The sales and operations planning process is absolutely crucial for modern business success, and ideally makes up a fundamental part of a larger, organic integrated business planning strategy. Before we elaborate in detail the specific steps of an effective monthly S&OP process, let’s briefly review the main goals and benefits that make sales and operations planning so important.

What are the actual goals of the S&OP process?

1. Make the business strategy happen: The first and most important goal of an effective sales and operations planning process is to deliver actual, real business results by acting in accordance with the overall business strategy. The S&OP process helps ensure that plans and strategies stay aligned with innovation, disruptions, anomalies, and existing processes in an effective way to help the business strategy move forward.
2. Ensure cross-functional team alignment: Effective S&OP facilitates alignment across all teams and key players within teams. All team members are informed of the strategy and work together to make sure any lower-level group priorities also align with the overall plan.
3. Create and maintain plans that are realistic and achievable: Monthly S&OP meetings provide a dose of reality for overenthusiastic (or underachieving) group members, helping align goals and plans with what is actually possible.
4. Keep daily, weekly, and monthly execution in sync with planning: The continual review and adaptation process built into the S&OP cadence gives teams multiple opportunities to make sure that their actions are aligning with the long-term and monthly business plans. Things can change rapidly based on market conditions, supply chain disruptions, and financial changes, so it’s important to regularly sync the doing with the planning.
5. Identify gaps and develop ways to close them: The various entities involved in S&OP have multiple opportunities to spot areas that need attention, whether they be in sales, sourcing, production, marketing, planning, or operations, and can use cross-company ideas and resources to develop ways of filling any needs.
6. Create “what-if” contingency plans based on probability analysis: The more experience and data you can leverage, the better, and effective S&OP processes will account for potential and probable events that need to be addressed. During the monthly meetings that make up S&OP, leaders can develop strategies to deal with theoretical disruptions, surpluses, stockouts, labor issues, logistics problems, and anything else relevant to the industry in question. Consistent and thoughtful planning will help management determine how much time and company resources should be allotted to maintain these contingency plans based on their likelihood.
7. Provide a foundation for accountability: When a clear business strategy is regularly stated and reviewed, and the weekly and monthly tasks necessary for reaching business goals are elaborated and delegated, stakeholders can be held accountable and better motivated to succeed.
8. Facilitate rapid decision-making and enable flexibility: Regular review and planning meetings help foster a business culture where decisions can be made quickly, and any changes to the plan can be implemented rapidly and effectively. At any step along the S&OP process, changes, disruptions, updates, or strategy revisions can be brought to light and appropriate actions taken.

Benefits of S&OP: The key decision-making venue for achieving a business strategy and delivering financial objectives

Following along with the goals of S&OP elaborated above, the benefits of an effective S&OP process include:

• Keeps daily execution in sync with the business strategy
• Brings alignment and transparency between functions
• Provides a foundation for accountability
• Drives trust and accuracy in the numbers
• Enables visibility into and closing of gaps
• Drives clarity in probability and risk analysis
• Enables rapid decision making and ability to manage change
• Delivers real results

What are the specific steps in an effective S&OP process?

Now that we’ve gone over the benefits and goals of the S&OP process, it’s time to elaborate each step. Some companies may vary the order in which these steps occur, or at least how they are presented to team members, but in general, the following steps will always be included and the way they are organized below makes the most logical sense for nearly all businesses wishing to engage in productive S&OP.

Innovation review

The innovation review ideally happens during week 4 of the previous month’s S&OP cycle, after the executive review (S&OP) meeting, which we’ll discuss below. The innovation review needs to occur before the demand review and supply review meetings. The innovation review can either be a formalized meeting between team leads and key players in sales, marketing, and planning, or it can be accomplished via an email or workplace communications platform/productivity management system.

The key elements of the innovation review portion of S&OP are identifying any significant new product changes and voicing concerns that are related to these innovations. Both sales and marketing assumptions must be clearly identified in preparation for the next step. Team leads and members should confirm that they are aligned on assumptions, new plans, and recommendations before the demand review meeting (typically the following week). Data gathering and analysis is constantly occurring throughout the S&OP process, but is likely most concentrated during this week as well, in preparation for the demand and supply review meetings that follow.

