Supply Chain Excellence: Series 3 – Sales & Operations Planning by Vishnu Rayapeddi

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;
8. An agreement needs to be reached at the Pre-S&OP meeting to work with one set of numbers. If the demand side or supply side do not agree, the plans need to be changed to ensure a full agreement among all;
9. Executive S&OP – Once an agreement is reached at the pre-S&OP meeting, a meeting is called for of the Executives of the business who need to sign off the plans;
10. At the month-end, a review & analysis of the important KPI’s (such as DIFOT, Forecast Accuracy, Inventory Holding, and Stock Write-offs) is conducted by the S&OP manager designate and circulated to all the functional leaders and the executive team.

The cycle continues ...

Positive results that companies have gained from S&OP include hard benefits, such as improved customer service and lower inventory and soft benefits, such as improved teamwork and better decision making.

This article is written by Vishnu Rayapeddi, a Lean Manufacturing & Supply Chain Operations Specialist, who works as a volunteer Executive Committee Member of NZPICS, the only Premier Channel Partner of APICS in New Zealand. NZPICS Offers the following courses in Supply Chain in affiliation with APICS: CPIM (Certified in Production & Inventory Management, CSCP (Certified Supply Chain Professional) and Principles of Operations Management, which is a fully customisable solution to businesses. For further information, please visit www.nzpics.org.nz or call on 09-525 1525.