Sales and operations planning (S&OP) is one of the most critical processes you can implement into your business. If you haven’t heard of it, or weren’t sure what it entailed then this post will help you understand what it is, who's using it, why it's important, and how you can use it to improve your business.


S&OP is an intricate process to align the entire business. It ensures you can meet the needs of your customer in the most profitable way.


If it sounds overwhelming, don’t worry. We’re going to break it down into 5 critical steps.


1. Generate historical data

If you don’t have it, it's best to figure out a way to make it. Let's say for example you haven’t always tracked inventory levels. 


Because sales are so dependent on what product you have to sell, you can’t fully understand history unless you include this metric. 


So how do you figure out details you’re missing?

The answer isn’t always straightforward. But just know that there are creative ways to get information you otherwise thought you didn’t have. For instance if you’re lacking history on inventory levels, you could always trace back your POs and tie them to revenue data to know what inventory could have been owned previously. It's not perfect, but it's a start. Remember, in absence of data, utilize creativity.


You should also try to understand qualitative history. Ask yourself:

  • What happened in the business?
  • What marketing initiatives were in place? 
  • Were any of them new or repeated?
  • What products were introduced?
  • What was going on with the supply chain?


These are all important things that should be documented in a business. If you’re just starting out, you don’t need to be perfect. You just need to begin and when the time is right you can put a better system in place.


Once you’ve had a chance to look back, you’re ready for the next step. You might have guessed it - it’s to look forward


2. Create a PLAN for DEMAND

Know that this is a collaborative process with input from stakeholders across multiple areas.

You’ll need to know what the current and future product assortment is (inclusive of prices, costs, and constraints). You should also know what you’re capable of from a production standpoint.

Does the business have any thoughts on marketing, new sales channels, strategy, partnerships, regional expansion and more? If so, you should consider it.


Rember, it's okay if you don’t have these details. This is also a part of the process. You just have to start putting it in place.


So create a plan for demand. Ask yourself:

  • What does the customer want?
  • What does profitability demand?
  • How much revenue and margin do you need to bring in in order to exceed your goals? 


You should always have a plan in place for meeting a stretch goal. Some businesses consider this as “scenario planning”. It’ll help you in having a sense of good, better, and best.


3. Consolidation

Of course once you have a plan, you’re going to want to share that plan. Review it. Check it once. And check it again.


Eventually, you and your colleagues will land on a version that makes sense for everyone.


4. Execute

You’re going to want to have a plan for execution. That’s where we dive further into each area of the business. Does each respective contributor of this plan have a roadmap in place for how they’re going to get there? If not, you better start putting one in place.


If you’re thinking this is a lot of processes and plans and roadmaps then you’re most likely in a position where there isn’t a designated person to do this. Keep reading, we’re getting there.


Before we do let’s wrap this up and talk about the LAST step of the S&OP process which is…


5. Review


A plan’s purpose is to serve as a destination - one that you may or may not get to. But you’ll only know and can only be successful if you consciously check in to see where you are.


This review should happen ideally every 1-3 months but at the minimum every 6 months. If you’re just starting out, you might be spending your time on setting yourself up to have a successful S&OP process. Don’t worry if it's a work in progress. It’s better to start now than never.


Do it as often as you can for what makes sense for your business and eventually, once the momentum is there you’ll get to that monthly review cadence.


So now that you understand what S&OP is (a critical process to ensure the quantifiable success of a business) the next step is to understand who it's for.


The short answer is - it's for everyone.


Leaders in your business from Supply Chain, Operations, Finance, Marketing, Sales and Product should be involved in this process.


Oftentimes starting out you may not have the need to put this in place. But if you plan to grow your team in the near future, then you should start putting this process in place TODAY.


Some people may try to designate a project manager to integrate this into the business.

And while that may work, in order for this process to be successful you still need someone who can be the final decision maker and hold people accountable. This person should be the CEO or otherwise designated business leader.


This might seem unnecessary if you’re a small team but trust that even the simplest version of this process is better to have than nothing at all. And if you want to be a leaner, meaner fighting machine then you’re definitely going to need it.


So we’ve covered both what S&OP is and who’s involved.


You may have guessed by now why it's important but let's dive into a few examples to really drive this point home. 


Let's say a big department store approaches you because you’re new and trendy. They want to feature your brand in their store. You’re going to want to know if that’s an initiative you can support. Ask yourself:


  • Do you have the inventory?
  • Does it make sense given your current priorities?
  • What if your factory just got shut down because of COVID?
  • What risk does that pose to your overall profitability as a business?


In order to answer these and similar questions in the best way possible - you’re going to need an S&OP process.


So where do you begin?


For starters, you should put the onus on the respective team leaders to put processes in place in order to help them create a plan and gather historical data overtime. This might take a while given the priorities of their role and team but make sure you stay adamant about the timeline you’re working towards. 


Give them a minimum of 1 month and know that anything over 6 months is too long to wait. 


Once you feel confident in your team's ability to work on Step One & Two (looking back and looking forward) then figure out the right format and ways to collaborate. 


At the end of the day, each stakeholder might come to the table with their own team’s interest in mind. It’s up to you as the business leader to encourage thinking on behalf of the best interests of the organization. Put the pressure on them to understand what’s best for the business so they can align their north star with yours. After all, with alignment, all things are possible.


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