December 9, 2021
Barry Bradley Tony Miller

Sales and Operations Planning: Everything You Need to Know

Crisp’s retail industry experts offer a step-by-step guide to planning that aligns teams across CPG to accomplish their goals.

A CPG business is made up of multiple departments operating in parallel, each with their own objectives. Your sales team has their sales targets and projections; finance has a set of goals for the company’s financial health; supply chain teams have to plan how much to source and produce; marketing has ideas about what to promote; and your product team has a roadmap of new flavors. But if those plans aren’t all aligned and working together, they don’t have a strong chance of success. The result: lost sales, excess inventory, or out of stocks. Sales & Operations Planning (S&OP) is a process designed to fix that, bringing all of those department-level goals together into a cohesive picture so everyone can operate from the same playbook.

What is S&OP?

Sales and operations planning (S&OP) is a cross-functional decision-making process that ensures plans in every area of business are aligned with the company’s strategy and vision. The ultimate goal of the S&OP process is to create a single plan that identifies company goals and the resources required to achieve them. Overseen by executive management, the process reviews supply and demand projections and gauges their overall financial impact, taking inputs from sales, marketing, supply chain, and operations. Depending on your company’s size and maturity, S&OP planning might take place monthly, quarterly, or yearly.

With a successful S&OP process in place, your sales team will be hitting their objectives, your supply chain team has ensured there’s enough product to meet those goals, and marketing programs are running in lockstep to help get you there.

Benefits of the S&OP process

The S&OP process breaks down company silos to ensure every team can execute their goals together. Benefits of the S&OP process include:

  • Higher margins due to greater efficiency and reduced waste
  • Increased sales by supporting sales teams with adequate product and marketing support
  • Lower out-of-stocks and increased customer satisfaction through better supply planning
  • Faster response to outside events through scenario planning
  • Lower stress/churn on employees due to fewer fire drills

Best practices for a successful S&OP process:

With a few best practices in mind, you can ensure your S&OP process runs smoothly and all teams can successfully execute the plan.

  • One plan: In order for your S&OP to work, you need to bring together cross-functional groups to create one cohesive vision and plan. It’s important to bring differing viewpoints and perspectives to the table, but ultimately these need to coalesce into a single, unified strategy.
  • Communication: The S&OP can only be useful when all of the right information goes into it. To this end, all teams need to proactively communicate their goals, expectations, constraints, and questions/concerns during the process.
  • Leadership engagement: Executive involvement is a significant driving force in a successful S&OP undertaking. Without direct involvement at the executive level, processes could stall or break down while trying to align disparate teams. Conflicting opinions do arise, and operational managers may disagree on the best approach to take. This is where executives can provide guidance towards a resolution.
  • Outside-in mindset: Your business doesn’t operate in a vacuum, and your S&OP shouldn’t either. In fact, it’s the external forces outside of your control that will likely swing your plan the most. These might be changes in the market, supply chain disruptions, or news from your partners. During the planning process, be sure to look outward and bring that data in.
  • Frequent review & measurement: An S&OP should not be a “set it and forget it” process — quite the opposite. All teams should revisit their progress, metrics, and actual sales/inventory numbers and measure them against the S&OP for regular review and refinement. Plus, the process itself can continually be improved for the next time around.

Steps of the S&OP Process

The S&OP process is a combination of supply and demand planning and forecasting, cross-functional collaboration, and financial and executive oversight. Generally, the steps taken in Sales and Operations Planning include:

Step 1: Product Review 

The first step in the S&OP process is to understand the product pipeline. This requires developing a clear sense of where the product is headed and the go-to-market strategy for those products. Planners in product development and R&D will start by looking at the health of current products, expected changes in demand or consumer behavior, new flavors or items being developed, and any changes to the existing product lineup (ingredient or packaging changes, for example). During this phase, the product team will develop timelines for new production and prioritize future innovation.

Step 2: Demand Planning 

Integral to the S&OP process is a solid forecast of upcoming demand. This takes into account the product plan, for starters, with an expectation for how much any new products or flavors will sell. Sales and category teams will also look at past sales performance and existing trends that might have an impact on sales, such as growth in distribution or increased velocity as brand awareness grows. For emerging brands, these changes will drive a large portion of expected demand. Demand planning also takes into account marketing programs and events like holidays and promotions that will impact sales velocities. The end result is ultimately expressed either in terms of revenue or units. The accuracy of this demand forecast is a central component to the ultimate success of the S&OP process.

Step 3: Supply Planning

Once a clear picture of demand emerges, the next step is to evaluate the company’s capacity to supply the product. In order to fulfill that expected demand, your supply chain team needs to estimate how much raw material to buy, and how and when it will be produced and distributed. 

