Improving Profitability with Sales & Operations Planning

Improving Profitability with Sales & Operations Planning

  • March 12, 2020
  • Rui

Many companies and executives are simply unaware of this powerful business process. Most of the time it is partially applied in an unstructured way without realizing the full range of potential benefits. Correctly used, this process leads to more predictability and profitability.

Sales and Operations Planning (S&OP) is crucial to answer in a pragmatic fashion questions such as: Am I buying the right quantity of raw materials for the next 6 months? Will I have capacity for a production peak expected in 3 months? Are the inventory levels optimized? Are we on track to meet our fiscal year financial goals? The application of a S&OP process will allow any business to make assertive decisions to answer those questions among others.

So, what is a Sales & Operations Planning process? S&OP is a company-wide integrated planning and decision-making process. It ensures that financial goals are aligned with operational objectives, connecting the company strategy with operational targets and execution models. It allows the organization to make key informed business decisions to ensure budget goals, in a timely manner. It brings a whole range of benefits, such as:

  • Improves profitability and promotes costs reduction
  • Enhances alignment and transparency between departments
  • Encourages a timely business decision-making process based on accurate information
  • Optimizes installed production capacity
  • Improves inventory management, leading to optimization of Working Capital
  • Cycle time reduction, leading to an increase in OTIF (On-Time and In-Full delivery)
  • More accurate sales and budgeting processes
  • End to end supply chain streamlined processes

The monthly cycle S&OP process consists of 4 major steps.

1. Demand Planning

In this first step of the process, forecasts are analyzed, and adjustments are made to inventory and supply chain based on demand. This is a cross function collaboration. Prior to demand planning there is an essential preliminary sub-step: Forecasting. Consists of gathering data of historical sales, new product development, market intelligence, marketing campaigns, clients’ forecasts and inventory levels.

2. Supply Planning

The main objective of this step is for finance, operations, and supply chain to evaluate capacity. They determine if there are any constraints regarding people, equipment, and suppliers. From there, a supply plan is created that will account for any capacity constraints.

3. Partnership Meeting

This a cross function work session where finance, sales, marketing, operations, supply chain, product management, and human resources meet to collaborate. They compare the forecasts to the demand and supply plans and consider the financial impact of the plans. Mitigation risk action plans are defined.

4. Executive S&OP Meeting

At the end of each month cycle, executives get together to review and make final decisions on the forecast, supply chain plans, and recommendations from the Partnership Meeting. Ultimately a final sales and operations plan will be approved by the executive team members.

Going through the monthly S&OP process potentializes better communication, performance alignment, and an effective and timely executive decision-making process. It requires cross-organizational collaboration: Human Resources, Sales, Purchasing, Production, Finance, HR and Supply Chain.

At Magellan Consulting Group, we partner with our clients to implement customized and streamlined S&OP processes which ultimately lead to an increase in predictability and profitability.