An orchestra missing a conductor sounds like a train wreck. And a business without proper Sales and Operations Planning (S&OP) sounds like panic and surprise. S&OP is a critical process for every company, no matter how much of the supply chain is involved. In this article, we’ll discuss how S&OP replaces educated guessing with air-tight efficiency and profitability and fosters a company-wide shift from intuition-based to data-driven decision-making. We’ll also explore what the latest technology advances like AI and ML (Machine Learning) mean for S&OP software.
What is Sales and Operations Planning (S&OP)?
S&OP solves the fundamental concern of every company: making more money. By engaging all stakeholders in this cross-department process, companies make the best use of time and resources to drive better decision-making while getting greater visibility into their supply chain.
Companies engage S&OP to:
- Maximize revenue and minimize cost
- Improve ability to meet demand
- Elevate inventory management, forecasting, and production planning
- Anticipate and adjust changes in demand
The Sales and Operations Planning process explained
The S&OP process follows a structured cycle that consists of some key steps. Each step involves different stakeholders and gradually refines the plan until it perfectly aligns with strategic goals. In the steps below, we’ll imagine how a consumer goods company, such as one that makes video games and consoles might approach the launch of a new gaming console (2.0) while managing the existing one (1.0). Here’s how the S&OP steps might unfold with some context:
Step 1: Gather data
Collect all of the relevant data from the various parts of your company. Think historical sales data, current inventory levels, forecasts, financial reports, and any other relevant metrics. This will form the foundation for planning. For example, the video game company would collect data on the current sales of the 1.0 console, inventory levels, historical launches, competitor analysis, and market trends.
Step 2: Demand review
Focus on creating detailed demand forecasts and using the data gathered to predict future sales. The demand plan will outline expected customer demand for products and services in the coming months.
At this stage, the video game company would evaluate potential market demand for both the 1.0 console and the upcoming 2.0 console. This includes considering the timing of the new launch, anticipated consumer interest, and the lifecycle of the 1.0 console.
It forecasts how much product the video game company expects to sell in the next year and how they plan to phase out the 1.0 while maximizing revenue until the 2.0 takes over.
Step 3: Supply review
Develop a supply plan to meet that demand. Assess production capacity, schedule production activities, and plan materials to ensure your organization can meet forecasted demand efficiently without excess inventory.
Consider all viable scenarios and choose the option that aligns with overall business objectives. For example, the video game company would now plan how to manufacture each product. Decisions include determining which of the company’s factories will produce the 1.0 console and which will switch to the 2.0 console, assessing whether new production lines need to be set up, and how to manage logistics and distribution for both products efficiently.
Step 4: S&OP meetings
Gather mid-level managers from various departments (sales, marketing, production, procurement, etc.) to discuss draft plans to identify gaps, conflicts, or risks and discover solutions.
This step is crucial for aligning various departmental strategies and preparing a unified plan for executive approval. Then, stakeholders review holistically to assess the proposed plans, make strategic decisions, and allocate resources, ensuring that the plan aligns with all business objectives.
Step 5: Implementation
Here’s where the agreed-upon plans are implemented. Execute production schedules, marketing and sales plans, procurement, and any other operational activities. For our example with the video game company, this would include the phased production scheduling of both consoles, managing inventory levels, and executing marketing campaigns to support both product transitions.
Step 6: Monitoring and control
Monitor implementation against the forecasts and the actual outcomes. This involves tracking performance, analyzing deviations, and assessing the effectiveness of the S&OP process. Insights gained from this phase are used to refine future S&OP cycles.
Common problems S&OP seeks to solve
Have you ever experienced the frustration of getting approval from one team, only to have a meeting with a different department result in changes that make the first approval pointless?
Cue a collective sigh.
In operations, you don’t just need the sign-off from the logistics team. You also need the A-OK from sales and marketing, a tip of the hat from the finance team, the thumbs up from procurement, and the seal of approval from stakeholders. S&OP solves this by involving all teams, plus more:
- Balancing supply and demand: S&OP helps businesses forecast demand more accurately and adjust their supply chains accordingly to match customer demand.
- Optimizing inventory levels: It enables having the right amount of product available at the right time by optimizing inventory levels, improving demand forecasting, and coordinating production plans.
- Cross-functional alignment and collaboration: S&OP brings together stakeholders from various departments to facilitate a single operational plan, preventing silos and miscommunication which often derails operational efficiency.
- Improving forecast accuracy: Lower inventory levels mean reduced storage costs, less capital tied up in unsold goods, and decreased risk of obsolescence. Better alignment and collaboration reduce wasteful practices and inefficiencies, further cutting costs.
