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Sales and Operations Planning - What You Need to Know

If your goal is to deliver a top-quality product, an exceptional customer experience, and forecast accuracy, sales and operation planning is an essential undertaking. In the effort to achieve these goals, every process needs to be fine-tuned to ensure each link in the supply chain is meticulously executed.

Sales and operations planning is a business process, much like any other. However, what makes S&OP unique is that it requires engagement from a range of departments within your organization. It depends on collaboration and consensus from each executive stakeholder to generate forecasts for future sales.

Depending on your company’s goals, S&OP planning might take place monthly, quarterly, or yearly. For some businesses, however, it might happen more or less frequently.


What is S&OP?

Sales and operations planning (S&OP) is a cross-functional critical decision-making process that ensures plans in every area of business are aligned with a company’s strategy and vision.

Overseen by executive management, the process reviews supply and demand projections and gauges the overall financial impact, providing a direct link between sales, marketing, supply chain, and daily operations.


Principles of Sales and Operations Planning

The ultimate goal of the S&OP process is to create a single plan that identifies the resources required to achieve a company’s tactical goals.

Done right, the S&OP forms a single view of the way forward, improves visibility of supply, demand, and product lifecycle processes, and generally enhances demand forecasting accuracy. Without adequate participation at the executive level, however, the process can stall.

If the process lacks input from any one department, the resulting disconnect in sales, product volume, capacity, location, and timing can have a negative consequence on product performance and brand reputation.


Goals and Benefits of the S&OP Process

Any process that supports transparency and removes informational silos is beneficial to a company’s operations. S&OP delivers on all counts, affording a clear understanding of every stage of a product’s lifecycle and how best to manage it.

In addition to enabling an informed decision-making process, the key benefits of S&OP include:

  • Accuracy in demand forecasting
  • Improved transparency through every process

Better inventory management

  • More accurate budgeting
  • More intuitive processes
  • Superior customer experience


S&OP Process

The S&OP process includes supply and demand planning and forecasting, combined with executive oversight. With the ultimate objective of coordinating sales and operations planning, a successful result aligns every department and every business process towards a common goal.

Generally, the steps taken in sales and operations planning include:


Product Review: Forecasting and Data Gathering

Arguably the most critical input into the S&OP process is a solid forecast of upcoming demand. Forecasts for future sales are developed based on past sales performance as well as a variety of other factors that might have an impact on sales, such as events like holidays and promotions, or changes in product line or distribution channels.

Planners in product development and R&D will look at what’s going on in the markets today, analyzing the health of similar products as well as product pipelines. Decisions are made to determine ideal dates for new production as well as what products are priorities. The group may also look at the impact a new product will have on existing products in the market.


Demand Planning: First-Pass

Sales forecasts are analyzed by management. Based on the forecast results, inventory and production plansare adjusted to support the projections. Multiple stakeholders at the management level contribute to the outcome.

The goal is to develop a unified picture of dependent and independent demand. Some of the variables that affect demand include trends, marketing, new products, and demand for specific parts at the plant level, and is ultimately expressed either in terms of revenue or units.

Arriving at a consensus requires some statistical forecasting as well, which draws on customer input as well as internal marketing plans. Other factors to consider include past performance, which will ultimately be compared to actual results to identify any demand gaps.


Supply Planning: Capacity Constraints, Second Pass

Capacity is evaluated in areas of materials, finance, and operations. If any constraints or challenges are identified, a plan is developed to mitigate the problem.

In a perfect world, the supply plan fits seamlessly with the demand plan. The goal is to minimize excess on-hand inventory and mitigate operational costs. At this point, a rough production plan emerges, along with contingency scenarios that take into account all the “what-ifs” that might be in play, both in the immediate, strategic sense as well as down-the-road potentialities.

As an example, some scenarios you might consider could include taking on a new supplier, employee training and skills enhancements – basically, anything that could affect financial risk or budgetary requirements.

The bottom line of the supply planning phase of the S&OP process is risk mitigation, but it also helps stakeholders understand the pros and cons of any shifts that could occur.