Demand review and planning meeting

Building on the innovation review and the sales and marketing assumptions identified and elaborated as a result, the demand review/planning meeting is the next step in the S&OP process. We’ll call it week 1. Demand review and planning is foundational to S&OP, but again, it also requires significant preparation and data analysis before it can effectively take place.

The demand review and planning meeting should include identifying any significant demand changes and concerns, so that the demand team and cross-team players can be aligned on assumptions, new plans, and recommendations. The demand review should include analyzing all factors influencing product demand and preparing a statistical demand forecast for the next period. The resolution or granularity of this forecast can be modified as the executive team and the demand planning team see fit, but typically a good cadence is to prepare for any steps necessary over the next month (until the next S&OP meeting), with longer-term continuing plans also reviewed and extended out to the next 12 to 18 months. The meeting attendees should review previously predicted demand, comparing the forecast to actual data obtained over the last month. Any gaps or discrepancies should be accounted for, the most likely reasons identified, and any necessary adjustments made. Demand trends based on previous year-to-year or seasonal data should also be part of the discussion.

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This review and planning process should identify and prioritize any consumer/sales trends, new product launches, marketing initiatives, internal and/or external part/component demand, relevant observations on chief competitors’ actions, and any socio-economic influences or other current disruptive forces in order to inform all members on any factors that may impact demand over the coming period.

Supply review and planning meeting

The next step in the monthly S&OP process is the supply review/planning meeting, typically occurring during week 2 of the cycle, after any insights gained during the previous steps have been accounted for and plans adjusted if necessary. Similarly to the demand review, the supply review and planning meeting focuses on identifying any and all supply constraints and concerns, and facilitates supply team and cross-company teams’ alignment on assumptions, new plans, and recommendations relating to supply issues.

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In this step of the process, supply team members should review, update, and modify the previous supply plan based on observations of market conditions and/or demand review/planning meeting recommendations. An effective review should include details of successes and problems with on-time deliverables, customer service, product returns, resource use, inventory issues, and shortages/surpluses that have cropped up since the previous S&OP cycle. Any known causes should be identified if possible, and relevant changes made. The team should highlight any changes in production costs, seasonal influences, or relevant national/worldwide trends that have impacted supply (or that may impact it during the next month). The supply review/planning meeting should deliver a detailed supply and inventory forecast for the next cycle, with extended strategy and forecast information out to 12, 18, or even 36 months where possible.

Financial review

Sometime after the supply review/planning meeting, either during week 2 or early week 3 of our monthly S&OP cycle, a financial review is required. Like the innovation review, the financial review doesn’t necessarily need to be an in-person or virtual meeting of all players, but a defined process during which the financial impact of any revised plans and recommendations made during the first portions of the cycle are identified. In addition to the financial impact of changes to demand and supply plans, the financial review period should include any other relevant data such as profit margins, changes to production costs or product pricing, holding/storage cost adjustments, and any changes to applicable transportation/shipping costs.This is all vital information necessary for moving to the pre-S&OP and executive/S&OP meetings that follow.

Pre-S&OP meeting (also called review and reconciliation)

In order to ensure alignment between teams and facilitate efficient decision-making in the executive S&OP meeting to follow, sometime during week 3 the relevant leaders and team members should hold a final review and reconciliation or “pre-S&OP” meeting, where they will develop and prioritize the agenda for the executive S&OP meeting. During this step, team leaders and decision-makers from every applicable area of the organization meet to review the demand and supply plans/forecasts, discuss any financial impacts, and suggest modifications to any plans for operations, marketing, sales, shipping/delivery, and all other aspects of the product cycle based on the available data.

Final decisions are not made at this point, but ideally, all team leaders will be able to reach a consensus on the proper ways to proceed. This meeting should result in specific suggestions and recommendations for company leadership regarding any necessary changes to the existing strategies, in order to better meet demand while addressing any supply issues. All recommendations should naturally be tempered against the overall business strategy. Specifically, the following should be determined, reviewed, and prepared for presentation:

• Objectives: These will be expressed in words. (Where are we going? Describe desired direction—increase revenue, decrease inventory, maintain quality, reduce expenses, etc.)
• Goals: These will be expressed in numbers. (How far? How fast? Goals should be specific and measurable—revenue up by 5%, excess inventory down by 10%, expenses cut by 7%, etc.) Goals are often associated with their appropriate key performance indicator (KPI)
• Strategies: These are also expressed in words. (How will we get there? Describe how we will achieve the objectives and goals—enter the Latin America market, special marketing initiatives, etc.)
• Measures: Measures are expressed in numbers. (How will we measure performance? Which KPIs? What’s the method of calculation? Which time horizons: Prior year, year-to-date, quarters, next 3 months, next year, last week, etc.?)
  