The benefits of efficient S&OP processes for your business
The S&OP process brings together all the strategies for the business to align business goal plans with future scenarios. With better alignment and forecasting abilities, businesses can achieve some serious benefits:
- Quicker modifications and refinements from precise data
- Enhance resource utilization, decrease wasteful spending, and increase productivity
- Break down departmental barriers to improve efficiency
- Enhance customer satisfaction through improved management of inventory
- Straightforward solutions to internal and external obstacles
- Leverage impartial data to set realistic and attainable Key Performance Indicators (KPIs)
S&OP success stories with Coupa
S&OP solutions like Coupa provide the necessary guardrails during the decision-making process. The tools on Coupa’s platform unify data sources, automate traditionally manual S&OP tasks, and align departments through a single operational truth source. Coupa plays in the executive layer of looking at your long-term roadmap with an in-depth level of insight and technology for S&OP. Let’s look at how onsemi integrated data across 25 global factories into one platform and smartened up their supply chain decisions.
Onsemi faced several challenges due to low data visibility across its global factories, which hampered efficient planning for the production capacity of its four business units. Site-level engineers were overly occupied with building and running supply chain models, diverting their focus from enhancing factory efficiencies.
The sales team struggled with order decisions, frequently needing input from the supply chain team and industrial engineers. To address these issues, onsemi integrated machine- and tool-level constraint data from multiple factories into a single Coupa platform, standardizing and scaling the S&OP process.
This integration reduced the need for site-level engineer involvement, resulting in a 10–15% increase in capital efficiency. Coupa’s APIs now automatically update a reporting repository, significantly speeding up decision-making processes by 85%, which allows onsemi employees to make quicker, more informed decisions.
Challenges in implementing S&OP
Companies that go it alone with S&OP face the challenge of misalignment among different functional groups within a company.
This misalignment makes it challenging to unify these diverse objectives toward the overarching success of the company. This allows executives to make more informed decisions by understanding the interconnections and impacts of each choice across the company. Common challenges companies face when implementing S&OP without the right technology include:
- Data integration and quality issues
- Cross-departmental communication barriers
- Adapting to rapidly changing market conditions
- Scaling S&OP processes for growth
Trends in S&OP software and technology
Artificial intelligence (AI) and machine learning (ML) are shaping virtually all technology solutions, including S&OP. By enhancing the software’s capability to provide more accurate and granular forecasting, which is crucial for predicting demand, companies can adjust to market changes and optimize inventory levels. Additionally, modern S&OP software offers improved integration with other business systems such as ERP, CRM, and SCM, promoting seamless data flow and real-time information sharing.
AI is also revolutionizing scenario planning within S&OP by enabling companies to simulate various supply chain scenarios and assess their potential impacts. This predictive capability supports informed decision-making and risk management. Cloud-based S&OP solutions enhance collaborative efforts across geographic and functional boundaries by allowing stakeholders to access consistent data and insights, fostering collective decision-making. There’s also an increasing focus on sustainability within S&OP software, with features designed to manage environmental impacts and ensure compliance with regulations.
Additionally, developers are making these platforms more user-friendly and customizable, broadening accessibility across the organization and reducing the need for specialized training, thereby promoting broader and more effective participation in the S&OP process.
How Coupa is shaping the future of S&OP
Coupa’s S&OP software allows you to model various business scenarios using some of the best algorithms available today, offering a solution that’s akin to having a crystal ball – but better! This capability, known as prescriptive analytics, not only predicts future trends and outcomes but also recommends the best courses of action based on those forecasts. With Coupa, you gain the ability to foresee and strategically navigate future business landscapes, ensuring optimal decision-making and resource allocation.
Coupa’s scenario planning also stands out as a critical software solution for utilizing AI and algorithmic decision-making. Its framework promotes a more collaborative and efficient S&OP process, which fosters crucial alignment to achieve company-wide business objectives — whether those are profitability, sustainability, or philanthropy. Coupa’s cutting-edge technology, powered by advanced analytics and scenario planning, ensures that businesses are not only prepared for the future but are also miles ahead of the competition.
Finding the right S&OP provider
S&OP is much more than a supply chain process, rather a strategic framework that aligns a company’s operational plans with its broader corporate goals. It’s no surprise that half the battle is selecting the right S&OP provider.
As businesses navigate the complexities of S&OP, Coupa stands as a vital partner in driving strategic outcomes through precision and foresight.