Finance Review

Some organizations argue that the finance phase of the S&OP process should happen only after the supply and demand phases are complete. Others take the stance that it should be part of every conversation, right from the beginning. Regardless of where you stand on this debate, the objective is the same: to establish a set of baselines meant to fine-tune the demand, supply, and product reviews.

As the finance department owns this phase outright, it can take into account various angles and segments, including product, channel, customer, and geographical area. Weigh tangible costs against established budgets and forecasts to identify accuracies and inaccuracies over time.

No matter where the finance review falls in your S&OP process, the results play a critical role in shaping what comes next – specifically, the pre-S&OP and executive S&OP meetings.


Pre-S&OP Meeting: Recommendations

Leadership from all departments—from materials to product management, human resources, and beyond—come together to consider the previous phase forecasts. The results are then compared to existing plans and discussed in detail concerning financial impact.

The pre-S&OP meeting seeks to show interconnectivity between supply, demand, product, and financial variables. The role of the S&OP process is to identify gaps in strategy and to table solutions to manage these concerns.

Actual numbers are compared to projections, and variances are identified and analyzed with an eye to keeping targets and budgets in line. Some considerations include actual revenue, profit margins, and inventory. Stakeholders look at these metrics from the executive level all the way down to production to ensure there is an accurate understanding of how decisions are affecting performance and the bottom line.

Adjustments to supply, demand, and product planning are made prior to tabling recommendations for the executive team.


Executive S&OP Meeting: Decisions

The executive meeting is the home stretch – the final phase of the S&OP process. Plans, forecasts, processes, and recommendations from the initial S&OP meeting are consolidated and reviewed.

Hypothetical scenarios, all the “what-if’s,” are reviewed and all associated risks are discussed. Decisions not made in any of the previous phases are brought to the table, and a decision timeline is established. The group will examine the reasons why certain decisions were not made, and definitive deadlines for final judgments are set.

As a result, a final S&OP plan is approved by the executive team and deployed to all operational departments.


The Importance of Executive Buy-In to the S&OP Process

Leadership engagement is the most significant driving force in a successful S&OP undertaking. Without direct involvement at the executive level, processes could stall or break down without adequate guidance towards a resolution.

If it is well-executed, the S&OP aligns all planning functions throughout the organization. However, conflicting opinions do arise, and often, operational managers will disagree on the best approach to take.

During the executive phase, recommendations are considered, and the best course of action is decided. Without oversight, these processes could stall out or even fail completely as operational management may attempt to find their own way of dealing with different viewpoints. If this is the case, the result is often poor performance, misaligned efforts, confusion, and lack of progress in general.


Assuring a Successful Sales and Operations Planning Process

Best practices in S&OP center on people, process, and practice.

Groups should be cross-functional, inviting as many perspectives as possible. Clarify roles and define accountability, and be sure that participants know how valuable their input is to the S&OP process.

Each step in the process must be clearly defined, but participants should understand that the process can always be improved. Timelines should be pre-established and facilitated by one key individual who is responsible for keeping the project moving towards its desired conclusion.

According to Kyle Brost, a leading strategist and founder of Choice Strategy Group, a successful S&OP requires a diverse group from across all departments in the organization. Without considering every viewpoint, your S&OP may be inadequate or poorly executed.

Additionally, strategic alignment to the goal is critical. There must be a strong connection between strategy and execution. Otherwise, you could miss the mark entirely.

Risk mitigation plans must be built into the S&OP. Foreseeing places where processes might break down will help you build strong defenses against any scenario. If and when challenges do arise, your organization won’t be caught off-guard. They will already know exactly what to do, and they’ll be ready to spring into action.


Wrapping Up: S&OP Takeaways

In conclusion, sales and operations planning is a practical approach to streamline production, maximize profitability, and help organizations align operations to reach their strategic goals. With consensus and oversight resonating from the executive team, the entire organization becomes focused on the things that matter, which is, ultimately, making the most of opportunity while minimizing barriers to success.

If you would like to learn more about strategic software solutions to support your S&OP process, we’d love to talk about it. Reach out today.

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