10 Nov 2011

Sales and Operations Planning. A strategic process needed by every function...even finance

Daniel Paterson
TXT e-solutions

Sales and Operations Planning is an important process that can really make a large difference on how a company performs. 
But what is Sales and Operations Planning?
Often it is defined as a cross-functional planning process that reconciles conflicting business plans, links strategic planning and operational planning, and aligns company resources to deliver on a single company plan. While S&OP will usually involve sales, product management, manufacturing and the other supply chain functions, increasingly best in class companies are now involving their finance department.


S&OP is resurging as a focus area while companies specifically target increasing profits and being able to better predict risks. But in order for S&OP to be successful all parties are required to play their part and acknowledge their role in the process.

Stakeholder roles

  • Sales’ role is to provide an accurate as possible forecast on a product basis by customer/category; whilst they cannot be expected to provide a 100% accurate forecast their inputs and knowledge of the market are crucial for creating a forecast within an acceptable range.
  • Marketing will make plans to support and enhance the sales plan, with a number of activities and will, as part of the process, provide their best estimate on the level of uplift that will be generated.
  • Operations will attempt to find a suitable supply plan that balances demand and supply capabilities and raise issues and seek resolutions. Increasingly the dimension of profitability is being added to this balancing act and as such the operations’ job becomes more difficult: finding a supply plan that meets demand in a profitable way.
  • The role of Finance despite being perceived  as increasingly more critical is often not well defined. Analysts and companies agree that the FD or CFO do have a role to play in monetising the demand and supply plans to help draw attention to the bigger picture. The step of putting the demand and supply plans in the context of the overall company objectives, budgets and shareholder value is imperative to connecting operational activities to company performance.

With this in mind, it is fair to say that Finance’s role is a kind of glue that joins together supply and demand plans to control the business aspect of a Sales and Operations Planning process. CFOs will concern themselves with the outputs of the process in terms of revenues, costs and profits but it is however vital that this view be communicated back to the sales and marketing and supply chain teams to give visibility on the impact of the plan on company performance.


The steps to success and profitability

Before embarking on this journey however there are few questions to ask:

  • How is the S&OP output actually being used within the organisation?
  • Is it used by finance and really driving the financial reporting or there is a disconnect?
  • What are the metrics S&OP is actually tracking?

If a misalignment exists between S&OP metrics and the bottom line, then some opportunities are probably being missed. By doing investigate work on metrics and establishing a connection between operational and financial KPIs (working capital, cash-to-cash, margins) companies can really ascertain whether S&OP is enabling profitability or not.

In addition there are some steps CFO’s can take to strengthen their role and influence in an S&OP process.

1 – Ensure that the annual financial planning cycle is integral to the S&OP process and not separate altogether.

2 – Use the financial picture provided by the translation of the S&OP plan; this is to ensure finance contributes to the process for a unified view of the demand and supply plans. Sales typically look at the demand plan in terms of product, customers and by channel, whilst marketing focuses on brands and categories and supply teams on manufacturing constraints. Here finance’s role becomes one of communication and the creation of visibility on why decisions are made and their impact on the business.

3 – The third area in which finance can play a significant part is in driving the executive S&OP meeting. Now that the year’s financial budget and the S&OP plan are one and the same, the Executive S&OP meeting can take a closer look at the implications of the plans and take strategic decisions. With representatives from procurement, sales, supply chain, manufacturing and finance, the limitations highlighted by the S&OP plan can be overcome.

But to make any of this a reality, CFOs’ and finance directors must be prepared to take centre stage in process improvement and use S&OP as one of the drivers for their own financial and performance measurements.

With the right and appropriate technology, S&OP will connect the activities and resources of all functions and the company as a whole. This closer connection will also make it possible for them to anticipate and better respond to demand volatility. In summary, when S&OP forms an integral part of the overall performance management process and involves the CFO it will connect operations to financial objectives in ways that optimise organisational performance.

To learn more about S&OP, attend our webinar with Aberdeen

Sales & Operations Planning
Best Practices from the leaders and benchmarking for success
29 nov 2011, 16:00

Click here to register >>


For more information
TXT e-solutions
Daniel Paterson
Product Marketing Executive





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