Sales and operations planning (S&OP): How to stop managing in crisis mode

Many business owners constantly shift between two uncomfortable situations: financial strain when working capital is tight, and operational strain when teams are overwhelmed by last-minute orders. The result? You are always putting out fires and managing in panic mode. 

Consider a company that makes ready-to-eat meals. After investing in a new automated production line, it increases its production capacity from 100 to 1,000 units a day. But revenue does not catch up right away. Fixed costs are higher, margins are thin and working capital is under pressure. The company is now under financial strain.

Eventually, sales catch up with the new production capacity and the company regains some financial stability. But the pressure to deliver more takes a toll. Production teams become tired and demotivated, increasing the risk of mistakes. The strain has shifted from the financial side to operations. 

This is the reality for far too many business owners. When finances are under pressure, you push the sales team. As soon as sales pick up, you put pressure on operations. S&OP can help you break this vicious cycle. 

What is sales and operations planning (S&OP)? 

Sales and operations planning, commonly known as S&OP, is a structured process that balances supply and demand for your products and services while optimizing customer service and financial performance. 

In practical terms, it involves regular, ongoing communication between sales and operations, so the two groups do not work in silos. For example, when the sales team anticipates a major contract, the operations team confirms whether the business can produce and deliver the order by the requested date. 

S&OP is the backbone of your governance process. By opening communication channels between these two essential functions, you can make more reliable forecasts and reduce surprises and stress for your teams. 

S&OP is native to manufacturing, where sales, procurement, production and inventory must be continuously aligned to deliver the right products at the right time. But it is just as important in other sectors, including services. Even if your business does not carry inventory, you still need to plan because there is a limit to how many hours your teams can reasonably work. 

Key stages in a typical S&OP process

Stage 1: Data collection

Each department continuously collects relevant data through one-on-one meetings, weekly meetings or action plans.  This includes reviewing the previous plan and its results, then making any necessary adjustments.

Stage 2: Demand and supply planning

The sales and operations teams develop their plans in parallel, working independently at this stage.

2.1. Demand Planning

Sales team analyzes and collates data on the sales pipeline, prospects, targets and market trends. Procurement is also involved when strategic purchasing is required.

• How many contracts are in the pipeline?
• How many leads have our campaigns generated?
• How are we performing against our targets?

2.2. Supply Planning

The operations team works with finance, human resources and procurement to develop a production and delivery plan.

• What can we produce and deliver?
• Three employees are retiring. Will that create capacity issues?
• Our packaging line has broken down. Should we schedule a shutdown for maintenance?

Step 3: Plan alignment

The sales and operations teams share their respective plans to identify and resolve gaps and inconsistencies. A combined sales and operations plan is drawn up.

Step 4: Monthly planning meeting

Managers from the sales and operations teams meet to finalize the sales and operations plan. Representatives from finance and human resources also attend the meeting to anticipate the impact on budgets and teams.

• Is our plan realistic and achievable?
• Do we need to hire more people?
• Do we need additional financing?
• Should we give up a few margin points in the short term to avoid layoffs or win a strategic contract?

Step 5: Plan approval and distribution

The consolidated S&OP plan is presented to the management team or executive committee for decisions and approval. Finance finalizes the figures, and the approved plan is distributed for implementation.

Agenda for an S&OP meeting

The monthly S&OP meeting is a key part of the process. It corresponds to step 4 above.

A typical one-hour meeting should devote about 20% of the time to reviewing past performance and 80% to planning ahead. Many businesses already hold these meetings informally without realizing it. The key is to hold them regularly, ideally every month, and to follow a disciplined process.

Participants

• Sales and operations leaders
• Representatives from finance and human resources

Objectives

Align the sales and operations plans, resolve potential issues, and manage the financial and workforce implications for the business.

Topics to cover

Performance review (20% of the meeting)

• Sales: actual results compared with forecasts
• Production: actual output compared with forecasts
• Inventory: actual levels compared with forecasts
• Financial performance: revenue, margins and costs compared with budget
• Service levels and specific challenges 

Planning (80% of the meeting)

• Sales plan: forecasts by product/segment.
• Production plan: capacity, challenges and production schedule.
• Procurement plan: inventory targets, coverage and turnover.
• Launches: new products, promotions and end-of-life products.
• Market: trends, competition and external risks.
• Financial projections: revenue, margins and working capital needs
• Human resources: staffing needs, recruitment and training.
• Improvement plans: corrective actions and continuous improvement projects.
• Outstanding issues that require a decision from the management team or executive committee.

Benefits of a sales and operations planning exercise

• Meet deadlines. Better planning helps you identify obstacles, sequence work and deliver on time, thereby reducing delays.
• Reduce waste and costs. Aligning demand with capacity, minimize waste, overproduction, scrap and unforeseen expenses.
• Improve forecasting and more strategic management: With fewer fires to put out, you can spend more time to higher-value activities.
• Increase productivity. By working on the right projects at the right time, your teams will be more productive.
• Improve customer satisfaction.  Sales teams can target the right customers with the right offers, while operations teams deliver the right quantities on time. This builds customer trust and satisfaction.
• Stay aligned with your strategic plan: Because the process is repeated monthly, S&OP helps you adjust quickly while staying aligned with your strategic plan.

An analogy we often use with our clients: at the start of the year, the budget is like water – everything is fluid and uncertain; we’re working with forecasts.

Each monthly S&OP meeting helps you transform this water into slush and then into ice. Forecasts and commitments become firmer. Contracts and budgets take shape, and teams have more reliable information to work with.

S&OP is more than a planning tool. It also drives continuous improvement. It helps you look further ahead, better anticipate disruptions and put processes in place to improve your company’s profitability and resilience.

Next step

Are you looking to set up a S&OP process within your business? The Growth Driver Program might be just what you need. Please don’t hesitate to contact us to find out more.