In a perfect world, the supply plan fits seamlessly with the demand plan — but in the real world, it requires some adjustment. By bringing together supply and demand, the goal is to minimize excess on-hand inventory and mitigate operational costs. Part of this is evaluating capacity in areas of materials, finance, and operations. If any constraints or challenges are identified, the plan will need to be revised or supply chain teams will need to find a way to address them.

Supply planning should include short and long term timelines, including:

  • Short: What should we be shipping and producing to meet current demand?
  • Mid: What changes to items, production runs, and staffing are needed to achieve company goals? What employee training and skill enhancements are needed? How will raw material availability change? 
  • Long: What markets should we be entering/exiting? Where should we be building plants and warehouses, and when should we be contracting 3PLs?

At this point, a rough production plan emerges, along with plans to address demand and contingency scenarios that take into account all the “what-ifs” that might be in play. 

Step 4: Finance and Executive Review

Once the organization has a clear picture of product, demand, and supply plans, the next step is to review these with the finance department and get sign off at the executive level. During the financial review, finance will weigh current budgets and forecasts against tangible costs to identify any possible inaccuracies, and recommend any adjustments. The financial considerations will differ between private and public companies, as they have different processes and obligations.

From here, the S&OP plan can enter the home stretch: executive review. This phase will consolidate and review the current plans, connecting the dots between supply, demand, product, and financial variables. This involves identifying any gaps in the emerging strategy and discussing solutions to address these concerns. 

Some considerations at this stage include actual revenue and profit margins, ensuring there is an accurate understanding of how decisions are affecting overall company performance and the bottom line. The executive team might also suggest possible what-if scenarios or risks. Decisions not made in any of the previous phases are also brought to the table. By the end, executives approve a final S&OP plan and deploy it to all operational departments.

Step 5: Revisit and Revise

Consider this a bonus step in the S&OP process, but one that will make it much more successful. All teams should regularly revisit the S&OP, comparing it to actual outcomes to ensure execution stays on track. If any external or internal circumstances affect the projections in the S&OP, teams should report back and make necessary updates to the plan. 

This refinement process also sets you up for success in the next S&OP round. How are you measuring the success of the current S&OP plan? Was the demand forecast off? These are lessons you can apply to the next S&OP. And while you’re at it, schedule the next round so you have plenty of time to prepare.

Example S&OP processes by organization size

The S&OP process will vary depending on the size and maturity of the company:

  • At a smaller company, the process may be less formal, and bringing together departments will be more organic. Perhaps you have an overall S&OP that you review regularly in your weekly executive meeting. The same person might own multiple areas of the business, simplifying the alignment process: your CEO might be doing sales, and your operations person might be in charge of supply chain, for instance. 
  • At a medium-sized organization, you may develop a quarterly plan, with one point person per department contributing to it. It’s fairly straightforward to bring 5-10 people together in a room every few months and communicate plans in turn with employees on each team.
  • At a larger company you will likely have an annualized planning process that brings together multiple functions within each business unit. Each year, your whole sales team will need to develop a demand plan across categories (e.g. a cookie forecast from the cookie person, a brownie plan from the brownie person, etc). The whole supply chain team will also need to do this, as different product lines will be made in different manufacturing facilities. The process will have to ladder up to the executive team, which might have 15 people in a room, but then ladder back down to departments for execution. You’ll want to revisit this plan monthly.

Metrics used in Sales & Operations Planning

Multiple metrics across sales, supply chain, and finance will factor into your S&OP. Your company forecast is the ultimate forward-looking picture of how much you expect to produce and sell, and the accuracy of this forecast is critical to the success of the process. Inputs that go into supply and demand planning to create this forecast include:

  • Current sales numbers
    • Velocity: how quickly your product is selling at each location (and how that will change)
    • Distribution: how many locations you’re selling in (and how that will change)
    • Average inventory levels across distribution channels
  • Actual vs. forecast
    • Evaluate prior forecasts against actual numbers to determine accuracy and figure out areas where you might need to refine your predictions.

The more people on your team who are working with up-to-date, accurate metrics, the better your forecast and overall S&OP will be. Data platforms like Crisp provide anyone in the company with access to easy-to-use dashboards to understand key metrics and trends around sales, velocity, distribution, supply chain, and more. Crisp updates data automatically from retailers and distributors in real time, ensuring everyone across the company has immediate access to the latest metrics across retail channels.

With the entire organization aligned around a cohesive vision, your team will be well positioned to make the most of opportunities, minimize barriers to success, and achieve even your most ambitious goals. 

To learn more about how real-time retail data can improve your S&OP planning process, contact us today to speak with our team. For more industry best practices, subscribe to the blog.

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