  • Business measures: Revenue, profit, volume, working capital, etc.
  • Process measures: Forecast accuracy, schedule attainment, etc.
• Tolerances: These are also expressed in numbers. (How much variation can we accept? Revenue can be 20% over the goal, but only 1% under the goal in a given time period, etc.)
  
  • By KPI – Describes the acceptable range of variation versus the target
  • Provides clarity and decision space as to when further analysis is required

Executive review (S&OP) meeting

Week 4 brings us to where the rubber meets the road: the executive review meeting (or the S&OP meeting). Here all key team leads present their recommendations for the upcoming month (and also out to 12 to 18 months for extended objectives). The executive team reviews all recommendations, plans, forecasts, goals, strategies, measures, and tolerances, weighs any financial considerations relevant to the overall business strategy, and makes any vital decisions on how to proceed that haven’t been able to be made in the previous steps of S&OP. If recommended courses of action need to be modified or vetoed based on higher-up business-level concerns or information, revisions or suggestions can be made at this time.

If decisions or action strategies can’t be fully finalized at this point due to insufficient information, situations in flux, or other factors, the attendees will set specific and attainable decision deadlines and set measures/KPIs to follow up in a timely manner.

After addressing any relevant issues and making necessary revisions to the consensus plan, the executive team will release the finalized sales and operations plan for implementation by the various departments and teams, in whatever format the company sees fit.

Keys to a successful S&OP project or process

It’s worth elaborating the areas of focus that contribute to the most successful S&OP processes. These include, but may not be limited to:

1. Leadership recognition that there is a correlation between results and maturity: the best businesses establish an environment of consistent investment in education, assessment, and process improvement.
2. Strong tie between corporate strategies and the S&OP process: The key here is to maintain a Business Result focus vs. a Supply Chain focus. All aspects of the process are designed to follow and deliver the overarching business plan.
3. Proven criteria to guide implementation: Clearly written “best practice” statements are organized and distributed to guide the implementation of all S&OP plans and processes. Progress is consistently, fairly, and openly monitored.
4. Accurate and accessible data: Timely, efficient, and accurate access to demand, production, inventory, and financial data is absolutely vital, both to historical analysis and all projections/forecasting.
5. Strong demand and supply managers/leadership: These key positions must be filled by effective communicators possessing technical and statistical skill, and backed by relevant experience. This engenders respect and improves team member compliance and performance.
6. Robust analytics and reporting: Along with accurate data, the analytics and reporting process and tools should be top-tier. When reporting and analytics resources are purpose built, enabling cross-functional alignment and timely, efficient access, collaboration is encouraged and accuracy is enhanced.
7. Effective “end-to-end” planning process and tools: A broad view of the planning process has the goal to deliver valid, unbiased plans at the Innovation, Demand, Supply, and Finance steps of S&OP, which becomes more efficient and effective as a result.
8. Rigorous monthly review process: It’s sometimes easy to put off key decisions or KPIs when facing difficult challenges or when unencumbered by deadlines. Effective S&OP requires adherence to the schedule and process. When the right participants are committed to “what-if analysis” or decision-making meetings, the business strategy becomes more attainable.
9. Proven implementation approach: A properly resourced S&OP process should be prioritized. Goals should be attainable but timetables should be kept aggressive to foster excellence and accountability. Success is tied to results, and leadership should be involved at every step.

Specialized S&OP software can improve planning and implementation

One of the benefits of efficient S&OP is that it can reduce or eliminate tedious “paperwork” and spreadsheet analysis as teams and leaders streamline data reporting, analysis, forecasting, and sharing. It stands to reason that any well-thought-out software tool that reduces inefficiencies and helps facilitate rapid, accurate planning and forecasting can be of benefit to the modern S&OP process, particularly if it is optimized for a particular industry (where applicable).

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At ORI, we’ve blended 30 years of high-impact S&OP consulting experience with best-in-class data management and proprietary AI-powered software to enable S&OP excellence. Reach out via our Contact page if you’d like a free demo.

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