Sales and Operation Planning (S&OP) is perhaps one of the most commonly used processs in many organizations but also commonly ill-formed with its own enterprise mutations that ended up not delivering the goods.
A good Sales and Operations Planning (S&OP) Process thrives on collaboration & honest communication between key organizational players. If conceived correctly and implemented properly, the organization stands to gain immensely.
Here are the top five reasons why Sales and Operations Planning is essential to every commercial organization that strives to keep its customers happy and win market share.
1. Increase customer service levels - S&OP thrives on a good demand plan and proper supply response. We eliminate the product supply issues with planning and collaboration – customer service issues are identified as the number one issue by most commercial teams that strive to satisfy customer needs and increase sales. Higher Customer service also results in improved sales, brand loyalty and customer retention.
Improving customer service requires greater demand visibility, better supply planning and good execution. So Demand Planning is a pre-requisite for implementing S&OP.
2. Improved Integration with Various Functions - One of the key benefits of S&OP is better integration between corporate functional groups. Once top-level collaboration between functional areas has been established, it can be translated into comprehensive plans that adhere to top-level agreements. As a result, there is a set of shared objectives, increased communication, and transparent processes. You can say this is a benefit, but this is also a requirement. S&OP forces the organization to increase functional coloration and instills the discipline of processes that are cross-functional.
3. Increase Profitability - S&OP is a long-term planning process and the focus is on the next eighteen months to three years rather than the next four weeks. By focusing long, we are pro-active rather than re-active. A structured S&OP process will optimize the various functional processes and can eliminate wasteful reactionary activities in the supply chain. S&OP procedures serve as the foundation for these objectives, allowing businesses to connect data streams for better financial forecasting.
4. Optimize Working Capital and Generate Free Cash Flow - S&OP helps you to address the demand supply imbalance pro-actively. Before problems become crisis, they are addressed in a methodical fashion with quantitative and qualitative analysis. This helps reduce unnecessary inventory and offer the right credit terms to the customers who are happier with better service levels and product quality. Obsolescence is eliminated and costs-to-serve can be optimized. The ability to generate free cash flow through improved service and reduced inventory levels and better use of capacity is one of the key reasons for the popularity of S&OP.
5. Facilitate Corporate Planning – This is perhaps the top reason to invest in S&OP. The C-level managers are able to make better decisions through a bottom-up process that incorporates both demand and supply elements in the decision process. Strategic Planning, Financial planning and Tactical planning are all connected seamlessly. Key to a successful S&OP is to connect the operational plan to the Financial plan and understand risks and opportunities to the Corporate plan.
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Last but not the least, businesses that want to have successful S&OP processes need a good analytics platform that can connect aggregate planning information down to the details so proper what if questions can be answered and decisions be made promptly.