Sales Performance Management
    S&OP Planning: (inside) there is also Operations Planning

    I often feel that the definition of a S&OP (sales and operations planning) process appears to be a bit too skewed toward the initial phase: sales planning.

    As you go down the organizational chain (outbound logistics, demand plan, warehouse plan, production plan, purchasing plan, inbound logistics, …) it seems that the process loses pieces, the stakeholders involved are less important or the IT tools dedicated to them are essentially unstructured (Excel sheets or tools are not integrated with the upstream process).

    It is undeniable that sales is one of the main drivers (if not the main engine) of many business organizations and that proper rolling planning of sales is critical, but how much efficiency does the company lose in not properly integrating the subsequent functions as well?

    S&OP Planning: the imbalance between Sales Planning and Operations Planning

    I remember a lot of RFQs/RFPs related to software selection in the S&OP area, where the requirements dedicated to the sales planning area and, only in some cases, to demand allocation, were very articulate.

    But when it comes down to production planning, purchase planning or logistics planning, some indispensable topics seem to be missing.

    Starting with the functions involved in an S&OP process, let’s figure out what features you should not underestimate:

    • Sales: plans to quantity and value, but also uses the system as part of the control process in the day-by-day, evaluating backlog, shipped, and ordered in the month;
    • Operations: plans to quantity and uses the system in the day-by-day as part of the line scheduling and planning process;
    • Purchase: plans value-based purchases. He is an actor but usually does not use the tool in the day-by-day. He is only a contributor;
    • Management control: plans processing costs that will allow the cost of sales to be assessed. Usually once a month. Guides and coordinates the other functions involved.

    But MRP (material requirement planning), where do you leave it?

    If you think you are structuring an S&OP process by leaving the MRP on your ERP perhaps you are doing something wrong. 

    ERP and planning are not really two things that go well together. Whenever sales are changed to quantity (and in a sales and operations planning model it should happen fairly frequently) you are forced to go back and forth to and from ERP. In some cases, the logistics, production and purchasing departments have to work with fly sheets to update their planning.

    And what can happen if marketing additionally decides to create a new product? Where is the BOM (Bill of Materials)?

    The software solution you are looking for should allow for the execution of an MRP that also allows flexible management of new products, perhaps employing BOMs of similar existing products as a baseline. Otherwise, you risk plastering a considerable portion of the S&OP process.

    What about cost of sales?

    There are those who think that cost of sales, being a finance indicator, is not an integral part of an S&OP process. If profitability analysis by customer/product is performed only at institutional moments (annual budget or quarterly forecast) and perhaps applying a standardized cost of sales calculation, there is a very high risk of arriving at the end of the year and realizing that the marginality of a product is much lower than originally assumed or missing the opportunity to push a product with a very high marginality. 

    This can be caused by various factors, such as:

    • Changes during the year in the purchase cost of raw materials
    • Exchange rate effect on the purchased
    • Inefficiencies or unplannable variations on the cost of production
    • Variations on the cost of transportation (Brexit!).

    At this point it is fair to ask, “How much faster could the company act if the finance indicators were aligned with the more operational ones? How many more opportunities could be seized?”

    The software solution you are looking for should not be purely operations but should also have a finance soul.

    Eventually comes the application workflow as well

    A sales and operations planning process that is not integrated into a single solution, therefore, not only requires an interfacing superstructure between the various systems adopted, but also introduces a risk of data inconsistency. How often does it happen that the sales department makes a change to the sales plan without production being aware of it and therefore being able to update its planning?

    An integrated solution requires the definition of a well-structured end-to-end workflow. The process workflow must be translated into an application workflow. Never more than in this area it is necessary to have a software solution that can guide the many different responsibilities involved, ensuring the correct sequence of execution and dependency of activities and keeping the users involved constantly informed. So that they are updated as soon as an upstream change is applied that also impacts a different downstream responsibility.

    In fact, the workflow should not be a simple list of tasks to be executed. The workflow should give assurance of the consistency of the data at the various stages of the S&OP process, introducing approval and freeze logics for the measures managed by the various planning responsibilities.


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