the aggregate family / category level volumes to be forwarded to Operations, Warehousing & Distribution and Finance to work out capacity and resources plan, inventory & transportation plans, and projected sales & profit volumes respectively;
7. Pre-S&OP Meeting – A meeting is called for with all the respective functional leaders to discuss the plans and constraints if any and solutions;